Despite this massive setback, recovering sales growth has shifted toward more DIY architectural segment customers and away from public projects involving industrial paints and coatings. As a result, several key industry executives have expressed cautious optimism about 2021, and stronger optimism about a near-normal 2022.
Pre-Covid, the cumulative Latin America market for paint and coatings may have peaked at $10.9 billion, with growth forecast at 4.19% between 2018 and 2023, according to ResearchAndMarkets. South America represented $9.2 billion of that total.
Since 2018, Latin America’s economy expanded a mere 0.1% in 2019, followed by the 7.7% contraction in 2020, according to data from Eclac and the International Monetary Fund.
With cautious optimism, Eclac predicts that Latin America and the Caribbean will demonstrate 3.7% gross domestic product (GDP) growth this year.
Near-Catastrophic Regional COVID-19 Impact
Eclac analysts led by Daniel Titelman, chief of the organization’s Economic Development Division described the impact of COVID-19 on the regional economy in stark terms.
“The region went into the pandemic having already racked up a six-year run of weak growth – 0.3% on average over 2014 to 2019 – and just 0.1% in the last of those years.
With the outbreak of the pandemic, on top of this slack economic growth came negative external shocks and the need to implement lockdown and physical distancing policies and to shut down production activities, which turned the health crisis into the worst economic, social and production crisis the region has experienced in 120 years, with a 7.7% contraction in regional GDP.”
Despite this dire performance, Eclac sees growth afoot this year. “Positive growth is projected for Latin America and the Caribbean in 2021, with a regional average estimated at 3.7%. Generally speaking, however, these rates reflect a significant statistical rebound effect – 3.1 percentage points of that projection – coming after the heavy fall in economic activity in 2020. What is more, that 3.7% growth would mean regaining only 44% of the GDP loss seen in 2020,” the analysts calculated.
As such, many good years will be needed to return real growth to the region, Eclac predicted. “However, if growth returns to the average rate of the past six years, including the rebound in 2021, it would take more than a decade to bring GDP back to its 2019 level.”
Country-by-country results and expectations follow. Mexico, Central America & Caribbean
Mexico is the second-largest economy in Latin America – after Brazil – with a GDP value of nearly $1.1 trillion. Given the proximity to the U.S., however, Mexico is more a part of North America than of Latin America by many measurements, including the flows of trade and capital.
In Mexico, paint and coatings suffered during 2020, but the situation could have been worse. “The coatings industry was impacted less severely than the overall economy in Mexico. Due the lockdowns implemented to prevent the spread of COVID-19 over the last year, the paint market was primarily driven by two opposing forces. First, less business activity caused double-digit decreases in the construction industry and maintenance of facilities in the commercial, industrial and service sectors,” explained Henrik Bergstrom, PPG Comex president and VP Architectural Coatings Latin America.
“However, as a result of the quarantine, Mexican households were motivated to complete maintenance and remodeling projects at home, which significantly boosted the paint market in the DIY consumer segment,” Bergstrom says.
“During the first quarter of 2021, the PPG-Comex architectural coatings business grew organic sales by a high-single-digit percentage as consumer demand through the concessionaire network remained strong. We feel optimistic about our performance as we continue to expand our footprint in Mexico, and anticipate reaching 5,000 concessionaire locations by the fourth quarter of this year,” Bergstrom said.
Mexico is predicted to grow its GDP by 3.8% this year, Eclac projected.
In Central America, the combined subregional economies went from growth of 3.2% in the first three quarters of 2019 to a decline of 5.9% in the same period of 2020, Eclac reports. However, the outlook for 2021 is far more robust. Belize, for example, is expected to grow by 7.5% this year, followed by Panama at 5.5%, and Honduras at 45% Eclac predicts.
In Central America and Mexico combined, growth in the first three quarters of 2020 was -9.2%, down 9.6 percentage points during the same period in 2019. This year, Central America and Mexico together are expected to grow by 3.8%, Eclac reckons.
