Latin America Reports

Venezuelan paint struggles under economic weight

By Charles W. Thurston | June 1, 2009

Despite the bad economy, Venezolana de Pinturas continues to expand its paint operations.

Venezuela's paint industry is suffering under the weight of the country's economic growth halt, including difficulty in acquiring imported raw materials because of a government freeze on foreign exchange transactions.

Imports have been held up by an average of four months this year because of a government freeze on foreign exchange transactions, according to a report citing Danay Zoppi, the president of the Asociacion Venezolana de la Industria Quimica y Petroquimica (Asoquim), in Caracas.

Still, one manufacturer, Venezolana de Pinturas (VP), is seeking to broaden its high-end architectural base with a recent launch of its water-based Environment line in both latex and enamel satins.

VP, which is part of the Inversiones Mundial group, has been in business for 50 years, since it was originally formed as Sherwin Williams Venezuela. The company manufactures at a plant in Valencia, but also has commercial offices in Barcelona, Caracas and Maracaibo. It also produces automotive, industrial and wood oriented products ranging from acrylic stucco to joint compound.

Using its Colores VP mixing technology, the company offers 700 interior paint hues. Among older lines are Inovacin, Kem, Domino and Colonial; last year VP augmented its Kem line with Expresin de Kem. The new Environment line is being sold in Ferreteria EPA hardware stores, the country's largest big box chain, owned by the Mendoza family and now comprised of 13 stores in six cities. Environment also is being sold in the paint manufacturer's PintaCasa subsidiary paint stores.

Competition to VP comes primarily from Corimon Pinturas, which markets architectural brands including Montana and Pico brands. Corimon, which has operated under financial difficulty for years, in April announced plans to raise approximately $11 million through debt or other instruments.

Housing expansion is another factor that could bump up architectural paint consumption. As much as a third of Venezuela's population of 26 million lacks standard housing, and a government program is underway to spend $2.4 billion to build 200,000 new housing units, with a goal of 1.8 million new units by 2016, according to Surrey Now.

Paint manufacturers may be trying to hold the line against inflation, absorbing some of the cost increases they face. Although the consumer price index in Venezuela rose 31% last year, architectural paint prices only increased by 25%, according to one local press report. The cost of the lowest grade of paint in the country is approximately $3.00 per gallon, while premium paint can be multiples of that price point.

An isolated up side to the inflation problem is that cars sold in Venezuela are appreciating in value because of the higher cost of replacement parts and full imports. This phenomenon should help after-market automotive paint sales.

Venezuela's GDP has suffered this year, dropping to 0.4% growth, compared with 5.4% last year; the outlook for growth is flat for 2010, according to a consensus forecast compiled by LatinFocus, which draws on more than a dozen financial institution analysts. At the same time, inflation has risen to 36% from 31% last year, with expectations that in 2010 inflation may drop by one percent.

Venezuela, a key Latin American oil producer, has alarmed the international investment community with its nationalization program, which included the take-over of dozens of oil service companies a month ago. State oil company Petroleos de Venezuela (PDVSA) is rumored to owe service companies some $10 billion, and is reportedly seeking to place $3 billion in U.S. dollar-linked bonds. The government has extended its nationalization program to non-oil sectors, as well, and now is planning a $1 billion buyout of Banco Santander, one of Spain's most important banks in the region.