Mixed markets steady prices
Powder coatings, such as this one by Sherwin-Williams, have regained momentum due to availability in smaller batches and just-in-time delivery.
By Elena E Murphy -- Purchasing, 10/8/1998 6:00:00 AM
The market for paints and coatings is stable, which means tags will hold through year-end. Orders have slowed slightly due to the downturn in Asia and other softer end-use markets. Even as demand remains steady, orders are still at a relatively high level since the economy has been active for the past few years. That balance in demand, in addition to adequate but not excessive supply, will prevent a significant weakening among prices.
Prices remain stable
Prices are stable this year and will remain at current levels for the coming 6-12 months. There are "no significant increases expected," says one producer. Reasons for the maintenance of tags in this highly competitive market include low pressure from most raw-material suppliers and consolidation within the industry to boost efficiency.
Raw-material prices are steady, which will contribute to the stable price expectation. One industry supplier points out that since additives contribute a small portion of the volume of paint ingredients, but affect performance considerably, these prices change cost structure. A number of additives tags were flat by the third quarter, but currently there are a few whose prices are rising.
An exception to the stable raw-material price trend is titanium dioxide (TiO(sub2)). Since prices for this pigment started rising earlier this year, buyers have been concerned that paint and coating tags would reflect the increases. That hasn't happened yet, though the true test will occur early next year as the construction industry and other industrial projects gain momentum.
In addition to higher prices for TiO(sub2), there is a significant change in this segment of paint ingredients. ICI sold its Americas Tioxide operations to Houston-based NL Industries early in the third quarter of this year. NL Industries also has an agreement to buy a Tioxide plant in England from DuPont. This shuffle compresses an already limited number of sources of TiO(sub2).
Another reason that tags are fairly stable: Producers are reducing their own costs through industry consolidation. Paints and coatings producers continue to merge or acquire companies due to the fierce competition for marketshare. A recent example is Netherlands-based Akzo Nobel's July 1998 acquisition of Courtaulds plc. The fewer global paints and coatings producers either improved efficiency of plants or are closing down capacity that isn't needed based on the new company's configuration.
This consolidation also is occurring at the supplier level. According to James Stephanadis, worldwide marketing manager at Lubrizol Coating Additives, Wickliffe, Ohio, suppliers also are becoming global players in order to compete more effectively. Suppliers are mobilizing to meet customer needs at multiple sites around the world.
The consolidation trend among producers dovetails the continuing trend of smaller supply bases from which customers source the majority of materials and services. Working with fewer suppliers, producers are able to obtain expertise in terms of formulation, packaging, and MRO goods and services.
Demand mostly solid
Industry sources say that demand for paints and coatings is solid for most products. Several types of paint are growing particularly quickly, due to environmental concerns. However, there is mixed activity among end-use markets, which offsets the increasing orders for certain paints or coatings. Demand will grow modestly in the coming year.
Demand has been good over the past year, says E. Kears Pollock, executive vice president at PPG Industries, Pittsburgh. Industry sources attribute activity to North American orders and stable end-use markets. Pollock points to resurging interest in powder coating for the minimal VOC (volatile organic compounds) and performance as driving orders. Stephanadis adds that demand for waterborne and radiation-cured paints is increasing at a rapid pace, boosting otherwise steady orders.
The long-term strength of powder and radiation-cured products was evident when the Asian economy began to slow earlier this year. Bill Ballway, vice president--marketing at Sherwin-Williams, Cleveland, says many finishes have made the transition from conventional systems to these new coating technologies. Based on industry estimates, Ballway says that it is likely these two types of products will maintain a compound annual growth rate of 9.0% through 2004.
However, the industry's market optimism is characterized by more than one industry source as "guarded," due to unclear expectations of Asia's financial problems. For instance, one producer points out that North American and European exports already have been affected by the softening in Asian demand.
A lack of activity in certain end-use markets and other geographic regions also accounts for the modest growth expectations for the coming year. For instance, the strike at GM during the summer slowed orders, and the paints and coatings industry is not sure that it has seen all the fall-out yet. Also, South America, which was perceived earlier this year as the counterpoint to the lackluster Asian market, is leveling off and producers don't know if the area will start growing again in the near future.
