Demand for protective coatings grows

European companies continue to expand the international sales of their protective products.

By Sean Milmo
European Correspondent

The buoyancy in protective coatings sales, which enabled European coatings companies to earn record high revenues in the sector last year is continuing into 2008.

The driving forces behind the growth is investment in energy facilities, particularly in oil and gas production and distribution and in wind turbines, and in infrastructure projects in Eastern Europe, like transportation and manufacturing plants.

In addition, new environmental legislation in the EU, especially that relating to the emission of VOCs like solvents, has prompted a move into added-value protective paints.

However, Western European coatings companies involved in the sector are likely to have to rely on global sales to keep up the momentum. In addition to needing quality products and an understanding of what customers want, “success in the highly competitive protective coatings market increasingly requires a global reach,” according to Martin Chew, divisional vice president for protective coatings at Norwegian-based Jotun.

A global operation in protective coatings, based on a combination of consistent product standards and technical service support, has to have, increasingly, a network of coatings plants across the world. Jotun opened in March its first manufacturing facility in India, which will help it to serve customers in South Asia and the Middle East.

This need for an international production and services capability has been a big impetus behind a surge of mergers and acquisitions in the protective coatings sector in Europe.

In the first quarter of this year, Akzo Nobel reported that the main growth impetus in its marine and protective coatings business was protective coatings which achieved a double-digit volume increase compared to the same quarter in 2007.

The protective coatings activity was also a star performer for the company last year, helping the marine and protective coatings business to raise its sales by 11% to €1.25 billion ($1.9 billion).

Jotun’s protective coatings sales soared by 40% last year. At Danish-based Hempel, protective sales rose by 30% last year, which was a similar increase to that in 2006.

For European companies one of the fastest growing of the protective coatings segments has been oil and gas not only in Western but also Eastern Europe.

“There is a continuing boom in construction of oil and gas facilities,” said John Dunk, worldwide marketing manager of the Interpon protective coatings activity at Akzo Nobel’s International Paint, marine and protective coatings business. “Oil and gas companies have been increasing their capital expenditure not only on offshore production but also onshore refining and gas operations.”

A big rise in building of oil and gas rigs production facilities globally in areas like the North Sea—as well as outside Europe—has helped boost sales of International Paints’ Chartek intumescent fire protection coatings.

In Russia the country’s expanding oil and gas sector has both bolstered demand for protective coatings and has been providing finance for infrastructure schemes, which also require protective coatings.

“Within the Russian energy sector, it’s not just oil and gas production which need coatings but also new pipelines,” explained Petri Jarvinen, director of business support and marketing at Tikkurila, the coatings division of Kemira of Finland. “The earnings from oil and gas is financing a huge amount of infrastructure development where the requirement is for low-cost but efficient coatings.”

European coatings producers also benefit from the enormous sums of money being poured into oil, gas and other energy projects in the Middle East.

They have been re-organizing their operations in order to target the mega-projects in the region related to the oil and gas industry, like offshore rigs and platforms and onshore power plants and refineries. Jotun’s protective coatings sales increased by 40% last year in the Middle East, against 30% in Europe.

The Norwegian company has set up an Offshore Concept Team, based in Singapore, to collect and analyse information on the offshore industry to help improve sales and marketing and customer management in the Middle East, as well as in Asia and elsewhere in the world.

One of Jotun’s biggest offshore customers is Seadrill, a Bermuda-based offshore contractor, which has 37 drilling units and 13 under construction around the world. Jotun’s global support for the drilling specialist supplements a deal which covers Seadrill’s offshore units in the North Sea.

In line with a policy of establishing itself as a single source of protective coatings for customers, Hempel last year reached a five-year agreement with Saudi Aramco, Saudi Arabia’s state-owned oil company with the world’s biggest crude oil reserves. The deal extends not just to the supply of coatings but also IT services, logistics, technical services and new product development.

The sort of environmental and safety standards which have been helping push protective coatings sales in the EU are being introduced in regions around Europe.

As a result there is likely to be a greater use of waterborne and high solid coatings based on epoxy and polyurethane resins both within and outside Europe. At the same time applications of solvent protective coatings could decrease.

