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    Features

    Latin America Market Shakes Off Contraction

    ...

    Latin America Market Shakes Off Contraction
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    Charles W. Thurston, Latin America Correspondent06.05.17
    Small improvements in markets like Latin America can be good news. Paint and coatings demand slowed last year as the regional economy shrank by 1.1 percent, but this year, international analysts predict a recovery to 1.3 percent real growth, led by several individual countries and Central America as a subregion.

    The Economic Development Division of the Economic Commission for Latin America and the Caribbean (ECLAC) observed in December that, “While in South America private consumption and investment dropped by 2.3 percent and 9.9 percent, respectively, in Central America private consumption expanded by 3.0 percent and investment by 1.9 percent. Some of these trends should improve in 2017, with stronger private consumption and investment.”

    Country notes are quite positive in many cases. “Central America, including the Spanish-speaking Caribbean and Haiti, is expected grow by around 3.7 percent in 2017; including Mexico, with a projected growth rate of 1.9 percent, bringing the (subregional) average down to 2.3 percent. Positive growth is projected in 2017 for South America, at 0.9 percent, and for the English-speaking Caribbean, at 1.3 percent,” ECLAC also predicted.

    Sales in the region are mixed now, but they are hoped to represent growing proportions of global revenue for some companies.

    Axalta reported 11 percent of its sales as made in Latin America last year. “Our goal in 2017 is to continue to grow, year over year. We hope to capitalize on opportunities in all the end-use markets we serve across the region,” said Rosendo Gamboa, the company’s director of marketing and strategic planning.

    Sherwin-Williams reported that the region represented five percent of global sales in 2016. The company is positioning itself for more growth through a plan to roll out far more company stores. As of 2016, there were “339 company-operated stores in Brazil, Chile, Colombia, Ecuador, Mexico, Peru and Uruguay. Distribution through dedicated dealers, home centers, distributors, hardware stores, and through licensees in Argentina, El Salvador, Peru and Venezuela.”

    One complicating factor in sales growth in local currency is foreign exchange rates. With a wide variety of currency revaluations and manipulations in the region, hedging is a necessity for any large country operation. Akzo Nobel, for example, said, “During 2016 net investment hedge accounting was applied on hedges of Brazilian real and the Chilean peso,” in its annual report.

    President Trump has vowed to attempt to keep jobs in the United States at the cost of revoking or renegotiating bilateral and regional trade agreements like NAFTA. This stance lends uncertainty to business planners contemplating new investments in the region.

    ECLAC forecasted that “For the region overall, international demand should pick up in 2017, although this could be dampened to some extent by trade decisions by the United States. Intraregional trade should also regain some ground in 2017, thanks to a stronger performance by the economies of the South America, especially Argentina and Brazil.”

    One of the few bright spots in the regional economy is the runaway growth of Mexico’s automotive sector, now the fourth-largest car exporter in the world, after Germany, Japan and South Korea. Mexico produced 3.5 million light vehicles in 2016, up 67 percent from 2.1 million in 2008, according to the Mexican Automotive Industry Association.

    “Mexico forms the backbone of the North America market for us; we are strengthening that every year by investing $1 million in our labs there,” said Jorge Flores, the business manager for BASF’s Automotive Refinish unit in Mexico and Central America. Another way that BASF secures growth in Mexico – and elsewhere – is through training. “BASF is highly focused on sustainability, and we can do the job with lower paint usage, but that requires training and equipment to support the customer base,” said Frank Hezel, the vice president of BASF Mexicana.

    Similarly, Axalta is investing in Mexico to serve the automotive segment. “In April 2016, we opened an expanded resin production facility at our operations center in Tlalnepantla, just outside of Mexico City from which we will supply many of the leading automotive OEMs in Mexico among other customers,” says Gamboa.

    Among global automakers still investing in Mexican automotive capacity is BMW, which is building a new factory in San Luis Potosi that will begin production in 2019 with a capacity of 150,000 cars a year.

