To state the obvious, inflation pressure is affecting all aspects of our economy – both individual and business.
One need only to compare month to month expenses for grocery bills, gasoline / utility prices, restaurant charges, apartment rental costs, housing costs, new or used autos or trucks, etc., to know that the stated year-to-year 7% Consumer Inflation rate is significantly understated for the essential items that make up our “Cost of Living”.
As far as the inflation rate for Wholesale in 2021, it is listed at 9.7% – a sign that more cost increases for consumers are yet to come and is baked into the system.
If we focus just on the Blast & Paint industry as a market, the inflation rates are significantly greater than either the 2021 Consumer or Wholesale Inflation Rates.
While the surface preparation side – the Blast operation – has experienced inflation rates more like the overall economy – say around 10 to 15% for 2021 – the Paint side has not been so lucky.
Looking at the supply chain for Blast operations, the main drivers for cost increases for Abrasives is as follows:
- Coal Slag increase due to closing of many of the Coal Fired Power Plants – whose Slag stream from the operation is processed to produce Coal Slag. As the inevitable movement to “renewable” energy sources progresses, Coal Fired Power Plants are being retired early and often. As a result, Coal Slag prices are increasing – and will continue to increase further as supply dries up.
- Garnet is supplied from oversea sources – and due to accelerating demand (partially replacing Coal Slag), upward pricing pressures have been evident. Increasing demand combined with much greater overseas (India, Australia, China, etc.) shipping costs have caused Garnet pricing to increase around 20% – with more increases to come.
- Staurolite is also in short supply compared to demand. While there is some domestic supply, much comes from overseas (Ukraine, Germany, China, etc.) and is therefore subject to the 5-fold increase in overseas container cost. Over 20% increase in 12 months.
- High-Performance Copper Slag has only increased around 10% – mostly due to freight cost increases.
- Crushed Glass – approximately 5% increase for the domestic supply – again attributed to inland freight cost increases for over-the-road trucking.
On the other hand, paint and coatings pricing have increased at minimum 20% from a year ago. Some of the factors impacting rising costs on abrasives is also affecting paint.
However, there are additional reasons for paint price increases including:
- Raw material supply is critically below demand from paint producers (& end users). This is due to:
- Covid 19 related labor shortages – worldwide
- The Texas Freeze which damaged many of the paint raw material producers – which many have not fully recovered
- Hurricane Ida (late in August) damaged critical raw material producer infrastructure around the Louisiana coastline
- Increased demand for paints in 2021 & beyond compared to 2020
- Oversea Container shortages
- Container ships containing paint raw materials waiting outside US Ports to unload in overwhelmed ports
- Many of the paint raw materials are on allocation for the past 8 months or so
- Paint and resins are downstream Petroleum refinements whose prices have more than doubled in the last 12 months. Crude oil price increases and subsequent costs escalations of refined petroleum products directly affect the price of paints and coatings
- Directly affected are the resins – both price and availability – including epoxies, urethanes, acrylics, polyols in general, and other organic additives.
- We’ve had orders out for Clear 2-component urethanes that have been backordered now for over 8 months as just one example
- Shipping cost increases – both overseas (quadrupled in 12 months) – in addition to overland trucking costs – full truckload pricing has more than doubled in some lanes – and LTL freight costs is all over the board – all with much longer wait times as wells for securing drivers and carriers
- Import taxes have recently been reinstituted
- Labor shortages at production plants, shipping companies, etc.
As a distributor, we have seen multiple price increases from our major suppliers over the last 12 months including PPG, International, Carboline, Gulf Coast Paints, etc. The total increase for paint and coatings has been anywhere from 20 to 30%.
Further, some of the major paint companies have instituted Surcharges – from 6 to 15%. Will those be eliminated once supply chain issues stabilize? Think about the temporary Fuel Surcharge that was added to gas & diesel fuel some years back – it’s still here in full force.
The trends and anecdotal information we are seeing indicates that 2022 will remain with chain supply issues – and therefore more price increases. Perhaps not as sharp a spike – but nonetheless upward pricing pressures will remain this year of 2022.
Our sources have indicated that the increases will flatten somewhat in 2022 – however do not expect some level of stabilization until calendar year 2023.
Our response to all of this has been to commit to full inventory capacity in order to:
- Keep our customers supplied
- Stock ahead of next round of price increases
- Reduce the likelihood of stockouts due to manufacturing delays – where delays in receiving orders from manufacturers are continuing
Our suggestion to end-users is the same as above – order early – order a bit more than you think you will need – and adjust bids to reflect ongoing inflationary price increases.