“In Russia, for example, the biggest demand is for solvent protective coatings because they are cheaper and easier to use than waterborne but even there the use of solvent coatings will shrink,” said Jarvinen. “Waterborne coatings are popular in the Scandinavian protective market but elsewhere the trend seems generally to be towards high solids which are growing strongly in Western Europe as a whole and will gradually become more common in Eastern Europe as well.”

However, in Western Europe, in particular, tougher environmental standards than those required by EU legislation are becoming more prevalent. These are linked to safety and performance standards as well.

The Norway’s petroleum sector, for example, has a range of standards labelled Norsok which set thickness levels and numbers of coats while laying down specific test methods. The country has an inspection system covering corrosion protection and surface treatment standards, which is being extended to other parts of Scandinavia.

In the rapidly growing renewable energy market in Europe, standards are being laid down by wind turbine manufacturers which go well beyond regulatory limits.

Vestas of Denmark, the world’s leading supplier of wind power system, has drawn up a black list of chemicals which cannot be used in its turbines as it strives to ensure that its machines have completely environmentally friendly life cycles through to their recycling or disposal.

Latin America

Peru’s paint industry outstrips expectations

As Peru’s economy continues to show healthy growth, so too does the country’s paint and coatings industry.

By Charles W. Thurston
Latin American Correspondent

Peru’s paint and coatings industry is growing much faster than predicted at 20% this year, driven by a spike in construction sector demand and by the projected eight percent expansion of the overall economy. In February, aggregated paint industry manufacturing expanded by 47.9%, according to the Banco Central de Reserva Del Peru, in Lima.

Over the last few years, the $130 million Peruvian paint and coatings market, which produces approximately 14 million gallons per year, has grown between 15% and 20%, according to Erik Holmquist, commercial manager of Industrias Venecedor S.A., a Lima-based paint and coatings manufacturer.

New construction is moving almost as fast as the paint market it is driving. The construction sector grew 22.5% in February, reflecting the increase seen in the construction of homes, offices, commercial and industrial facilities, as well as the construction of mining and energy projects, the central bank reported recently. The jump in overall economic activity in February was the largest since 1995, according to the national statistics institute.

This construction boom should have positive effects on major players in the Peruvian paint market, including local manufacturers like Vencedor, which holds a professed 30% share of the market, as well as global leaders with a strong presence, like Sherwin-Williams. The demand, which is being led by the architectural segment, also should help raise the Peruvian per capita paint consumption, which is now only 0.3 gallons per year. Thus far, inflation control is roughly on track to meet the Central Bank’s goal of two percent in 2008, so price increases should not dampen new demand.

“This year the architectural segment is growing at approximately 30%,” said Simon Tavara, export manager for Vencedor, in Lima. Vencedor, which has been in the industry for more than 60 years, is now majority owned by Chile’s Tricolor. Vencedor produces latex-based paints, enamels, lacquer and varnishes, and anti-corrosives in liquid and/or powder formulations. The company operates a retail store network, Colorcentro, which features a color mixing system, Sistema Tintometrico Galaxy. The company also has warehouses in Trujillo, Piura, Talara and Arequipa. It exports its products to the Andean region, Central America and South America; within its home region, Bolivia, Chile, Ecuador and Venezuela are key buyers.

Among recent product launches, Vencedor is now offering Vencesatín, a premium latex in a satin finish; the company markets its products as “Class A.” The company also has begun offering its Supermate, Vencelátex, Rocky and Dar Color product lines in 2.5-gallon plastic tubs.

While the architectural segment is growing fastest in Peru, the industrial segment demand also is slated to rise quickly thanks to a host of new investments, which have followed the recent signing of the U.S.-Peru Free Trade Agreement.

Among large new projects, Dubai Ports World is building a container terminal within the port of El Callao, with an initial investment of more than $300 million. The Inter-American Development Bank also will lend more than $350 million to Peru over the next five years for the development of sanitation and water projects, which will benefit more than 100,000 families. And Maple Energy, which is developing gas projects in the interior of the country has also begun to develop a $157 million ethanol project, with plans to export to California.

At the same time, the government is requiring that the mining industry—the country’s largest industry—spend more on infrastructure, which will improve workers’ lives, according to Finance Minister Luis Carranza Ugarte. Such investments should bode well for both the housing and industrial coatings segments in Peru.

Europe