    Brazil’s automotive industry may make a comeback this year, solidifying its position as tenth largest automaker in the world. The Brazilian automotive market is the tenth largest worldwide. While production volume has fallen since 2014, market analyst IHS forecasts a 13 percent growth in Brazilian production this year.

    Among new investors in Brazil’s auto industry, Gestamp will open its seventh plant in Brazil, in Betim, Minas Gerais State, to supply Fiat Chrysler domestic needs.

    On a more negative note, Venezuela has dusted off its expropriation practice, seizing General Motors’ assembly plant in Carabobo State, in April, on claims that it was idle and thus not contributing to the economy. GM closed the plant and laid off 2,700 workers. Venezuelan auto association Cavenez reported a production drop in autos during 2016 of 84 percent to 2,849 cars nationwide.

    During growth years, the consumption of architectural paints typically grows one or two percentage points faster than GDP, since consumers in the region take pride and find solace in a fresh coat of paint. However, the GDP of Latin America and the Caribbean contracted by 1.1 percent in 2016, which translates into a 2.2 percent decline in per capita GDP, ECALC calculates.

    Within the region, Central America experienced the strongest sub-regional per capita growth, at 3.5 percent. Mexico, too, saw per capita expansion at 2.0 percent. This bodes well for companies well-positioned in the region, like PPG’s Comex unit, and Sherwin-Williams, which has an aggressive company store campaign underway. Colombia also saw 2.0 percent growth, Brazil’s per capita GDP dropped 3.5 percent, and in neighboring Argentina, it was down 2.0 percent.

    The demand for paint and coatings in the industrial sector declined over the past year, as exports dropped off. ECLAC noted that, “In industry, the manufacturing contraction that had begun in 2014 deepened as domestic demand deteriorated.”

    The slowdown in the industrial segment is a compound equation, affected both by exports and internal consumption. “The export slowdown brought a drop in output in the industrial sector (-3.0 percent) in the first half of 2016, and this was compounded by a fall in service-sector output (-1.2 percent), mainly because of the decline in commerce (-1.8 percent), reflecting lower private consumption,” ECLAC details.

    Among the Latin American countries with the highest predicted growth rates this year, the Dominican Republic expanded at 6.4 percent last year and should grow by 6.2 percent this year, analysts predict. Several Caribbean islands are demonstrating positive growth ahead of Central and South America. St. Kitts and Nevis, for example, is predicted to expand at 5.3 percent this year.

    Lanco operates a production facility at Santo Domingo, D.R., and is working at developing its marketing staff this year, including more of a presence in social media. The company’s Maxima Armor brand architectural paint is among those brands receiving more attention.

    Central America

    Other countries in the Central America/Caribbean region that are exhibiting strong growth include Panama, expected to grow at 5.9 percent this year. Panama still serves as the hemispheric port for inter-regional trade, and captures much paint and coatings business through distribution. The country also serves the maritime paint segment, led by international distributors like PPG, and supported by domestic players like Pinturas AYA Panama, Pinturas Panama and Cosmeplast Panama. Pinturas AYA, which has a branch in Venezuela, has two manufacturing locations in Panama, with production capacity of 1.5 million gallons per year, according to company profile information.

    Panama also had the largest per capita income growth in the sub-region, at 5.2 percent in 2016. The multi-year Panama Canal project and a boom in tourism have helped the construction industry lead the country’s growth sectors.

    Costa Rica, with its stable economy and a predicted growth rate of 3.9 percent this year, is also a growing market in the sub-region. “We have gained a 35 percent market share now, up from 10 percent just a few years ago,” notes Flores.

    Guatemala, too, is a growing market for paint and coatings in Central America, with a 3.3 percent expansion prediction. “Axalta has also increased its ownership in Axalta Coating Systems CA, a joint venture, headquartered in Guatemala. Axalta Central America manufactures and distributes refinish, industrial and architectural coatings throughout Central America and the Caribbean,” noted Gamboa.