In the Caribbean, a host of island nations are projected to demonstrate growth far beyond the regional norm. Topping the list is Antigua and Barbuda, which is projected to grow GDP by 13.4% this year, according to Eclac. Similarly, Guyana (located on the South American continent, but generally considered to be part of the Caribbean due to the size of its economy), Saint Lucia, Saint Kitts and Nevis, Barbados, Grenada, and the Dominican Republic are expected to grow between 5% and 8%, Eclac predicts. Overall, the Caribbean will grow by 4.2% on average.
Brazil is still the largest economy in Latin America with a GDP value of $1.4 trillion, according to Statista. As such it it’s the largest market in the region for paints and coatings, especially for the 70 million households in the country.
In past years, Associação Brasileira dos Fabricantes de Tintas (Abrafati), the Brazilian coatings manufacturers association, has estimated the domestic market for paint and coatings at more than 1.5 billion liters produced in Brazil each year, with an industry sales total close to $8 billion, reflecting an average per capita consumption of about seven liters.
During 2020, Abrafati reported that architectural paint and coatings sales were up 5.1% to 1.4 billion liters. Automotive OEM coatings sales were down 27% to 28 million liters, while automotive refinish coatings sales were flat in 2020 at 67 million liters. Similarly, industrial coatings sales were flat in 2020, at 174 million liters, Abrafati reported.
Over the coming year, reasonable growth is predicted by Abrafati.
“Following its positive performance for 2020, the coatings industry in Brazil expects to see paint sales grow at similar rate to the country’s GDP, which, by current projections, could mean growth of 3.5% or more. Our outlook remains cautiously optimistic, given the uncertainties in the current scenario, but we believe decorative paint sales will continue to increase because the trend towards greater care for the household has consolidated, and home construction has gained steam,” reckoned Luiz Cornacchioni, the executive president of Abrafati.
“As for automotive OEM coatings, which experienced a significant fall in 2020, we expect sales to recover. There are reasonably good prospects for automotive refinish coatings, as used cars are in high demand due to supply chain issues affecting the production of new vehicles,” Cornacchioni said.
“Concerning coatings for industrial applications, we expect positive results in certain segments (particularly those related to the agribusiness, the hospital and health care sector, and the home appliance, furniture, motorcycle, food packaging and certain other industries involved in infrastructure). However, the demand is still down in other segments,” Cornacchioni observes.
“Lastly, it is important to mention that we think ABRAFATI 2021 (the national paint and coatings trade show) being held late this year can give a significant boost to business and innovation, with positive effects in the following year,” Cornacchioni added.
Looking beyond this year, Cornacchioni is still cautiously optimistic.
“There is much risk involved in forecasting longer term in the present situation, with the uncertainties brought about by the pandemic and its impacts. Currently, it is believed the Brazilian GDP will grow at a rate of 2.0 to 2.5 percent for 2022, and the paint and coatings industry could keep pace with or even outpace it,” he said.
“We can say that, for the mid and long terms, prospects remain rather favorable because the Brazilian market is very large and provides countless opportunities. For example, there is some pent-up demand for decorative paints – there are more than 70 million households in Brazil, many of which are not painted even on their (exterior) façades. In addition, the positive effects paints have on the decoration, renovation and protection of wall surfaces and properties that were stressed in the more dire period of the pandemic already have opened and will continue opening up new opportunities to promote these products and their sales,” Cornacchioni said.
“The return of properties launching (new construction and sales) has also contributed to an increase in decorative paint sales, for which there is also a huge potential market arising out of future housing projects aimed at reducing the current housing deficit (about 6 million properties) and the number of precarious dwellings,” Cornacchioni said.
“Additionally, the country will continue needing to invest massively in infrastructure over the next several years to deliver the necessary upgrades and improvement in living conditions, while contributing to job creation. The various concession projects (ports, airports, highways, passenger and cargo railways, oil and gas drilling, etc.) currently in progress, as well as the new Legal Framework for Sanitation, are examples of actions that will boost paint sales in the near future. Accordingly, the industry has a promising future ahead of it,” Cornacchioni concluded.
