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The paint industry is raw material intensive. Paint involves the mixing of various raw materials in various proportions. The raw materials are of a wide variety. On an average, raw materials account for 60% of net sales (industry average). In case of small-scale units it forms up to 70% of the net sales.
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High cost and erratic availability of raw materials mark the Indian paint industry. Around 300-400 raw materials are required to manufacture different kinds of paints. The high number of raw materials and finished goods highlights the working capital intensity of the sector.
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Most of the raw materials are petroleum based. Thus paint companies benefit when the petrochemical industry goes into its cyclical downswing. A hike in the price of petroleum products raises input costs negating the impact of a cut in import tariffs on raw materials.
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Raw materials frequently run into short supply, resulting in high inventory cost. The shortage of one specific material could result in severe manufacturing problems It is estimated that 18-20% of the total raw materials used the industry are imported.
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Most paint companies are hit by the fact that they do not make the raw materials themselves. For example, phthalic anhydride (PAN) is manufactured from orthoxylene and which goes into the production of paints along with titanium dioxide. Asian Paints is the only paint company that manufactures PAN. The other paint companies have to import their stock. Since PAN prices generally outpace international orthoxylene prices by almost 50% paint companies end up paying a fortune when prices rise. In such a situation Asian Paints benefits by selling PAN in the open market.
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Raw materials are divided into three major groups, namely, pigments (titanium dioxide, zinc oxide etc.), solvents (mineral turpentine) and resins and additives.
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Pigments are finely ground solids of different shades to give colour, durability, consistency and other properties to paint. It is also one of the major raw materials, accounting for one-third of the total raw materials cost.
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Amongst the vital pigments used in the process of paint manufacture is Titanium dioxide (TiO2) and the industry consumes around 60% of TiO2. This pigment is available in two grades: anatase and rutile, of which anatase is exclusively used in interiors while rutile is preferred in exteriors. India has abundant raw materials for the manufacture of TiO2, especially ilmenite of which it has 12% of the world’s deposits. It is ironical that the paint industry presently imports TiO2 in excess of Rs.1 bn - a figure that may touch Rs 2 bn by the turn of the century. TiO2 is responsible for the demand-supply gap. If the strong demand growth boosts domestic production of TiO2, there will be an increased usage in various sectors. If the raw materials are properly utilized, India has the potential to emerge as a net exporter of TiO2 in the next five years.
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Solvents are volatile organic compounds (VOC) used to dissolve, suspend or change the physical properties of other materials. They are generally used to bring down the viscosity of paints to the desired level, which also reduces the cost of paint formation. They constitute 70%-75% of the paint liquid and ultimate escapes into the atmosphere when the fluid dries. Solvents such as ethylene glycols and alcohols are finding wider use as co-solvents in new water-borne formulations.
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Binders are generally oils, resins and plasticisers that give paints its protective property. Most resin manufacturers make alkyds, polyesters, emulsion polymers, epoxy resins, amino resins, powder coating resins etc.
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Additives are added in small proportion to the paint to improve its performance characteristics in various ways. Skinning inhibitors, fungicides, wetting agents, driers are included in this category.
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