INSIGHT: Paint makers see strong Asia growth but higher costs

23 April 2010 17:06  [Source: ICIS news]

By Nigel Davis

Brighter outlook for paintsLONDON (ICIS news)--An encouraging outlook form Sherwin-Williams, the largest US paints maker, drove the company’s shares to a new record high on Thursday.

AkzoNobel, the global paint and coatings leader, also pleased investors on Friday with better than expected first quarter results and news that interest had been shown in the National Starch business it acquired when it bought ICI.

AkzoNobel CEO Hans Wijers said the company had a good start to 2010, particularly in high growth markets, but remained “cautious” about the recovery.

The earlier outlook from Sherwin-Williams was on the surface more positive but CEO Christopher Connor cautioned that domestic demand remained soft. Major US commercial construction is still at a standstill, he said.

The AkzoNobel results particularly show where current strengths lie - in faster growing markets such as Asia rather than in Europe or North America.

The Netherlands-based company said its decorative paints volumes in Asia grew by 30% (by 40% in China) year on year in the first quarter. Revenues were stable in the mature markets.

All-in-all, AkzoNobel’s decorative paints sales were up 7% with a 5% increase in volume. Prices were down 1%.

AkzoNobel can still make consolidation gains following its acquisition of ICI and said the closure and integration of “multiple sites” across Europe was running according to plan.

Operating margins for the business were stronger in the quarter despite a harsh winter in the northern hemisphere and a weak commercial property market.

Both companies show that while strong gains are being made, a great deal of business activity is still below pre-recession levels.

But as AkzoNobel noted the volume increases, first seen in the second quarter last year, have “continued more broadly and are a reason for cautious optimism”.

That’s about as encouraging as it gets for most executives who can well see the likelihood of a slowdown.

The major European economies appear only to be recovering slowly. UK Prime Minister Gordon Brown on Friday warned of the possibility of the country experiencing a double dip recession after government statistics showed economic growth of only 0.2% in the first quarter. Growth looks stronger in the US but there is still a long way to go.

As the AkzoNobel results for performance coatings suggest, however, the industrial recovery looks as though it is broad based.

The company went so far as to say that it was a strong first quarter for its performance coatings businesses - which make marine, industrial and powder coatings, car refinishes and wood coatings and adhesives.

Performance coatings volumes were up 8% in the first quarter compared with a year ago - but in that quarter they were off 20%. The only weaker spot mentioned was marine maintenance activity. Coatings prices in the first quarter this year were down 3% year on year.

AkzoNobel and Sherwin Williams expect stronger volume growth year on year in the second quarter which has to be encouraging - although gains will be compared with a weak second quarter in 2009.

The companies are understandably concerned about raw material prices. Connor said he expected raw material prices to rise in the second quarter but ease later in the year as more feedstock production capacity comes back on-line.

Wijers said AkzoNobel expected further pressure from raw material cost increases during the year.

Despite the caveats, however, the market in Europe reacted as positively to Akzo's outlook as Wall Street did to Sherwin Williams. The AkzoNobel share price was up more than 5% in Amsterdam at 15:00 local time on Friday having peaked earlier up more than 6%.

Bookmark Paul Hodges’ Chemicals & the Economy blog
Read John Richardson and Malini Hariharan’s Asian Chemical Connections blog
For more on AkzoNobel and Sherwin-Williams visit ICIS company intelligence
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By: Nigel Davis
+44 20 8652 3214

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