Raw Material Availability, Price Increases May Be Biggest Issue for Coatings Industry in Europe

Lack of availability of key raw materials and packaging and significant price increases are causing major disruption to the coatings industry in the UK and Europe.

At the time of this writing, there is a real concern about whether coatings manufacturers will be able to maintain the supply of finished products to downstream manufacturing and construction in the coming weeks and months.

Four significant trends are affecting raw material prices for the coatings industry in Europe:

• Strong global coatings market demand and unforeseen capacity shortages have led to shortages of many raw materials
• The oil price has risen by 100% in the last 12 months (currently $64 a barrel)
• The global shortage of shipping containers has led to a sharp rise in transport costs from Asia to Europe thus further constraining supplies to Europe
• Additional non-tariff costs related to the new UK customs arrangements with the EU are adding to the cost of imported raw materials into the UK from Europe.

COVID-19 and Global Supply Chains

In the last 12 months, restrictions already in place due to COVID-19 have generally limited supply chain operations worldwide.

This has been exacerbated by the strong demand globally, both for chemicals in general and specifically in the coatings sector, which has recovered strongly in Q4 2020 and Q1 2021.

Shipping containers have been very hard to source – again partly due to COVID-19, where shipping containers were not returned to Asia from other parts of
the world.

As a result, container costs went up sharply, had longer lead times and led to disrupted supply chains coming out of Asia.

Since Q4 2020, the price of containers between China, the largest exporter of goods in the world, and Europe have risen more than 400%. 

The Perfect Storm

A series of unfortunate events took place from Q3 2020 in specific raw material segments, that have led to a domino effect through the coatings supply chain.

There were sharp price increases for epoxy resins, of as much as 60% in Q3 2020.

There have been similar issues following polyester resin factory closures in Singapore and Sweden, with an incident at a Chinese factory further adding to the difficulties.

Problems have also arisen with bisphenol-A as stocks have been diverted to polycarbonates.

Neopentyl glycol and methanol are also in short supply, exacerbating the issue.

To add to this, since the beginning of 2021 up to 40 force majeures have been called by raw material suppliers, which is completely unprecedented. 

This started with butyl acrylate, with three force majeures called in the first three months of 2021 at major chemical plants producing butyl acetate.

Butyl acrylate prices have soared from €1,100 in December 2020, to €3,400 in March 2021 – a more than 300% increase.

This has led to a knock-on effect in solvent prices for the coatings industry.

The British Coatings Federation’s monthly raw material prices survey shows the largest increases in solvent prices in January 2021 versus 12 months ago are acetone (123%) n-butyl acetate (91%), IPA (41%) and n-butanol (54%).

This was followed by the extreme winter storm in Texas, shutting down many North American chemical production sites through February.

Whilst production has restarted, there is a significant backlog that is expected to last until the end of Q2. 

Some of the key base chemicals affected include 2-Ethylhexyl acrylate, ethyl acetate and vinyl acetate monomer.

As a result, further price rises were experienced. For example, Ethylhexyl acrylate (2EHA) saw an almost 100% increase, rising from €1,150 in December to €2,250 by March.

Truly a perfect storm – the final chapter being a fire at a major chemical plant in early March in Germany has led to many additional force majeures, which again will have a significant knock-on effect on downstream chemicals used on coatings manufacturing in Europe.

There are also concerns about pigment shortages, such as red and yellow iron oxide.

For colored pigments, increases in petrochemical feedstock cost, coupled with the increased logistics costs have driven up the cost of finished pigments. TiO2 supply is already restrained, with limited supply flexibility beyond regular volumes.

Similarly, plastic polymers are in short supply, again affecting the availability and prices of packaging.

5L paint cans have had a 10% price increase compared to the same period last year, and tin plate has had a similar increase.

Brexit Adds to Challenges

With the UK leaving the EU on Dec. 31, 2020, the new trading arrangements have led to delays and higher prices. Two-thirds of respondents in a major BCF survey cited problems with increased shipping costs and customs paperwork.

Following Brexit, ships are being diverted away from UK ports to Rotterdam, which has put pressure on feeder ships to move items around the UK.

Over half of survey respondents were struggling with the impact of the new Rules of Origin on tariffs and had experienced delays to shipments of raw materials.

It has also been reported that several suppliers are now adding Brexit surcharges to cover additional costs.

Summary

This perfect storm has created a very challenging environment for coatings manufacturers in Europe, which is not expected to ease in the short term.

“Whilst the industry will attempt to mitigate higher costs through increased efficiency and alternate sourcing, they are still faced with the worst supply situation for chemicals that anyone can remember,” said BCF CEO Tom Bowtell.

“Given that raw materials and freight comprise the majority of the overall cost to produce paints, coatings and printing inks, this trend will have a major impact on the coatings industry in Europe,” said André Vieira de Castro, chairman of CEPE.

He concluded that “where possible, CEPE and BCF members will seek to mitigate higher costs via internal process optimization measures, alternate sourcing and increased efficiencies.”

The British Coatings Federation is the sole UK Trade Association representing the interests of the decorative, industrial and powder coatings, printing inks and wallcovering manufacturers. Coatings are critical to UK industry, with 300,000 workers relying on its members’ products every day, and the UK is a net exporter of coatings and inks.  BCF’s members represent 95% of the UK sales of coatings, inks and wallcoverings.