Architectural paintings "painted well"

by Herbert Martínez

A very positive balance presented the architectural paintings in 2008. This is due to the growth in the construction of private projects that boosted Latin American economies and generated some macroeconomic stability in variables such as employment and income.

This context provoked an interesting dynamic of investment focused on the acquisition of properties to be inhabited, since those who were interested in this business found credit possibilities. Similarly, in several countries of the region the trend of painting their houses towards the end of the year was maintained, with which the sales of architectural paintings fulfilled their traditional sales cycles.

Latin America has not yet begun to feel the rigors of the global economic recession that has affected the more developed countries that are buyers and sellers of many raw materials. Faced with the possible impact that the economic phenomenon would have, several governments have taken measures to encourage foreign investment, protect their currency, control inflation, boost their financial systems and protect employment. As a complement to the above, large public investments in infrastructure projects were also announced, which would favor the consumption of architectural paints and anticorrosive coatings.

For the Brazilian Dilson Ferreira, director of Abrafati, the prospects of the sector in his country are very interesting. "I believe that Brazil is in a differential position in the application of architectural paint that the government is motivating a lot with the construction of social housing. This will be an incentive for the civil construction sector in general not to suffer so much from the consequences of the recession. The government is guaranteeing a lot of availability of credit and that is beneficial because social housing is only sold with long-term loans."

Market share
In Brazil, the production of paints in 2008 was 1,130 million liters, of which the architectural line participated with 60% of that figure. According to the director of Abrafati, "we are projecting that in 2009 Brazil will have a GDP of 2% even if the government number is 4% and economists work with between 2% and 3%. With that, we think the architectural segment will grow 2.5%."

In the region, Peru is one of the countries with the highest economic growth in the last three years and one of the countries with the highest foreign investment. According to César de la Fuente, manager of Industrias Vencedor S.A., the architectural paint line represents 70% of its total production. The executive said that the growth in architectural paintings in 2008 is around 20% and a growth of 7% is expected for 2009.

According to the Peruvian, the construction sector grew by 16% in 2008, "mainly due to the growth of central government investment during the first two months of 2008, and the implementation of a new scheme of the National Public Investment System. Local and regional governments were created in 2007 and were strengthened in 2008 by developing major works."

For the executive, this increase in construction projects was "also accompanied by strong momentum and private investments which helped the growth of employment, facilities of the financial system and higher incomes of companies, which has also contributed to the aforementioned growth."

Bruno Schenone, president of the Peruvian formulating company CPPQ, also shared the growth figure expressed by De la Fuente for 2008, although he said that in the last two months of the year the sale of architectural paintings decreased a little. "The first half was quite important in terms of growth, particularly we have increased in the architectural paintings segment in the first quarter at rates above 30% and it has been a bit slowed down in the second half. All this, apart from the Technochemistry issue, which is a company that we are just taking control of".

For a Colombian formulator, who asked for his name to be withheld, in his country the sales of architectural painting had a good behavior, however, the downward curve began, as in Peru, towards the end of 2008. "Towards the end (of 2008) there was a decrease and it is expected to be accentuated by next year (2009) because there is a reduction in construction projects."

On suppliers, he said: "They have maintained the prices of inputs and some increased them. Our company has not increased its prices in the last two years so as not to hit the economy of its customers." Regarding the impact of the recession in 2009, this Colombian executive said: "we must maintain the competitiveness of the products, seeking to generate other uses and developing more products. You have to be innovative."

Line behavior
There are several factors that the formulators consulted identify that must be improved to raise the competitiveness of architectural paintings, with a view to facing the possible economic crisis.

According to De la Fuente, "With the growth of the country in recent years and the increase in purchasing power, the consumption of architectural paintings has also increased significantly. The tendency to paint more often, due to changes in colors, trends, seasons, etc., makes customers more demanding in the type and quality of paint. The use of tintometry in our country is very incipient, it is still limited to very few points of sale. In that sense, our job is to train our different types of clients: builders, architects, designers, master painters and the general public."

Similarly, the Peruvian said that the efficiency of the processes must be improved to offer products at more competitive prices. "In the market, companies that offer high quality products, that provide service to their customers, training and the commercial conditions that allow them to remain competitive will prevail."

For Bruno Schenone, the Peruvian market for architectural paints grew in products such as latex, enamels, wood products. According to this Peruvian executive, towards the future there is still some uncertainty. "I would say that in the specific issue of construction there is still excess demand over supply. There is still much to be done in Peru in terms of construction. Everything is also supported by a series of public sector works that are pending. So (the architectural segment) is not going to grow at the same rates as last year, but it's going to be a still growing market."

Suppliers vs. oil
The fall in oil prices in the last months of 2008, after the historic rise presented in the middle of the year, affected the price scheme of paint manufacturers because the raw materials derived from hydrocarbon have not yet lowered their sales values, and as a result the margins of the formulators have been punished.

On this subject, the Peruvian de la Fuente said: "the suppliers of raw materials, to date, have not reduced their prices. We expect that in the course of 2009 there will be a reduction in costs that will allow us to recover margins, since the prices of paints in general have not increased several years ago, due to competition."

Referring to the same issue, the Brazilian Ferreira said: "the fall in the price of oil so far has not been reflected in the prices of raw materials, but the rise in the exchange rate did represent a growth in the prices of inputs that are imported because they have their prices dollarized, even if they are produced in Brazil."

Claudio Restuccia, director of Diransa, a supplier to the paint industry for 30 years that has been based in Argentina and whose portfolio, among other things, has polymers, resins and emulsions, ensures that the prices of inputs will begin to fall.
"In Latin America we are a little behind in the price decline with respect to what we are seeing in Asia and to a lesser extent in Europe and the US. Today we are still with commodity prices a little more expensive than in other regions. We have seen particularly in these last two months that exports have suffered a little for that reason," he explained.

For the aforementioned Argentine manager, the coming crisis must be faced by working as a team with all members of the painting industry and thus take advantage of the wave of public investments that will favor the architectural line. "In every crisis you have to be very cautious and be attentive to how the facts develop, but I think you have to be very creative. The paint industry and suppliers need to work together to prevent the market from declining. I think we need to draw up common strategies for the industry as a whole. The paint market has more to grow than to lose, it has a long way to go looking at the needs of the region."