ECONOMY

Paint prices to soar as cost of raw materials and supply delays rises

Paint prices are to soar further because of the cost of raw materials and supply chain disruptions, Europe’s largest producer of the product has warned.

Akzo Nobel, whose brands include Dulux, said prices have already risen by 9 per cent in 2021 and would increase further by 14 to 15 per cent by year end as a result of rocketing costs and shortages of additives, petrochemicals and packaging materials.

It is the latest manufacturer to flag rising material and supply chain costs as a drag on financial performance following warnings from US companies Procter & Gamble and Colgate-Palmolive.

The Dutch group said its forecasts were based on inflationary pressures on costs that would persist through to the middle of 2022, with prices likely to increase even further by low to mid-single digits early next year.

“It’s probably easier to say where we don’t feel the pressure. It’s very much across the board,” Thierry Vanlancker, chief executive of Akzo Nobel, told the Financial Times. “We do believe this situation is going to be with us for most of the first half of 2022.”

Vanlancker said he did not expect prices to dent demand, or lead consumers to buy cheaper products or delay renovation projects, adding that cost pressures were most likely to be temporary as there were no structural market changes.

“It is the whiplash coming out of Covid and the supply chain issues,” he said. But in a note of caution, he added that “it’s still a very nervous system out there, so it could slide in the wrong direction” in the event of more supply chain disruption.

Vanlancker said that “suppliers of suppliers of suppliers” were proving to be problematic. In particular, the petrochemical industry in Texas and Louisiana has been a pinch point as producers reel from a deep freeze earlier in the year and Hurricane Ida in late August.

His comments came as Akzo Nobel reported weaker than expected adjusted operating income of €241m in the third quarter, despite revenues rising 6 per cent to €2.4bn.

The results had little effect on the company’s shares, which have benefited from the pandemic-induced boom in DIY. They slipped 1.5 per cent to €94.12 on Wednesday afternoon in continental Europe.

By the end of the quarter in September, the average price of its products was up 9 per cent year on year, but the group expects raw material costs to soar by more than 20 per cent by the end of the year.

The company plans to use price rises to cover costs by the end of the year and to expand its profit margins later into 2022 if the cost pressures subside.

Martin Evans, head of European chemicals research at HSBC, said the continuation of cost pressures into next year “could derail the phasing of an expected margin recovery”.

The Dutch group has also missed out on another chance to scoop up a rival, after US company PPG Industries won the battle to take over Finland’s Tikkurila earlier this year.

DuluxGroup, a Nippon Paint-owned competitor which sells Dulux in Australia and New Zealand, entered exclusive talks on Wednesday to buy French decorative paints supplier Cromology from investment firm Wendel at an enterprise value of €1.26bn.

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