US coatings firm PPG fears spread of Omicron to China ‒ CEO

Stefan Baumgarten

21-Jan-2022

HOUSTON (ICIS)–A potential spread of the Omicron coronavirus variant to China would hurt US coatings major PPG, which has production and distribution facilities in Suzhou, Tianjin and Zhangjiagang, the company’s CEO warned on Friday.

“What we are really worried about is, if Omicron gets to China,” Michael McGarry told analysts during the company’s Q4 earnings call.

He noted in particular China’s zero tolerance approach to the pandemic.

PPG’s largest plant in China is in Tianjin, where a recent small COVID outbreak prompted authorities to test 14m people within two days, he said.

“So, if Omicron were to get to China, and they continue with their zero COVID policy, that could have a pretty disruptive effect” on PPG’s business in that country, McGarry said.

Even without Omicron, economic activity in China is expected to be soft in the current quarter ending 31 March, due to the more severe operating restrictions because of COVID-19, as well as limitations related to the Beijing Winter Olympics from 4-20 February, he said.

However, while China is currently “a little bit soft”, its economy continues to grow, although not as fast as it used to, he added.

OMICRON HITS LABOUR, FREIGHT
Outside China, Omicron was a major negative for PPG during Q4 2021, and the labour absenteeism it causes continues to be a worry in Q1 2022, McGarry said.

Some of PPG’s plants recently had up to 40% of their workforce taken out because of COVID infections and quarantines, hampering the company’s ability to meet demand, which continues to be “robust” in most end-use markets, he said.

“The toughest job at PPG right now is plant manager: they wake up in the morning, check their phone to see how many people called off sick”, and once at work, they check how many trucks did not get picked up and what raw materials did not come in, he said.

Freight, with truck drivers off because of infections or preventative quarantines, “is the single biggest challenge we have right now”, he added.

Furthermore, PPG continues to experience raw materials shortages, with the biggest impact in its US architectural coatings business, he said.

As a result of the workforce and raw material issues, the company’s sales backlog grew to $150m at the end of Q4, notably in PPG’s aerospace, automotive refinish and the general industrial businesses.

PPG’s main raw materials include epoxy and other resins, titanium dioxide (TiO2) and other pigments, and solvents in the coatings businesses and sand and soda ash in the specialty coatings and materials business.

While raw material prices have “levelled off”, PPG is closely watching the recent “pop” in oil prices, which could have an effect on solvents, he said.

OUTLOOK
PPG will continue to raise its selling prices in Q1, after price hikes in Q4 did not offset the rising labour, transportation and other costs and raw material price inflation.

The company will also be working to further diversify its raw material supplier base and to strengthen back-integration into resin manufacturing in the US, McGarry said.

While Q1 remains difficult to predict, he expects that as 2022 progresses there should be more reopening of economies from COVID restrictions, an easing of supply chain problems, inventory rebuilding across many end-use markets, along with “a healthy consumer willing to spend”, he said.

PPG expects recoveries in automotive refinish, OEM and aerospace coatings,  which combined accounted for 40% of PPG pre-pandemic sales, he said.

He noted improving demand trends in:
– Automotive OEM coatings, as the semiconductor shortages in the auto sector ease;
– Automotive refinish coatings, due to high prices for used cars;
– Aerospace coatings, with the Boeing 737 Max being readmitted into service;
– Industrial coatings, with the shift away from single-use plastics to metal.

(Thumbnail shows a model of COVID-19. Image by Shutterstock)

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