Customers also are trimming their demand for paints and coatings due to application improvements. Pollock notes that industrial customers use less paint to cover the same surface area than in the past due to better surface prep, faster-drying product, and higher efficiency. The key for the industry is to develop closer relationships with customers in order to garner larger percentages of those customers' business.
To meet or anticipate customer requirements, suppliers say they must provide more value. Sherwin-Williams' Ballway points out that customers seek "efficient finishing systems, ability to track VOC emissions, and custom-formulated products to meet HAP (hazardous air pollutants) requirements." The result, producers say, is that more customers focus on long-term value rather than just up front cost.
Reflecting modest expectations, demand for paints and coatings is forecast to grow 3.1% through 2001, according to Cleveland-based market research firm The Freedonia Group. New housing and consumer durables are credited with driving growth, and will be supported by non-solvent products such as those that are water-based, high solid, or powder. Even the long-term outlook for Asia is solid despite currency devaluation.
Supply adequate
Supply levels will remain adequate for the next 12 months due to ample capacity and improved efficiency among producers. As a result, leadtimes are fairly short with no changes anticipated.
Pollock says that there are no shortages, despite the fact demand has been "fairly robust in the past few years." Acquisitions, such as PPG's purchase of Keeler & Long in 1998, have not affected the available capacity for production.
In fact, producers say to meet customer requirements for seamless inventory management, they have made improvements in efficiency. This has offset the reduction in physical capacity, according to Pollock. The result is stable supply and accurate delivery.
On the supply side, there are only a few products whose availability is on the "snug side," notes Stephanadis. He says that ingredients that will be tight temporarily, include TiO2. The harvest of linseed for oil also is limited and chromates are down due to turnarounds, he adds.
Leadtimes are short for most finished product, and will remain so due to demand-supply balance. For instance, Pollock says that manufacturing cells yield product faster, which enables producers to develop more specific order deliveries. One producer notes the availability of popular powder coatings in smaller batches and just-in-time (JIT) delivery, which boosts the market for these products. Stephanadis says that paint suppliers practice inventory management with their customers more than in the past.
Tighter leadtimes also are important for those producers that cultivate long-term relationships with customers. The result is a rise in JIT delivery schedules, as one producer notes. The companies may be electronically linked as one automaker is to its supplier so the supplier knows how many vehicles have been painted and when inventory has to be replenished.
Paints and coatings industry players also are considering "back-integrating," notes Stephanadis. This enables the companies to obtain production or non-production materials and services faster and control costs as well. An example is basf, which has its own oil and gas production.
Market at a glance
Demand: Will grow modestly in the coming year. One reason is mixed orders from regions: Asia is down, South America is level, North America and Europe are strongest.
Supply: Adequate, with no changes expected. Consolidation at producer and supplier levels has triggered reexamination of plants efficiency. Raw materials are plentiful.
Prices: Flat, for the most part. No significant increases expected. Most raw materials, except titanium dioxide, feature level pricing.
Leadtimes: Short, due to ample supply and an increase in inventory management. No changes expected.
World paint & coating demand(thousand metric tons)
% annual growth Item 1996 2001 01/96
Fixed investment (bil 95 US$) 7,395 9,314 4.7
kgs/000$ fixed investment 2.95 2.74 --
Paint & coating demand 21,852 25,500 3.1
North America 6,194 7,255 3.2
Latin America 1,529 1,960 5.1
Western Europe 5,454 6,195 2.6
China 1,370 1,750 5.0
Japan 2,026 2,100 0.7
Other Asia/Pacific 2,717 3,215 3.4
Other 2,562 3,025 3.4
SOURCE: THE FREEDONIA GROUP
VOC watch
Volatile organic compounds (VOCs) are still a concern, say paint and coating producers. Though products such as waterborne coatings that have lower solvent content have started to take off, these products still only represent a fraction of the market.
The problem is two-fold. First, it costs hundreds of millions of dollars for a paint producer to transfer a plant from generating solvent-borne product to powder coatings. Second, powder coatings may be VOC-free, but they don't necessarily last longer on a car, notes an industry insider.
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