Oil decline presents benefits, challenges for PPG – CEO

Joseph Chang

07-Apr-2015

Oil decline presents benefits, challenges for PPGFocus article by Joseph Chang

PITTSBURGH, Pennsylvania (ICIS)–The oil price decline presents both benefits and challenges to PPG Industries, its senior executives said.

The company, as a non-integrated coatings producer, puts a great deal of effort on managing its supply chain. It is a major buyer of epoxy resins, acrylates, titanium dioxide (TiO2) and solvents such as MEK (methyl ethyl ketone) and MIBK (methyl isobutyl ketone).

Of PPG’s around $8bn/year in purchases, about $6bn consists of raw materials of which $2bn are oil derivatives, noted Viktor Sekmakas, executive vice president at PPG.

Sekmakas and PPG senior executives spoke with ICIS at the company’s headquarters in Pittsburgh, Pennsylvania, US.

“We have been in discussions with suppliers and customers on direction of pricing… We don’t have indexed pricing with either, so it’s based on negotiations. There is some reluctance [on price concessions] from suppliers, until they’re convinced this is where oil prices will settle,” said Charles Bunch, chairman and CEO of PPG.

“Customers are of course wondering: ‘When are you going to share the savings with us?’ But in the first quarter, we haven’t seen the benefits of low oil prices. Plus we are working with higher cost inventory. We won’t see much benefit in Q1 and Q2,” he added.

“We are certainly working to pull savings through the supply chain but it’s premature. Customers are not shy [about asking for reductions] but they understand the time delay,” said Michael McGarry, president and chief operating officer (COO) of PPG.

PPG is seeing “some savings” from lower fuel costs to transport its products, but “not a windfall”, as trucking companies deal with labour shortages, said Bunch.

“When oil moves up or down, there are a couple of quarters of lag time [for price impact] as we are not indexed. When we see the benefits, we can share them with our customers. So there won’t be a significant margin improvement,” he said.

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