The domestic paint industry is facing significant challenges as the ongoing conflict in the Middle East drives up prices for key raw materials. The cost of naphtha, a crucial ingredient for solvents and resins, has soared, putting pressure on manufacturers.
According to the Korea National Oil Corporation's Petronet, naphtha prices reached $128.56 per barrel at the end of last month, a staggering 67% increase compared to the same period last year. This prolonged situation of sourcing essential materials at over 50% higher prices than last year has led to fears of reverse margins, where companies incur losses with every sale.
Despite these cost pressures, the four major domestic paint manufacturers—KCC, Noroo Paint, SP Samhwa, and Gangnam Jevisco—are opting to minimize or forgo price increases to support the construction industry. KCC has completely withdrawn its plan to raise product prices by 10% to 40%, while SP Samhwa has reduced its proposed increase from 20% to around 10%. Noroo Paint has also excluded some products from price hikes and significantly lowered its increase amounts. Gangnam Jevisco has agreed to adjust the timing of its price increases in consultation with specialized construction firms. These companies signed a 'coexistence agreement' on May 7 to alleviate the burden on small and medium-sized construction firms.
The rise in raw material prices comes as the paint industry is already grappling with poor performance. KCC reported sales of 6.48 trillion won and an operating profit of 427.6 billion won last year, marking declines of 2.6% and 9.2%, respectively. Noroo Paint's sales fell by 2.9% to 771.1 billion won, with its operating profit plummeting over 30% to 30.2 billion won. SP Samhwa's operating profit dropped to 9.5 billion won, about half of the previous year's figure.
As profitability in traditional paint operations declines and the industry becomes more vulnerable to fluctuations in exchange rates and oil prices, experts predict that paint companies will accelerate diversification efforts.
KCC is venturing into the 'beauty materials' market based on its silicone business, participating in global cosmetic ingredient exhibitions in France, China, and Thailand to showcase high-performance cosmetic materials. Noroo Paint is focusing on research and development of high-value special coatings, including 13 types of materials for secondary batteries. Samhwa Paint has rebranded itself as SP Samhwa, aiming to transition from a paint manufacturer to an advanced chemical materials company.
An industry insider noted, "In the worst conditions of a construction downturn and skyrocketing costs, new business ventures are no longer optional but essential for survival. However, it will take time for these new ventures to translate into actual profits, meaning that management challenges due to cost pressures are likely to persist for the foreseeable future."
* This article has been translated by AI.
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