The South American coatings market
The changes in the market have settled definitively, challenging the survival decisions of coatings businesses in South America. Changes in consumer priority reached all countries. However, countries supported by stronger and more sustainable economies will advance in consumption quality and products.
Almost the entire coatings market, from global companies to regional ones, reacted to the search for resilience in the short and medium term as survival factor for the long run, passing on costs and reacting to market shortages replacements. The architectural paints segment reacted better and above all, earlier than the automotive segment and others related to it. In countries like Brazil, the annual volume level is now positioned close to a challenging volume of 2.0 billion liters per year, with a significant change in margins and portfolio. These movements were no different from other markets in the world. However, they did not bring substantial changes in competitive productivity and attractive alliances in South America.
In the early moment of pandemic and in the resulting hangover, there were no significant acquisitions or mergers in South America coatings market compared to other regions around the world. The exceptions were the acquisition of Hidracor/Hipercor by Iquine in Brazil, of Puras Industries (Paraguay) by the Solid Group and the announced acquisition of Orbis-Pintuco group by Akzo Nobel. Investments have been announced by few companies, however with a small relative impact on the total installed capacity in the region.
Expectation for maintenance of high costs
In the long run, 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 for a maintenance of high costs, which should be manifested as preservation of margins. We understand that the relationship with the global availability of raw materials could become the basis for coatings consumption repositioning.
The competitive landscape for all global and regional coatings companies will be positioning in competition looking 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 for international companies historically trying to increase the occupation of South America in search of equilibrium.
It is remarkable to observe that in recent years Colombia is taking the second position from Argentina in the size of the Coatings market and Peru is approaching fast the size of Chile. These movements should continue in the coming years as it can be noticed in the chart below. The faster grow of the five countries show below is supported by a relative better macroeconomics indicator in these countries. The rates that are projected are at Asian levels, above American and world averages. So, the recent and projected growth rates enhance the attractiveness of these countries.
The South American coatings market by segments
In another perspective, segmenting the coatings market by the end user markets, the attractiveness can be observed in several areas.
The relative higher growth rates can be observed in the segments related to the mobility needs in a large continent and the protection of assets mainly related to the chemical, petroleum, paper and mining industries.
In the South American supply chain, all global or regional players offer several degrees of support transferring value through technical assistance and other joint developments. But few have evolved the concept of partnerships or alliances with business prototypes, decisive to accelerate market and technology changes. The unresolved factors of the technology low speed conversion always converge back to the reformulation’s costs due to insufficient scale towards the acceptance of consumer market.
On the one hand, in countries like Brazil the potential growth 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 are seeking to redefine its vocation to supply raw materials from renewable sources such as oleochemicals, bio-solvents, bio-monomers and other bio-additives. The target is to position scale into global markets for these coatings materials, which in its turn will allow access to a new generation of coatings, more efficient and more sustainable.
However, the gradual improvement of the economy in the region in the major countries like Brazil and Argentina, allow us to project an attractive market growing over USD 11 billion in the coming five years.