Akzo Nobel warns prices to rise up to 16%
Owner of Dulux paint brand expects supply chain problems to ease significantly by mid-year
Europe’s biggest paint maker Akzo Nobel has warned that prices will rise as much as 16 per cent in the first three months of the year, but said raw material costs had peaked thanks to a slowdown in China’s construction market.
The owner of the Dulux paint brand said prices would rise between 14 and 16 per cent year on year in the first quarter, after it incurred €769mn in extra costs because of inflation. This compares to price rises of 12.5 per cent in the final three months of last year.
Supply challenges including higher raw material prices, limited availability and transport issues in the final three months of the year led to a near-30 per cent fall in quarterly adjusted operating profit to €209mn, narrowly missing analyst forecasts, on revenues of €2.4bn.
However, Akzo Nobel, which sells its products to consumers through retailers and to industrial users such as auto and aerospace companies, forecast the industry’s supply chain problems would ease significantly by the middle of this year, reducing pressure on prices.
Chief executive Thierry Vanlancker said raw material costs were starting to level off, helped by a cooling of demand in the Chinese construction market.
“Consumption in raw material producing countries like China has not been very strong,” he said. “What we do see looking forward is a normalisation or more of a plateau [of supply chain disruption] for the remainder of the first quarter and second quarter and then step by step getting more normal.”
A liquidity crisis for property developer Evergrande has led to a loss of confidence in the Chinese real estate sector.
In response to the slowdown, Chinese suppliers of raw materials such as resins, pigments and solvents have been exporting more to Europe and signing longer term contracts, helping Akzo Nobel and other paint companies to rebuild stockpiles, Vanlancker said.
The North American market, however, is likely to suffer supply chain disruptions for longer, he added, partly because of labour shortages.
US competitors PPG and Sherwin-Williams gave gloomier assessments on supply chain problems and inflation last month.
Shares in Akzo Nobel rose 3.9 per cent on Wednesday, after returning to a similar level at the end of 2019. the shares peaked last August thanks to a rise in demand for paint as people undertook DIY projects during the pandemic.
Gunther Zechmann, an analyst at Bernstein, said Akzo Nobel had shown “immense pricing strength” to pass costs on to consumers but more would be needed to cover all the extra costs.
“The market’s main concern will be demand destruction from higher prices,” he said.