The
paints and coatings sector has been affected in different ways by the current state of the dollar in international markets. The call is to work on strategies that allow us to get out of the situation ahead.
by Duván Chaverra Agudelo
The increase in the price of the dollar that has been constantly presented for more than a year, largely due to the behavior of the oil industry, has generated an important impact on the paints and coatings sector, since in Latin America the vast majority of countries depend on the import of raw materials for the formulation of products, which, with the increase in the price of the currency, has an impact on the value of inputs and therefore increases operating prices, production and even the final product.
However, the now famous phrase: "crises are opportunities" is launched again as a battle cry to generate optimism in a market that needs to execute actions to get ahead, take advantage of the competition and minimize the impact that the rise of products can generate in the end user.
Current market analysis
Javier G. Maldonado, president of the National Association of Manufacturers of Paints and Inks (ANAFAPYT) of Mexico spoke about the current state of a reference country and that depends to a greater extent on the manufacture and import of raw materials whose cost reference is the dollar, recognizing that costs are being affected in an important way.
"While it is true that these costs have not been reflected in the final prices, because some other products such as solvents, have decreased, and due to the support of suppliers by lowering their prices in raw materials; however, there are beginning to be movements in prices, several companies began to make their adjustments and this will continue because it is not possible to withstand such a strong devaluation."
For his part, Gabriel González, president of STAR (Association of Andean Technicians in Coatings), commented on the Colombian market that "it is true that the management that has been given to the country's economy has generated that a good part of the raw materials have gone up. But it is also clear that there is no uniformity in the behavior of different types of raw material and this is related to the strategies of different suppliers. Finally, all companies have objectives, and the only one is not always to make money (immediately), because this objective can be accompanied by winning or recovering lost market, introduction of new products, relaunches, etc. And this has meant that in the vast majority of cases the devaluation of 2015 is not reflected in a hundred percent in the cost of the raw material. "
Data provided by Gabriel González on the devaluation of the dollar in Colombia indicate that in just 20 months the country has suffered a notable fall in the peso: "The devaluation 2015: from January 1 to December 31 was 38%, or 42% if we look at the difference between the highest and lowest TRM during the year. Now if we make an evaluation of October 1, 2014 when the TRM was 2,022 pesos per dollar, with February 8, 2016, we are talking about 64%, and if you take the lowest value of 2014, which was presented on July 25, when the TRM was 1846.12, with the maximum that to date was 3387.69 of last February 3, we would be talking about 85%, in less than 20 months."
Commodities on the rise
On the inputs that are most affected by the rise of the dollar, pigments, resins and additives stand out. Another of our guests, José Tomás Rojas, from the company TRojas Pinturas de Venezuela, recognizes titanium dioxide as one of the raw materials that due to its rise in price greatly affects entrepreneurs in the region.
"Titanium dioxide is definitely one of the products that suffers the most damage, due to the enormous volume used by the paint industry. It is followed by resins, almost all of external origin and widely used in formulations. The exception seems to be found in emulsions for architectural paints, which are locally made. However, in turn, emulsions are made with imported materials, almost entirely, which has a downstream impact on paints."
Faced with this same topic, Gabriel commented that "what is undeniable is that in this industry the participation of the foreign component is very significant, and it increases even more when we talk about products of higher performance or higher specifications (greater amount of pigment and not national loads, greater amount of binder imported or produced with imported monomers, and more special additives also imported)".
Similarly, the engineer adds that "for the above, it is clear that the cost of raw materials of all products has increased, the most robust products have increased more than those where the national component (loads, water, and a minority imported or processed in the country), do not have as much impact. But even in these products the increase is important if you look at percentage, and not only there are increases in raw material, you must take into account the increase in labor, transport, services, among others. "
Actions to counter the rises
Analyzing the export business, maintaining sales prices, optimizing operational processes, among other strategies are in the pipeline for the industry to minimize the economic impacts of a currency devaluation.
For example, the president of ANAFAPYT, highlighted some points on which attention should be paid:
The support of suppliers in the face of a contracted market: the drop in sales will have an impact on suppliers and that means that in the chain there must be mutual support, it is important that suppliers are holding on a little to give capital flow to companies.
The management of inventories, both in raw material and finished product, is a priority: on the one hand to have only the things that are being sold and after a study try to get right in the products that in the future have greater demand to serve the market efficiently.
The reduction of costs through efficiency in operations: it is essential to analyze if there is any waste that can be eliminated and not only in the process of using raw materials, but in production time, delivery transport trips, that is, we have to be more efficient. This will help a crisis that is neither the first nor the last.
For his part, José Tomás Rojas, believes that focusing on the export market can be an interesting strategy. Taking advantage of the devaluation situation, which means better relative prices abroad, underpinning this with policies that increase national value added.
"We must take advantage of the increase in prices of imported products, to strengthen national production, ensuring a surplus for export. Increasing national added value is fundamental, and it must be done with the development of local technology, through the alliance between producers and knowledge centers. You have to look for producers that offer price advantages. China can be a good option," explained the Peruvian businessman.
Meanwhile, the president of STAR, highlights that in Colombia, as a benchmark of the paint market of the Andean region, there is a competition at the price level that seeks to calibrate competitors and know how far they resist. "The strategy would be to reformulate, become more competitive, and why not, increase sales prices, but that's not an easy decision to make, it's more of a market decision."
Continue R&D
Faced with the crisis, companies choose to reduce their budgets and one of the niches affected is that of Research and Development. Our guests agreed in this regard and recommend strengthening this area to be used as a differentiating mechanism before the competition and beneficial for the end user.
"R&D teams must work on more competitive formulas, using material combinations more efficiently, to reduce costs, maintain the quality of products, look for alternatives of local raw materials, and raising the cost/performance ratio of their formulations, to make them attractive in the international market. A likely side effect is that the purchase of equipment and licenses for R&D will suffer a significant increase, which possibly limits purchases, affecting the updating of technology, "said José Tomás Rojas.
Javier Maldonado highlighted R&D as "an important differentiator that can allow us to have a greater advantage over the competition, however, we return to the same thing: if you do not know when it will work we grow again in uncertainty, but I think it is something that should not be stopped".
Finally, Gabriel González, this really depends on the vision of each company, in times of crisis we should seek to innovate, carry out projects, look for alternatives, but unfortunately our idiosyncrasy has been more in favor of reducing costs, of passing the downpour, and subsisting, in many cases sacrificing, or taking to its minimum expression to R & D.
Conclusions
We conclude then that our market has enough tools to stay strong in times like this, which are increasingly occurring and that must be prevented so as not to be left behind. Some final recommendations to keep in mind:
Javier Maldonado recommends doing two things: "Be prepared so that in good times you have enough reserve to endure the bad ones. Because crises occur unexpectedly and sometimes it is difficult to read that they are going to come. We must put our companies to act quickly towards the status that the market demands, improve their methods, their marketing and their processes so that they are prepared for changes and can adapt agilely to the new realities".
Gabriel González's final idea is "to have an open mind, but supported by reliable suppliers and a thorough evaluation of the different alternatives, ideally with complete and demanding laboratory tests".
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