Eclac predicted that Brazil will demonstrate a GDP growth rate of 3.2% this year.
Colombia is the fourth largest economy in Latin America with a GDP value of $271 billion per year, but is arguably more economically stable than Argentina, which has a GDP value of $388 billion.
In Colombia, too, cautious optimism is the note of the times. “The paint industry in Colombia closed the last quarter of 2020 with positive figures, despite the crisis caused by the global pandemic. For this period, production, compared to the previous year, had an average growth of around 2% and sales 6%,” according to Claudia Vergara, the
General Secretary of Acoplasticos and Acopinturas, the national paint and coatings trade associations.
“The beginning of 2021 was marked by the shortage of raw materials essential for the manufacture of paints, especially resins, solvents, additives and pigments. The shortage caused an increase in prices of more than 100%, which led to the adjustment of the cost structure of companies in this sector and, consequently, to higher prices for paints and coatings,” Vergara said.
“Despite this situation, in the first quarter of 2021, the paints and coatings sector had a positive growth of 9% in production and 15% in sales, compared to the same period of the previous year. This was due, in large part, to the growth of the remodeling segment, which has led to an increase in inventories of wholesalers, hardware stores and warehouses,” Vergara added.
“Also, the subsidies granted by the Government to the construction sector have driven demand in the Colombian economy. In Colombia, renovations represent a significant percentage of the market for paints and coatings. Given the new working conditions at home, consumers have chosen to remodel and improve their spaces, which has boosted demand for the sector,” Vergara pointed out.
“The prospects for the second half of 2021 are still uncertain. It is expected that the economic recovery will continue and the prices of raw materials will stabilize towards the third quarter of the year. However, the current political and social situation in the country may generate a slowdown in demand,” Vergara reckoned.
“Nevertheless, there is still optimism in the recovery, given the positive results for the manufacturing sector in the first quarter of the year.
For 2022, we expect an expansion of internal and external demand, with positive growth of most productive sectors. Growth in the industry’s sustainable product portfolio is also expected, Vergara concluded.
Eclac predicted that Colombia will expand its GDP this year by a robust 5%, similar to the 4.9% expected in Argentina.
Oil Exporters Could Support Renewed Growth
One key to the economic recovery of Latin America will be the revival of oil exports with stronger prices. While the region has been a major oil exporter in the past, Venezuela, which produced close to 750 thousand barrels per day (bpd) in 2019, is in a state of stagnation. Other oil producers include Brazil, which produced 2.8 million bpd in 2019, Mexico at 1.7 million bpd, Colombia at 800,000 bpd, and Ecuador at 500,000 bpd, according to the Americas Quarterly.
Guyana has recently begun oil exports and as a result will become the fastest growing economy in the region, the IMF predicts.
Unfortunately, Brazil consumes more oil and petrochemicals than it produces and Mexico’s net exports are small, the Quarter indicates.
Raising Standards Among Manufacturers
Hopes for growth in the paint and coatings industry in Latin America continue to be pinned to the growing consumption of architectural paints. While in years past premium lines of paint grew faster than more economic offerings, the reverse may now be true. However, the quality of even the most economic lines of paint is now rising.
This is because a key focal point in the Latin America paint and coatings industry is the effort to improve the quality of architectural segment products that are manufactured by domestically-owned companies. Brazil’s Abrafati has been a leader in this effort, which is also supported by the regional association umbrella LatinPin.
By the end of 2020, Abrafati reported that a total of 64,715 performance tests were run on 23,412 paint samples of Brazilian architectural paints. This universe represents 830 brands and other products, and encompassed 7,181 audits.
This quality-focused effort will also be supported by a more detailed review of the paint and coatings industry’s sustainability profile. The World Coatings Council in 2020 initiated work toward the industry’s first global sustainability report, which will be supported by national associations like Abrafati.