By George R. Pilcher, The ChemQuest Group, Inc.
Could any of us have predicted in 2019 that, in 2023, everyone would be preoccupied with lower but still unacceptably high inflation, unprecedented rate hikes by the Federal Reserve, the nearly year-and-a-half Russian aggression against the sovereign State of Ukraine that has led to global energy fears, and the refocusing of the American vision of China from “trading partner” to “potential enemy?” Whether or not we saw them coming, each of these situations has affected the paint and coatings business globally, and the negative side effects are not going away tomorrow.
Although the industry recovered in 2021 from a 2020 dip in volume, the real news is the dramatic increase in value (~25% over the two-year period 2021–2023 estimated (2023e)) that has resulted from the high cost of crude, decreasing (but not completely halted) global supply chain issues, remnant shortages, improved (but not back to pre-2020 levels) transportation/ logistics issues, and labor shortages. All have led to galloping inflation that the chairman of the Federal Reserve feels will likely require at least two more rate hikes this year.
As of mid-2023, most raw material suppliers and coatings producers are able to produce sufficient material to fill their orders, though often with lead times that are longer than was the case just four years ago. Some raw material suppliers are sold out through the end of 2024, but paint producers seem to be back on a course that is trickier to navigate than in years past and definitely requires more foresight and strategy. R&D staffs at both raw material producers and paint manufacturers are still spending time, albeit less time than they did during the past two years, working defensively to make sure that they are prepared for raw material shortages that affect existing products, rather than offensively by creating the new and/or improved products that are the heart and soul of all manufacturing firms.
The hard truth, however, is that this is going to be necessary going forward, because the global supply chain has become increasingly fragile and is susceptible to damage more readily than in the past. The supply chains of our global economy are increasingly vulnerable and more easily disrupted than ever before, whether from the Russo-Ukrainian War (including the potential for NATO to intervene at some point), political tensions between the West and Russia/China, a slowdown in the Chinese economy,1 issues involving Türkiye’s relationships with both the EU and NATO, the actions that will be taken by various countries with regard to the PFAS issue, or any number of other factors in a globe characterized by contention, distrust, and an increasingly vocal consumer involvement with everything from global climate change and chemical awareness to microplastics in the environment.
The Relationship of Crude Oil to the U.S. Paint and Coatings Industry, 2022–2024f
Each $10 increase in Brent crude results in a 3% increase in overall costs to coatings producers, representing an important factor in the overall dynamics and profitability of the paint and coatings industry. Understanding what is happening now and what is likely to happen in the near- and longer-term future of crude oil production is necessarily an important component of the creation of meaningful strategy for paint makers worldwide.