Paints lose shine on soaring crude prices
The rising crude oil price is worrying paint manufacturers. It is becoming increasingly difficult for them to sustain margins due to the upward swing in crude prices.
By Sutanuka Ghosal, ET Bureau |
KOLKATA: The rising crude oil price is worrying paint manufacturers. It is becoming increasingly difficult for them to sustain margins due to the upward swing in crude prices, even though they have increased the prices more than once in the recent past. Crude oil is fast approaching $100 per barrel for the first time in two years.
The paint industry is raw material-intensive. Raw materials make for about 80% of the cost. There are four major raw materials — pigments (37%), solvents (18%), resins (8%) and additives (17%). Titanium dioxide is another key raw material for the industry. While some of these raw materials are crude derivatives, crude is used in the manufacturing of some materials as an energy source . “So, whenever there is an increase in crude prices, paint companies feel the pressure,” said Rajesh Agarwal, head (research), Eastern Financiers.
Abhijit Roy, vice-president (sales and marketing) of Berger Paints, said the company increased prices by 7-8% in three tranches last year. “Again, crude prices have started moving upwards. If this trend continues and the Central government increases the prices of diesel, then we will have no other choice but to increase prices further.”
When a spurt in crude prices is accompanied by rupee depreciation against dollar, paint manufacturers face a double whammy. While the decorative paint segment is able to pass on the input price spike due to huge demand, the industrial paint players are not in a position to fully pass on the rise in costs. Apart from the rising crude prices, the industry also faces irregular supply of titanium dioxide. No new capacities have come up in titanium dioxide and the restarting of the closed units is expensive.
The paint industry is raw material-intensive. Raw materials make for about 80% of the cost. There are four major raw materials — pigments (37%), solvents (18%), resins (8%) and additives (17%). Titanium dioxide is another key raw material for the industry. While some of these raw materials are crude derivatives, crude is used in the manufacturing of some materials as an energy source . “So, whenever there is an increase in crude prices, paint companies feel the pressure,” said Rajesh Agarwal, head (research), Eastern Financiers.
Abhijit Roy, vice-president (sales and marketing) of Berger Paints, said the company increased prices by 7-8% in three tranches last year. “Again, crude prices have started moving upwards. If this trend continues and the Central government increases the prices of diesel, then we will have no other choice but to increase prices further.”
When a spurt in crude prices is accompanied by rupee depreciation against dollar, paint manufacturers face a double whammy. While the decorative paint segment is able to pass on the input price spike due to huge demand, the industrial paint players are not in a position to fully pass on the rise in costs. Apart from the rising crude prices, the industry also faces irregular supply of titanium dioxide. No new capacities have come up in titanium dioxide and the restarting of the closed units is expensive.
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