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How paint makers are responding to rising oil prices

Elevated oil prices have dented the margins of paint makers, causing a strategic shift in their product mix

How paint makers are responding to rising oil prices

Indian paint makers are increasingly shifting from solvent-based to water-based paints.

Elevated input costs, especially crude oil prices, have taken the sheen off their gross margins in the past few quarters.

Nearly 55% of raw materials used by paint companies are crude oil derivatives and account for about 30-35% of the total raw material cost of the sector. In the past one year, crude oil prices have jumped by more than 40%. Not just that, prices of pigments like titanium dioxide, iron oxide and zinc oxide also remain elevated (see chart).

How paint makers are responding to rising oil prices

So, considering the cost pinch, there's a growing tendency to use water-based paints, simply because water-based paint is less sensitive to movement in crude oil prices. As the name suggests, for water-based paints the binding agent is water-based. For the solvent-based paints, crude oil is required.

Secondly, the preference for water-based paints over solvent paints is also rising among customers because it is easier to clean walls painted with waterbased paints, said an analyst with Prices of key raw materials for making solvent-based paints remain elevated. a domestic brokerage house. Also, the former is more environment-friendly.

In fact, the slew of recent capacity expansions announced by key paint companies is focused more on water-based units.

For instance, market leader in decorative paints Asian Paints Ltd's plant in Mysuru has 600,000 kilolitres per annum water-based capacity. The company has a larger share of waterbased paints than competitors, pointed out brokerage house Jefferies India Pvt. Ltd in a report dated 10 May.

Similarly, the leader in the industrial paints segment Kansai Nerolac Paints Ltd has been consistently increasing the share of water-based paints in its portfolio.

"Nearly two-third of our revenue in the decorative paints category comes from water-based paints. In general, gross margins are better for water-based paints as compared to that for solventbased," Peeyush Bachlaus, general manager (marketing) at Kansai Nerolac Paints, said in an interview.

He added that globally, consumption of water-based paints is growing and demand is expected to remain high.

Meanwhile, for now, paint makers are shielding their margins by taking price hikes. Most paint companies increased prices by 1.5% and 2% in March and May, respectively, of this calendar year. However, the rising share of water-based paints is expected to aid margin growth in the long term

In arrangement with HT Syndication | MINT