Dutch paints and coatings maker Akzo Nobel warned on Wednesday that raw material costs inflation could peak in the fourth quarter before stabilising next year as it reported weaker-than-expected quarterly core earnings.

“We expect the raw material situation in 2022 to be less hectic,” Chief Executive Thierry Vanlancker said in a call with analysts, adding that inflation will still be at the forefront in the first half of the year.

“Hopefully we will get a little bit more breathing room, but we’re not betting on that, and our whole pricing plan and our whole market plan is based on the current situation,” Vanlancker said.

The rebound in economic activity as coronavirus restrictions are eased has exposed shortages across supply chains, with companies scrambling to find workers, ships and even fuel to power factories, threatening the recovery and keeping central bankers on high alert over inflation and its impact on rate decisions.

Chemical makers such as Akzo Nobel, Axalta Coating Systems, PPG Industries and Tikkurila have all been hit by rising raw material costs due to strong demand and supply chain issues this year.

In an earlier call with journalists, Vanlacker flagged that raw material costs have escalated quite significantly and are impacting its long-term supplier contracts.

“Most raw material suppliers go for monthly and sometimes bi-weekly (contracts) because they are very uncertain about our own pricing,” Vanlancker said.

The Amsterdam-based firm, which sells decorative paints and industrial coatings worldwide, raised its prices by 9% in the July-September period compared to fight the costs.

It also said raw material and other variable costs in the quarter increased by 278 million euros ($324 million) year-on-year.

The shares in the company fell 1.65% at 0938 GMT, the analysts flagging pressure from earnings miss and inflation comments.

The Dulux paint maker said it was still confident of achieving its 2 billion euro earnings before interest, taxes, depreciation, and amortization (EBITDA) target for 2023, and the annual 50 basis points increase in return on sales over the 2021-2023 period.

Akzo Nobel posted third-quarter adjusted operating income of 241 million euros, with sales improving 6% to 2.41 billion euros, but both missing analysts’ forecasts.
Source: Reuters