Ed Martin asks who is really paying the price for increased raw material costs and if tank coatings are meeting IMO's PSPC standards
The rising oil price over the past 12 months has been welcomed by many, but a higher crude price means higher costs for producers of downstream products, and the tank coatings market is no exception.
In recent months Norway-based Jotun, US-based PPG and Denmark-based Hempel have posted notices of price increases, all citing continuing raw material costs as a justification. Epoxy resins, titanium and zinc are all being blamed for rising costs, as all have experienced particularly noteworthy price increases.
Jotun’s products will increase in price by up to 20%, depending on composition, and the company noted that rises in the prices of titanium, polyester and epoxies in 2017 - combined with further increases in epoxies and pigments in the first quarter of 2018 – have all contributed to its decision to increase prices.
PPG cites inflation in the prices of epoxy resins, zinc powders, titanium dioxide and solvents, as well as “a steep increase in freight and logistics costs, primarily due to increasing oil prices” as the reasoning for its price rises. The company said it had previously attempted to bear the increasing costs but, according to senior vice president Ram Vadlamannati: “Unfortunately, our supply chain-related inflation can no longer be offset solely by ongoing productivity improvements and cost-saving initiatives.”
Hempel’s price increases have been driven by similar factors; it noted that according to ICIS Pricing and Technon Orbichem, the price of epoxy has risen by 20% in North America and up to 58% in the Middle East and South and East Asia, while the cost of zinc has risen by nearly 15% globally, reaching a 10-year high at the start of 2018, according to the London Metal Exchange.
Hempel executive vice president Michael Hansen said: “There are regional differences, but overall global prices are clearly rising. “We have done our best over the past months to absorb these price increases and limit the effect on our customers. We are working closely with our suppliers, our R&D and our manufacturing set up, but increasing prices is a reality and the trend is clearly continuing.”
With coatings potentially representing as much as 10%-15% of the cost of a newbuild VLCC – depending on who you speak to – and these price increases likely to be permanent, one might expect shipbuilders to try and pass their costs on to the end customers, but this does not appear to be happening.
Newbuild prices for VLCCs are low and forecast to remain so. Any small price increases are consistent across size classes and are not in 10%-15% range. This begs the question, who then is bearing the brunt of these cost increases?
Maritime Strategies International managing director Adam Kent believes that when additional building costs are incurred, yards will tend to take the hit in the interests of keeping orders coming in:
“Historically, even with capex-intensive regulations, e.g. double hulls, common structural rules, ballast water treatment systems, it is difficult to map changes in newbuilding prices to the precise time the regulation has been implemented.
“Shipyards, more often than not, appear to absorb these additional headline costs, to the detriment to their bottom line, in an effort to remain competitive and attract new orders.”
He added “Over time, this incremental cost of production will naturally erode as the yards and manufacturers develop their production lines and increase their efficiency.”
Are tank coatings fulfilling IMO's PSPCs?
IMO’s PSPCs for cargo tanks established a service life of at least 15 years. Ed Martin asks is this target being met?
Performance standards for protective coatings (PSPCs) are intended to establish requirements for coatings for ballast tanks, cargo oil tanks and void space in order that they have a useful working life of 15 years, ‘useful’ in this context meaning they are able to resist and delay the onset of structural corrosion. A ballast tank PSPC was put in place based on SOLAS Chapter 2 Part A-1 Regulation 3-2 in December 2006, while the cargo oil tanks PSPC was brought into force in May 2010, based on SOLAS Chapter II Part A-1 Regulation 3-11.
Coatings can be intended for application during the build process, or for application during maintenance and repair. They can have a range of chemical compositions, be intended for a specific area of application or for general use, for one application or for application in multiple layers, for application with brush or roller or with conventional air spray, conventional airless spray, and plural component air spray – the degree of granularity is seemingly endless. And in all cases, as ABS states in its tank coating application guidance notes, “a balance between cost, performance and difficulty of maintenance has to be achieved”.
With all the different compositions, purposes, areas and methods of application available for cargo tank coatings, rigorously applied expertise is needed from the class societies like ABS, to ensure that correct procedures are being followed during initial and subsequent applications to maximise effectiveness.
Hence, ABS states: “For a perfectly intact coating applied to a perfectly clean surface with good surface preparation, the expected lifetime […] would probably exceed that of the vessel. It is the deviations from perfection that compromise the coating lifetime.”
Areas where such “deviations from perfection” can be found include coating thickness (coatings that are too thin are prone to porosity, while coatings that are too thick can crack), surface contamination (the presence of substances such as dirt, moisture and chemicals on the surface to be coated) and surface profile (the term for the rough surface created by abrasive blasting, to which coatings anchor themselves).
ABS technical adviser Stein Nilsen said: “Most chemical tankers face little or no corrosion problems inside the coated cargo tanks, as the coating is applied more for cargo care and quality purposes, than a corrosion protection film. Depending on the trade, the type of cargo carried, cleaning procedures and the extent to which operators are following the coating maker’s recommendations, it is not uncommon to find tanks in good condition beyond 15 years.”
Addressing potential risks, Mr Nilsen added: “The SOLAS Regulation II-1/3-11 addresses corrosion protection of cargo oil tanks of crude oil tankers. A combination of inert/flue gas (sulphur oxides, nitrogen oxides), dirty cargo and saltwater cleaning increases the risk of steel corrosion. Extended periods of being empty, in a high humidity chloride-rich atmosphere, further speed up the corrosion process, bringing about the need for additional measures to better protect the steel. As the requirement to have the tanks on oil/product tankers coated is quite recent, the effectiveness of protecting the steel is too premature to fully evaluate.”