The shadow of crisis has not yet fully dissipated in the world and, as a consequence, industrial activity remains austere. Increases in raw materials and falls in consumption would be the causes of the slow growth in the paint industry in Latin America.
by Vanesa Restrepo
Two years ago the industry was facing one of the most drastic economic crises in recent years. Markets were contracting as a result of a poorly managed housing bubble in the United States that had bankrupted several financial institutions, thereby reducing available credit and increasing delinquency on those already granted.
By then analysts expected that 2011 would be the year of stabilization and that by 2012 consumption indices would reach the levels recorded in 2007, but a series of details have delayed the recovery and today, in the shadow of a new crisis in Europe, growth calculations are revised with a magnifying glass.
All in all, this wasn't a bad year for the industry, generally speaking. In most Latin American countries, consumption grew steadily and the recovery of construction, added to the greater investment in infrastructure, led to certain sectors such as industrial and architectural had, a month before the end of the year, positive figures.
Raw materials in the eye of the hurricane
The price of raw materials was the main concern of paint manufacturers during this year, especially with regard to titanium dioxide, the white pigment par excellence in the formulation. Manufacturers speak of increases of 200% on average in the price per ton of product, which forced to adjust cost structures and increase consumer prices to avoid losses in sales.
China was the main favored, since small and medium-sized suppliers of titanium dioxide were able to sell all their stocks at Latin American fairs, with the freedom to set the price at will thanks to the effects of the law of supply and demand.
The problem is not at all slight: several manufacturers of the pigment closed their production plants in Europe and Asia during 2009 due to the resounding falls in consumption. With the consequent contraction of supply and a subsequent expansion of world demand, the shortage of the product became imminent and although today work is already being done on the reopening of the plants, none of them will be ready before the last quarter of 2012.
In Latin America, hopes are pinned on two projects that could satisfy the regional market with lower costs than TiO2 imported from other latitudes. DuPont is the protagonist of the story, as it recently announced the expansion of construction of its production plant in the town of Altamira, in Mexico.
According to Paulo Vieira, vice president of DuPont's Titanium Technologies business for Latin America, the plant has been operating since 1960, generating sales of US$240 a year and producing 140,000 tons of titanium dioxide per year.
With the investment of US$500 million, the company expects its production to grow by 350,000 new metric tons per year, which would ensure the supply of the mineral in the Americas.
"Expanding the capacity of our Altamira plant is a vital part of our strategy to help meet the growing needs of our Titanium Dioxide customers, while generating significant benefits for the state of Tamaulipas," said Jorge Cossío, president of DuPont Mexico.
The other investment that awaits titanium dioxide suppliers and paint manufacturers is the construction of a production plant in the Alto Paraná area of Paraguay. Some US$500 million have also been invested in the area and the first valuations indicate that in this region would be the largest deposit of the mineral in the world that could generate between five and ten tons of the material per year, with a useful life of 100 years.
"Our warehouse could control the global titanium market, a production so large that whoever controls it could dictate the price. And the price would be reduced by having higher grade ore and higher tonnage," said David Lowell, president of CIC Resources, the company responsible for the project.
Moderate growth
On the other hand, the growth in the sale of paints in Latin America was lower than most companies and associations had calculated. The most significant case for its volume and impact is Brazil, a country where initial forecasts indicated a growth of 6% per year that, with the passing of the months and the economic swings, was readjusted up to 1.3%, according to Dilson Ferreira, president of the Brazilian Association of Paint Manufacturers, Abrafati.
Thus, in the absence of accounting for a quarter to close the year, calculations indicate that the production of paints in Brazil would reach 1,377 million liters in 2011, a figure slightly higher than that registered in 2010, when 1,355 liters were manufactured.
The most affected segment is precisely the one with the highest turnover: the architectural one. Initially, a 7% increase in the turnover of this segment had been calculated, but in the second quarter the forecast was adjusted and it was concluded that the growth would be between 3% and 4% compared to 2010.
"In a context of economic uncertainty, consumers postpone the renovations of their homes and, consequently, paint distributors reduce orders to manufacturers and avoid the accumulation of stocks," Abrafati explained referring to the causes of the fall in the consumption of architectural paint.
The situation is particular, given that it is Brazil that leads the investments in Latin America with a view to improving its physical infrastructure and the hotel offer to welcome tourists who will arrive at the 2014 World Cup and the 2016 Olympic Games.
Meanwhile, Mexico, which has the second largest market for paints in Latin America, managed to maintain its production and register growth close to 4%. "The volume of national production is estimated at 500 million liters at competitive prices compared to the foreign market," Javier Maldonado Moctezuma, president of the National Association of Paint and Ink Manufacturers (Anafapyt), told the Mexican press.
He added that per capita consumption in the country is 5.2 liters per year and that, as a consequence, production plants in the country would be working at 70% of their maximum installed capacity.
The largest company in the country, Comex, reached 55% share in the domestic market and its investments point to expansion to the United States, Canada and South America in the coming years. "In 2015 we will be a major player across the continent," said Marcos Achar Levy, CEO of the Comex Group.
To highlight
Controversial imports
In Central America, the tension between paint manufacturers and importers was felt, especially during the second half of 2011 when Honduras denounced that several companies would be importing paints illegally and distributing them at a price lower than the market. This practice known as dumping generates instability and unfair competition, so it is prohibited worldwide.
The situation was denounced by the Honduran Council of Private Enterprise, headed by its director Armando Urtecho, who said that dumping had at risk six paint manufacturing companies in the country.
After the complaint, the multinationals that import paints into Honduras, including Sherwin Williams and the Solid Group, participated in an investigation carried out by the Ministry of Industry and Commerce, to establish their responsibility.
The preliminary report of the entity, known in the last week of October, indicates that the companies involved would not have incurred unfair competition and that, in fact, several of the imported products register prices higher than those in force in the US market: "This Secretariat of State, in strict adherence to the Central American Tariff Policy, keeps the agreed import tariffs for paints unchanged," the document explains.
