A serious shortage of raw materials, coupled with substantial increases in prices for raw materials, has put the South African coatings industry under intense pressure, says Tara Benn, executive director of the SA Paint Manufacturing Association (SAPMA).
Benn says a complex mix of demand; production issues at global chemical plants; and scarce transport resources for key raw materials are hitting the supply chain with resultant enormous implications for an industry already badly hit by pandemic lockdowns last year.
The main reasons for the coatings raw materials shortage and price rises in SA are:
· An increase in demand for paint and raw materials from neighbouring SADC markets which lost a significant supply of imported material from China, India and the Middle East due to Covid-19 shipping restrictions. “Companies in the SADC then turned to SA to provide alternative supplies which, although providing welcome new business, nevertheless drained local supplies,” Benn explains;
· Heavy snow storms and sub-zero temperatures in the USA that forced several key US raw material suppliers to halt production;
· The closure of several plants in Europe during lockdowns which led to raw materials suppliers invoking “force majeure” to contractually break supply obligations; and
· Soaring transportation costs due to the sharp rise in oil prices and shortage of containers. “The pandemic lowered commodity demand and therefore the traffic and volume of containers moving geographically between regions decreased. As demand picked up again, sea freight costs skyrocketed. SAPMA estimates that on average sea freight costs have gone up by 40% to 55%.”
Benn says according to the European Paint Council, CEPE, the shortage of raw materials is an “immense burden” for the coatings sector worldwide as raw material prices account for more than half of the cost of finished products. Since January last year, costs for key components such as epoxy resins have risen by 60% in Europe, while among solvents, prices have soared by up to 123%, CEPE has estimated.
“The current situation is exacerbated by the unexpectedly rapid economic recovery in China, which is also fuelling demand for key raw materials,” Benn added.