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Acrylic acid and its derivatives are in short supply, and the shortage couldn’t have come at a worse time for the paints and coatings industry.
As the economy revives, paint markets are coming back to life. Paint manufacturers are now running at full tilt filling cans for the spring and summer house painting season. But many paint makers are not getting their full orders of raw materials and are paying increasingly higher prices for what they do get. Higher prices on store shelves and some spot shortages are likely to result.
The problems are particularly acute for acrylic acid and derivatives such as butyl and ethyl acrylate. Earlier this year, Dow Chemical, the largest maker of acrylic acid and derivatives, began allocating acid supplies to customers because of mechanical problems at its Deer Park, Texas, plant. Arkema has had difficulty supplying customers since American Acryl, its Pasadena, Texas, joint venture with Japan’s Nippon Shokubai, shut down after an explosion last December.
In April, BASF started allocating supplies of acrylic acid from its Freeport, Texas, unit as it anticipated a three-week maintenance shutdown at the end of June.
In Europe last July, an accident at propylene raw material supplier Total interrupted Arkema’s production of acrylic acid in Carling, France. And recent reports indicated that production was interrupted for a short time at Dow’s acrylic acid plant in Böhlen, Germany.
Acutely aware of the situation, Dow has been circulating a confidential assessment of the supply shortage among its customers. The document describes a worldwide reduction in capacity caused by the recession, followed by an economic rebound and a series of unplanned shutdowns. It does not provide any guidance on prices, but some industry watchers suggest the litany of problems it cites constitutes a justification for price increases.
Acrylic derivatives are essential ingredients in a host of water-based house paints and industrial coatings, and the shortages have had a global effect. For U.K. paint makers, “it has been a matter of quite some difficulty to find raw materials,” says Tony Mash, chief executive officer of the British Coatings Federation, whose members include AkzoNobel, Jotun, and Valspar. “Some of our member companies have had to delay production runs.”
To cope with the situation, the federation set up a webpage to allow member companies to trade inventories. “We’ve become a broker of our members’ excess raw materials,” Mash notes.
Cleveland-based paint maker Sherwin-Williams has warned of tight supplies for a number of coatings raw materials, including acrylic acid. Speaking to analysts during an earnings conference call last month, CEO Christopher M. Connor said the firm was increasing prices of architectural paint in anticipation of “mid to high single-digit percent increases” in raw material prices.
Pittsburgh-based paint maker PPG Industries has also had to cope with raw materials problems. CEO Charles E. Bunch told analysts in mid-April that PPG saw raw material inflation and some shortages beginning in the first quarter of this year.
Reichhold has been “scrambling” to get raw materials for the polymers it ships to paint makers, says Denis Atchison, the firm’s supply-chain vice president. The supply difficulties have in some cases meant delays in shipments to customers.
Ian Davenport, a former global director of Dow’s acrylic acid and esters business, says problems in the acrylic chain have been building since last November when Dow began to have manufacturing problems in Deer Park. Davenport, now president of New York City-based consulting firm Davenport International Associates, says the problem appeared manageable at the time because the economic slowdown had crimped demand for acrylics.
But when the American Acryl plant explosion knocked out another source of acrylics, the market suddenly tightened, Davenport says. American Acryl isn’t expected on-line until some time in June.
As the economy began to recover and demand increased, BASF delayed a maintenance turnaround at its Freeport plant. But it likely can’t do so any longer without danger to its facility, Davenport notes.
For paint makers, the combination of shortages and higher prices for raw materials during a traditionally busy season is causing cash flow problems, Davenport says. The problem is not so much with the bigger firms, which can generally afford to sit tight until they recover their cost increases. It is the midsized and smaller paint makers that get squeezed the most while they wait to recover the increased costs from retail sector customers, he explains.
Phil Phillips, president of Chemark Consulting, in Southern Pines, N.C., attributes the shortages to “a giant sucking sound from China and India.” Demand from those booming markets is moving a lot of coating materials to Asia. And that strong demand has “intensified the level of shortages and led to significant price increases for raw materials,” he says.
Methyl methacrylate (MMA) has been a particularly difficult raw material to come by lately, Phillips says. MMA goes mostly into plastics production, but a significant amount is used as a paint additive.
No substitute exists for MMA in paint, Phillips notes, to which it imparts resistance to ultraviolet light degradation and film hardness. Dow, for instance, acknowledges in its confidential document that a failure at its MMA plant in Deer Park forced it to allocate supplies in April. The Dow document points out at least nine other instances of MMA plant outages in Asia. For the moment, Phillips says, “MMA users can expect a continuing short supply situation with increased prices.”
When the raw material shortages will be over is anyone’s guess. Phillips suggests they will end once customers have gotten accustomed to paying higher prices. Davenport predicts pricing and supply will not “get back to normal” until the fourth quarter of this year. In any case, homeowners looking to paint this summer should brace for sticker shock when they visit the hardware store.
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