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Oil raised commodity prices

altFaced with the crisis in the Middle East that ended up driving up the price of raw materials, suppliers and formulators can only look for new options. Water-based solutions emerge as a lifeline

by: Vanesa Restrepo B.

The price of oil increased in the first three months of 2011, to overcome the psychological barrier of US $ 100 per barrel. This situation, derived from a social crisis in the main oil producing countries, seems to aggravate a problem that the paints and coatings industry felt since the previous year: continuous increases in the price of raw materials.

 

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The issue has reached worrying levels. Some managers of small and medium-sized formulation companies recognize increases of up to 50% in inputs derived from hydrocarbons, especially acrylates, particularly butyl acrylate, as well as monomers and resins. Not to mention titanium dioxide, which although it is not a hydrocarbon, if it is the raw material with the greatest problems of price and availability.

"Titanium dioxide has been experiencing shortages and bimonthly increases," explains Gerardo Gurrola Togasi, Director of Research and Development at Sherwin Williams of Mexico. The situation significantly affects formulators since this is a basic input for the manufacture of white paints, regardless of their resin; that is, it equally affects the lines of alkyds, epoxy, polyurethanes, vinyl – acrylics, emulsions, latex, waterproofing, among others.

Gurrola indicates that in the first months of the year there was a slight stabilization in the price of raw materials, after closing 2010 with significant increases "Butyl acrylates and butyl methacrylates have had increases of up to 30%, and although the situation stabilized in the first months of 2011, the price continues to rise."

Meanwhile, Luis Minero, head of the marketing area of ACP and Additives at Basf, explains that the increases registered average between 10 and 15% and that the most affected products are butyl acrylates. "Pigments have been stable, especially in Mexico, while the price of acrylates has gone down and up continuously."

This instability also affects suppliers, as their customers begin to look for cheaper options and reduce consumption to optimize expenses, generating instabilities in sales.

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We are dependent
Many of the inputs used to manufacture a coating come from hydrocarbons, while some minerals are imported directly from Asia, Europe and the United States.

"The increases in raw materials have been exacerbated by the situation in Africa and the Middle East," says Bruno Schenone, director of CPPQ in Peru. This dependence causes the increases to accumulate, seriously affecting the manufacturer's cost scheme.

In addition to the above, Schenone acknowledges that many companies have closed production plants, "perhaps more than they should", so there are also problems of supply of certain elements.

"There is a problem of lack of capacity and little elasticity between the supply and demand of resins," explains Minero, from Basf. To this is added a growing offer of Chinese products in the market, whose quality is obviously lower than that of products brought from the UNITED States. USA and Europe.

And what to do with the costs?
Although the easiest solution to absorb an increase without affecting the profitability margin of a business is to transfer the cost, totally or partially, to the final consumer, the formula is not viable in post-crisis times.

Indeed, with the debacle of 2009 the market contracted, demand fell as did the quality of products; that is, with the crisis there was a fall in sales, especially in premium lines, and only so far begins to see a normalization in consumption. That is why, as Gurrola acknowledges, transferring costs to the customer is not profitable at this time because it could slow down the ascent that has just begun.

As a way out, some manufacturers have chosen to look for Titanium dioxide extenders. Such is the case of Sherwin Williams from Mexico, where up to 10% of production has been replaced with pavers, but this is a very low figure and the real impact in terms of costs is not very significant.

Thus, the proposal by which many companies are inclined is towards the reduction in the profit margin for a couple of months, while the demand for products stabilizes, and then begin with a gradual transfer of costs to the final consumer.

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Small entrepreneurs, the most disadvantaged
The fluctuation in the price of raw materials affects the entire industry equally. However, a phenomenon has been presented that allows us to conclude that small and medium-sized entrepreneurs are the ones who are suffering the most from the increases.

 

Apparently, with the lack of products, smaller factories have had to resort to distributors, some of whom have taken advantage of it to inflate the price of products. "I have recently heard of small companies that are paying $3,500 per ton of TiO2, when the market price is about $2,500," says Gerardo Gurrola.

Luis Minero, from Basf, agrees that smaller companies only make calculations with immediate costs and forget about those reflected, which is why they end up opting for products with lower quality.

As a solution to this situation, suppliers of raw materials have chosen to work under a program of personalized attention to their buyers. "We are following the offer. We review what the customer really wants based on cost," says Minero.

A year to stay
The protests in the Middle East and the processes of change in their governments do not seem to stop. Every day the news is known of new countries beginning a revolutionary process with a view to freeing themselves from those who have ruled them for years.

These protests generate shutdowns in the crude oil extraction plants and arouse nervousness in the markets, resulting in a rise in the price of crude oil. However, although many estimate that it can exceed US $ 130 per barrel, the projections of Bank Of America Merrill Lynch, indicate that the average price of the commodity would be located at US $ 101 per barrel this year.

Meanwhile, Gerardo Gurrola is optimistic about the behavior of acrylates, although he was skeptical of a decrease in the price of titanium dioxide. "The (price of) butyl acrylate will improve, but titanium dioxide will get worse."

Although increases in the price of raw materials are still expected for the month of April, it is expected that for the rest of the year prices will stabilize. "In three months prices can go down. I don't think petrochemicals will go up anymore," Luis Minero said.

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Difficult supply
Gerardo Gurrola, from Sherwin Williams of Mexico, told INPRA LATINA that at the moment there is a difficult situation with the supply of kaolins in his country. As he explained, the main producer of high-quality kaolins in the country closed its plant, so it has had to resort to importing

To this is added the decision of the authorities to close the border for the import of butyl cellosolve, with which only one supplier has the authorization to distribute the product. The problem seems to be that the supplier is not responsive to the speed of the market and the quality of its products is lower than expected.

However, says Gurrola, the National Association of Paint Manufacturers, Anafapyt, is working on a rapprochement with the authorities, in order to get the measure suspended and the entry of this product into Mexican territory again authorized.

Author: Vanesa Restrepo

One thought on “Oil raised commodity prices”

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  1. Ofelia De la Torre
    Sunday, 23 May 2021 16:51
    Por que dan datos del 2011 en una publicaciòn del 2021. Tienen datos para lo que esta sucediendo en 2021?

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