Painted coatings are the visible barrier protecting any structure exposed to the brutal elements and extreme temperatures found throughout the Middle East but recent raw material price hikes for suppliers is also playing its part in shaping the regional market.
Paints and coatings providers in the Middle East have a long pedigree in the region. This is perhaps not surprising given the ubiquitous nature of their core product, and the leading multinational paints manufacturers have established strategic production bases and supply chains across the Gulf.
The region’s oil and gas companies often turn to these silent protectors to shield their mission critical projects, where every hour of production downtime translates into millions of dollars in losses.
Whilst promoting environmentally friendly products is important to many coatings manufacturers operating in the Middle East, the reality for many here is that their clients will often opt for the cheaper and conventional solvent based paints. Some in the industry say this is down to a lack of knowledge as well as customers watching out for their bottom line.
With the establishment of a regional paints and coatings industry body, the Society for Protective Coatings (SSPC), it is hoped that a greater level of knowledge transfer and awareness will take place between coatings professionals, contractors, applicators and end-users.
Hempel Paints’ director of Protective Coatings and Marine Coatings and Technical Services, Ian McCahill is optimistic about the flow of work expected to come from offshore and upstream energy projects.
The company has recently bagged two major contracts on world-scale projects, namely the Qatar Pearl GTL and Saudi Aramco’s SATORP (Saudi Aramco Total Refining and Petrochemical) projects.
“The bears are out, and the bulls are back,” says McCahill. “Right now you’re looking at double digit growth scenario for the Middle East markets. The barometer as always is oil price and it’s comforting to note that oil revenues are stabilising at solid levels after the volatile boom and bust period.”
Being an integrated business partner with oil majors such as Saudi Aramco has gone a long way in helping the company secure these contracts.
McCahill says that embracing change; adding and creating value for customers; understanding customers’ requirements; their working procedures and systems is key to gaining a competitive advantage in an increasingly uncertain marketplace.
“The last time there was a really stable business environment was 1992-1993, and at those times I would have said we are competing in the market on quality and service, they are the benchmarks,” McCahill explains. “Since then these have become more internal than external benchmarks because we’ve integrated ISO; health and safety legislation; and internal and external audits.”
“If you can save three or four hours in turning around that structural steel, handling it and getting it to site and then you multiply that by 10,000 tonnes of steel work, you’ve saved a lot of money,” he explains.
Regional sales since 2004, he says, had double digit growth up until 2009 when the recession reached full tilt. In addition to attributing lower volume to recessionary trends, a lack of confidence stemming from the reduced foreign investment in Saudi Arabia has been to blame.
However, due to the longer lag time involved in upstream projects, coatings providers have been somewhat cushioned from the brutal boom and bust scenario the civil sector has seen in the Middle East.
Jotun has been experiencing similar levels of growth in the region, with ME and Asia accounting for a major portion of its operations and revenue.
The company, which had an operating income of approximately US$1.79 billion in 2009, up from $1.67 billion in 2008, finds that many of the petroleum based economies are faring better in the current economic climate. Jotun opened a new state of the art factory in Yanbu, Saudi Arabia in November last year, is witnessing strong growth in the region, particularly Abu Dhabi, with its ongoing and planned mega infrastructure projects.
“Last year was very good for us in the oil and gas sector and in protective coatings in general. We are quite optimistic with regards to the oil and gas sector over the next 12 months,” says Erik Aaberg, managing director at Jotun Paints.
The company is seeing growth of almost 10% worldwide this year with its operations in the Middle East delivering growth of 5%. Despite such positive gains for providers’ order books, there are some areas of the market that cannot be controlled, such as the rising cost of raw materials. This has been largely attributed to a double hit of increased demand from China, following a reduction in production capacity of resin manufacturers, which have been mothballing or even scrapping plants because margins became uneconomical when the recession hit. China is now prepared to pay much higher prices which has in turn affected other markets.
“Raw material prices have risen quite a lot, but the overall demand for coatings has not grown in the last 12 months,” says Aaberg. “Many of the raw material suppliers cut capacity and closed plants, so there is much less production available. This ultimately affects our prices, which is difficult because there is no increase in demand. This situation is difficult to explain to our customers when we say that our costs have gone up.”
Market forces aside, operating in the Middle East for foreign companies traversing local cultural practices presents some unique challenges explains Andy Holt, regional manager of UK based Leighs Paints.
“Every place that you operate has its differences and it’s important to be culturally aware and to try and understand what the local business requirements are, and try and focus your business in that way,” Holt says.
The heavy duty coatings manufacturer, which focuses on steelwork protection, has seen a linear level performance since 2008. Its most recent involvement in regional oil and gas projects have included Habshan 5, the Shah gas fields in Abu Dhabi, and loading berths for Qatargas in Qatar. For the Qatar job Leighs Paints provided specially formulated cryogenic and fire protection coating systems.
Unexpected project delays or cancellations pose further challenges due to the time-sensitive nature of the paints and coatings supply chain, which is usually tailored to industrial scale clients’ requirements and specifications. “You have to be careful when you are forecasting that you don’t end up with too much stock for projects which are cancelled or delayed due to unforeseen circumstances,” says Sigma Paints’ Dubai based general manager, Arno Meister.
“For production times, getting the raw materials in on time, you cannot take any risk in delay in shipping because all the raw materials aren’t manufactured or stored in great volumes locally in the GCC, and so need to be imported,” he says.
Meister notes that whilst the decorative paints side of the market is seeing an increase in demand for environmentally friendly products, the same cannot be said for industrial paints and coatings. Ultimately cost remains the main driver for customers who often opt for the more conventional solvent based products.
Marwan Salem, managing partner at MBS Coating, a UAE based contractor believes this is also partly due to a lack of awareness amongst the region’s customers.
“We try to advise the client to use water based paint but of course there is the cost factor involved, so we have to convince and discuss with arguments, but not just by ourselves as a contractor. We also bring in paint manufacturers to further strengthen our view,” he says.
Pradeep Radhakrishna, founding chairman of the newly-inaugurated UAE chapter of the SSPC says that encouraging industrial customers to use environmentally friendly coating products will take time but is hopeful they will be accepted as the standard in the future.
“As it’s used more, companies will start producing it in greater volumes, and as more companies start producing it there’s more competition. This trend of paints going towards using less solvent is already happening,” he explains.
“Water based technology has been around for a while but at the moment it has still not crossed the major threshold levels,” he concludes.
Speaking about the important role a certification body like the SSPC plays in the regional context, Salem says it helps to set a standard that vendor, service provider and client recognise, ensuring quality delivery.
“If there’s an urgent job like maintenance, then a shut down costs millions of dollars for anything energy related. You don’t have to be just professional, you have to be highly specialised and people have to trust you – and that’s where the SSPC comes in,” says Radhakrishna.