    This rising success has company. “We grew 20 percent in Guatemala last year,” said Flores. The company introduced its Limco brands there less than three years ago, he said. Norbin is a more recent introduction for the company.

    Argentina Reforms Pay Off

    Among the major economies of South America, Argentina is predicted to have one of the highest growth rates this year, at 2.3 percent, thanks to a new government and to renewed foreign investment.

    “We see the Argentine market coming back with OEM sales and exports, but there is no production recovery yet,” observed Flores.

    Among new investments in the country, “We also are nearing completion of a new manufacturing facility in Argentina which will produce coatings for OEMs, refinish and industrial customers,” said Gamboa. “In Argentina we expanded our offerings with the launch of Duxone refinish coatings, which are focused on the more price sensitive automotive coating segment and formulated to offer a high quality and a broad spectrum of colors at competitive prices. To support the introduction, Axalta introduced ‘Duxone on the Road,’ a program designed to share innovative techniques with automotive refinishers in Argentina through a series of mobile training courses. The campaign will reach 1,500 jobbers in 11 districts across the country during 2016,” he added.

    Sherwin-Williams opened 11 company stores in Argentina last year. The company also launched its next generation formulation of Loxon brand paint line in Argentina, “with overall best-in-class performance for hide and durability,” the company annual report notes.

    Among other major paint and coatings manufacturers investing in Argentina, AkzoNobel noted that “The Alba brand launched the company’s Visualizer application in Argentina, with more than a million downloads to date.” Other company advances there included energy efficiency: “At our Decorative Paints site in Garin, Argentina, a number of cost-saving measures were introduced following an energy scan. These related to the use of LEDs, high efficiency motors and compressor optimization and resulted in savings of €21,000 a year (over $27,000),” the company reported.

    Brazil Rebounds, Once Again

    The economy of Brazil may demonstrate the greatest rebound this year, moving from a contraction of 3.6 percent last year to a predicted 0.4 percent growth rate this year. “Hopefully we are seeing the signs of recovery in in Brazil this year, but we still see a struggle there,” said Flores.

    Axalta, too is banking on recovery in Brazil. “For refinishers in Brazil we added new colors for the Cormax line at competitive prices. We are improving our coverage in the market by expanding the number of distributor stores and are looking to win new accounts and increase our growth,” says Gamboa.

    Among other marketing moves in Brazil over the past year, AkzoNobel launched Coralar, a low-VOC wall paint, compared with other options available in the market, the company said. The company also improved its corporate citizenship in Brazil, where such activities are highly scrutinized, by introducing “a water reduction program by our Decorative Paints business that will result in more recycling of wash water, and has already reduced waste by 60 tons,” the Akzo Nobel noted. The company also built a new water treatment plant in Maua, Sao Paulo State.

    Similarly, Sherwin-Williams introduced “SuperPaint, Design, Spazio and Classic paint lines, sold exclusively through our company-operated stores and dedicated dealers,” the company reported.

    Colombia Steady

    Compared to its peer economies, Colombia’s economy is an example of sustainable growth. The GDP is expected to rise from 2.0 percent growth last year to 2.7 percent this year.
    Domestic manufacturers like Pintuco and Andina Paint are well positioned to take advantage of greater demand, while international vendors are somewhat less represented.

    Among recent marketing efforts, Pintuco launched the Monokote industrial fire protection line over the past year.

    Axalta is very focused on the refinish segment in Colombia. “In the Andean region, Axalta introduced recently the Centari line of refinish coatings for collision body shops in Colombia. Also in Colombia, Axalta launched the second edition of the ‘Axalta Color’s Partners Club,’ the first loyalty program in Latin America. This program is intended to share innovative techniques with hundreds of automotive refinishers through training designed to help them strengthen their skills and capabilities,” Gamboa said. 
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