The South American coatings market

September 8, 2022 | Markets and Companies

Francisco Z. Racz & Washington T. Yamaga Racz, Yamaga & Associates

The changes in the market have definitely settled down, challenging the survival decisions of the coatings business in South America. Changes in consumer priority reached all countries. However, countries supported by stronger and more sustainable economies will advance in quality of consumption and products.

The changes in the market have definitely settled down, challenging the survival decisions of the coatings business in South America. Changes in consumer priority reached all countries. However, countries supported by stronger and more sustainable economies will advance in quality of consumption and products.

Almost the entire coatings market, from global to regional companies, reacted to the search for resilience in the short and medium term as a factor for long-term survival, passing on costs and reacting to market shortage replacements. The architectural paints segment reacted better and above all, before the automotive and other related segments. In countries like Brazil, the annual volume level is now positioned close to a challenging volume of 2 billion liters per year, with a significant change in margins and portfolio. These movements were not different from other markets in the world. However, they did not bring substantial changes in competitive productivity and attractive alliances in South America.

At the start of the pandemic and in the resulting hangover, there were no significant acquisitions or mergers in the South American coatings market compared to other regions of the world. The exceptions were the acquisition of Hidracor/Hipercor by Iquine in Brazil, of Puras Industries (Paraguay) by Solid Group and the announced acquisition of the Orbis-Pintuco group by Akzo Nobel. The investments have been announced by few companies, however, with a relatively small impact on the total installed capacity in the region.

Expectation of high maintenance costs

In the long term, the search for competitive productivity at the level of coatings manufacturers and at the supply chain level should result in more attractive alliances for the region in the coming years as consumption has changed.

In the medium and short term, the expectation is of maintaining high costs, which should manifest itself as preservation of margins. We understand that the relationship with the global availability of raw materials could become the basis for repositioning the consumption of coatings.

The competitive landscape for all global and regional coatings companies will position themselves in the competition for value-added opportunities. The stock of accessible technologies available will determine the competitive difference. On the other hand, consolidations are also expected in a continuous process of international companies that historically try to increase the occupation of South America in search of balance.

It is remarkable to note that in recent years Colombia is taking the second position of Argentina in the size of the Coatings market and Peru is rapidly approaching the size of Chile. These movements should continue in the coming years as can be seen in the chart below. The faster growth of the five countries shown below is supported by a relatively better macroeconomic indicator in these countries. Projected rates are at Asian levels, above US and world averages. Therefore, recent and projected growth rates increase the attractiveness of these countries.

The South American market for coatings by segments

In another perspective, by segmenting the coatings market by end user markets, the appeal can be seen in several areas.

The relatively highest growth rates can be observed in the segments related to mobility needs in a large continent and the protection of assets related mainly to the chemical, oil, paper and mining industries.

In the South American supply chain, all global or regional players offer various degrees of support to transfer value through technical assistance and other joint developments. But few have evolved the concept of partnerships or alliances with business prototypes, decisive for accelerating technological and market changes. The unresolved factors of low speed conversion technology always converge towards reformulation costs due to insufficient scale for consumer market acceptance.

On the one hand, in countries like Brazil, the growth potential remains limited by the lack of development in transportation and energy infrastructure, generating costs for the coatings supply chain. On the other hand, several suppliers of raw materials in Brazil and other countries seek to redefine their vocation of supplying raw materials from renewable sources such as oleochemicals, biosolvents, biomonomers and other bioadditives. The objective is to position the scale in the global markets for these coating materials, which in turn will allow access to a new generation of coatings, more efficient and more sustainable.

However, the gradual improvement of the economy of the region in the main countries such as Brazil and Argentina, allow us to project an attractive market with growth of more than USD 11 billion in the next five years.

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