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The impact of COVID-19 on the European paint market

The impact of COVID-19 on the European paint market

  • Categories:Industry News
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  • Time of issue:2020-04-14
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The impact of COVID-19 on the European paint market

(Summary description)Analysts also now expect multinationals like Akzonobel and others with large paint or paint raw materials businesses to emerge relatively unscathed.

  • Categories:Industry News
  • Author:
  • Origin:
  • Time of issue:2020-04-14
  • Views:0
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In late March, the European paint industry faced the prospect of a severe recession, caused by the lockdown imposed across much of Europe to slow the spread of novel Coronavirus (COVID-19).

 

Most were ordered to stay at home rather than go to work. Even stores except for essential items such as food and medicine were closed.

 

As a result, demand for paint has all but collapsed in many regions for some time, and seems unlikely to recover unless governments lift restrictive "stay at home" policies in order to restore some normality to their economies.

 

In a depressed market environment, coatings and other manufacturing sectors in Europe are optimistic about upcoming economic trends.

 

The government's economic assistance packages, including grants and state-guaranteed loans to enterprises, as well as state-subsidized wages to prevent layoffs, should help slow the decline in manufacturing output, especially among large buyers of industrial coatings.

 

Among consumers, government financing for businesses should help ensure they can afford DIY jobs in the months ahead.

 

In addition, the sharp drop in oil prices in the wake of the COVID-19 pandemic has led to a drop in petrochemical feedstock costs.

 

"Thirty percent of our raw material costs are indirectly related to the oil price," Elisa Markula, CEO of Finnish paint company Digurila, said at a press conference on its annual results in Helsinki in February.

Signs in March that the number of COVID-19 cases in China had peaked, with the outbreak beginning in late December 2019, have revived hopes for exports of some key raw materials, such as pigments and certain additives.

Oxford Economics, a UK-based consultancy, said in March: "The rebound in activity is likely to be strong once the disruption and uncertainty dissipate." "It is important that companies prepare for recovery."

The consultancy said the 19-nation eurozone was heading for "the worst recession in its 21-year history". But after contracting by 4% in the second quarter, a "rapid rebound" in the second half will reduce the decline in GDP to 2.2%.

 

The strong growth in economic activity across Europe is a trend predicted by many other economic forecasters in the region.

 

In Britain, for example, Oxford Economics expects GDP to contract by 3% in the first half of this year. The United Kingdom officially leaves the 27-member European Union on January 31, 2020.

 

But the subsequent recovery should lead to growth of 2.3 per cent in the second half, reducing the overall decline for the year to 1.5 per cent.

 

There is evidence that consumer demand for decorative paints has been suppressed, and for them, work-from-home restrictions are an opportunity to do DIY.

 

In many European countries, this demand has been curbed by central and local government orders to close paint retail stores.

 

In Germany, Europe's biggest paint market, only a handful of the country's 16 federal states allowed DIY stores to remain open in March.

 

In Germany, Europe's biggest paint market, only a handful of the country's 16 federal states allowed DIY stores to remain open in March.

In the UK, where DIY stores are allowed to remain open, retailers saw rapid sales growth in the first quarter of 2020.

 

Kingfisher is a UK-based DIY retailer with a network of stores in Europe that includes two large chains. UK sales rose 38% in the third week of the month, the company said in an interim trading statement in March. This was when the British government's stay-at-home policy came into full force.

 

Professional painters, on the other hand, are having a hard time because households are reluctant to decorate their homes during the pandemic. In addition, many countries/regions have closed construction sites except for important projects such as hospitals.

"In addition to professional painters, industrial paint producers have also been hit hard by the coronavirus." "Said Tom Bowtell, chief executive of the British Coatings Federation (BCF). "Some of their big customers, like car manufacturers, are temporarily closing plants in the UK and elsewhere in Europe. Orders for industrial coatings have dropped dramatically."

 

Even before the Novel Coronavirus outbreak, the coatings industry in most of Europe was experiencing a trend of declining or slow growth in sales, particularly in Western Europe.

In its February report on the outlook for The German coatings industry, Europe's largest, VdL estimated that sales of coatings, inks and printing inks in Germany fell 1.4 percent in 2019 compared with the previous year. It forecast an improvement by 2020, but only a "modest increase" of 0.4 per cent in sales.

 

The European paint companies that emerge from the COVID-19 pandemic are likely to be multinationals with strong sales within and outside Europe, as well as some larger regional players, such as Digurilla.

 

These large companies tend to be those that pursue their current strategy, which focuses on improving margins.

"We have been gradually changing from our value over volume [strategy]," Akzonobel chairman Thierry Vanlancker said at the company's annual results meeting in February. We have moved to margin management and margin improvement management."

 

When implementing profit management policies, large companies rely heavily on the strong position of their brands, and the image of these brands is of high quality.

 

"In countries like Russia, consumers are becoming more aware of the importance of quality," Markula said. In Russia, higher prices now mean quality for consumers."

 

In addition, many European international companies, such as Akzonobel and BASF, have strong operations in China and other parts of Asia, where demand is expected to grow faster and more strongly than elsewhere as the COVID-19 pandemic receded.

"Given our heavy exposure to Asia, the coronavirus could lead to a shift in demand from q1 to later in the year," Vanlancker said. At this point, we do not expect a major impact for the full year."

Analysts also now expect multinationals like Akzonobel and others with large paint or paint raw materials businesses to emerge relatively unscathed.

The hardest hit will be small and medium-sized enterprises, especially in the period of austerity that follows the disease.

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