Volume 78, Number 41
CENEAR 78 41 pp.
ISSN 0009-2347
C&EN Northeast News Bureau
The paints and coatings industry moves slowly. In this mature market, growth in paints does not outpace the growth of the global economy without technical developments and government regulations forcing change.
Moreover, it is difficult for new technologies to break into the market. Unless authorities force them to do so, car companies will not undergo a costly retrofit of an assembly line just because a new coating system is suspected to be better than the one they are already using. The old and new products have to be investigated and compared until the new product is proven to be a better investment than the old one--a process that usually takes years.
But unlike true commodities, such as pork bellies or crude oil, paints and coatings, with the help of chemistry, can change and improve. And because paints and coatings markets are competitive and governments sometimes object to the materials used in paints, paint companies often change their formulations.
According to Department of Commerce data, 1999 was a strong year for coatings producers. Total volumes in the U.S. climbed by 3.0% to nearly 1.5 billion gal. Meanwhile, total revenues from paint increased by 4.1% to $18 billion. The difference between the two growth rates reflects increased prices for paints, in part to pass along price increases for raw materials such as titanium dioxide (see page 28) and petroleum-based products.
Volumes for the largest coatings segment, architectural coatings, increased by 7.2% to about 677 million gal, while value increased by 11.5%. Some industry watchers attribute paint growth to the robust housing and remodeling market, the result of a strong economy and relatively low interest rates that year. Product coatings for original equipment manufacturers (OEMs)--a category that includes automotives and appliances--grew by 4.1% last year, hitting nearly 446 million gal, while the value of these shipments climbed by 1.8%. Volumes for specialty purpose coatings, a catchall category that includes everything from aerosol spray paints to traffic markings, declined by 1.7%, and the value increased by less than 1%.
Phil Phillips, president of P. G. Phillips & Associates, a Southern Pines, N.C.-based market research firm, tracks the same coatings segments globally that the Department of Commerce tracks in the U.S. He says that, in 1999, Europe was the largest market for coatings, with architectural coatings valued at $9.8 billion, OEM coatings at $8.9 billion, and special-purpose coatings at $4.7 billion.
North America, Phillips says, was second, having used $6.7 billion worth of architectural paints, $7.5 billion in OEM end markets, and $4.8 billion in special-purpose applications. Asia, with faster economic growth than Europe or North America, last year spent $8 billion on architectural coatings, $3.1 billion on OEM coatings, and $3.7 billion on special-purpose coatings.
The rest of the world--which includes Africa, the Middle East, and Latin America--consumes $6.2 billion in architectural coatings, $1.6 billion in OEM coatings, and $2.6 billion in special-purpose coatings, according to P. G. Phillips.
Usually, regulations spur advances in the coatings industry. Now and then, new Environmental Protection Agency or local mandates require coatings makers to reduce the level of volatile organic compounds (VOCs) in products that serve certain markets. As a result, coatings producers and OEMs have been switching to more environmentally friendly technologies that perform like solvent-based coatings. These technologies include waterborne coatings, high-solids solvent-based coatings, powder coatings, and radiation-cure coatings.
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| Coating is applied to the new Beetle at Volkswagen's Puebla plant in Mexico. [Photo courtesy of Volkswagen A.G.] | |
Heidi Alderman, marketing manager of coatings for Air Products Polymers, a joint venture between Air Products & Chemicals and Germany's Wacker Chemie, agrees that the move against solvents has been a driver in the coatings industry, even in architectural coatings, which began the switch to waterborne formulations years ago. "We expect that stricter VOC regulations will be enacted in the future, which will require VOC reductions in architectural coatings," she says. "We are already seeing movement to tighter regulations in California and the Northeast. If these stricter regulations are enacted, we expect them to spread across the country," she adds.
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Relying on resins
Binders, or coatings resins, are responsible for the performance in paints, Nerlfi says. "Resins may not be the most expensive ingredients, but they are the most important, because they bind all the components together," he explains.
Coatings companies have relied heavily in recent years on resin companies to come up with solutions to their regulatory problems. And looking at a few of the new products that are coming out, it's apparent that resin makers have not run out of ideas. For example, Bayer recently won a Presidential Green Chemistry Challenge Award for its two-component waterborne polyurethane system. Generally, isocyanates, one of the primary raw materials for polyurethanes, are unstable in water. Trying to make water the carrier for isocyanates was no easy task. Bayer modified isocyanate molecules to stabilize them in water so customers can react them with polyols, just prior to painting, to make polyurethane coatings.
These products have a customer base--industrial OEMs--similar to that of polyurethane dispersions, for which isocyanates and polyols are reacted before they reach the customer. But the two-component system offers premium performance over polyurethane dispersions, says Terry Potter, business director of specialties for Bayer Corp.'s coatings and colorants division. "Polyurethane dispersions tend to be used where there aren't a lot of aggressive solvents or environments, whereas the two-component technology, which is more highly cross-linked, is used more in areas where a higher degree of solvent and water resistance is necessary," he says, noting that both products are growing faster than most other resin types.
Last December, Dow introduced its Blox thermoplastic resins. In addition to using the resins for packaging peanuts and as barrier layers in beverage bottles, Dow is looking at powder coatings applications for these products. Brent Polak, Dow's marketing manager for new business development in powder coatings, says that, because they are thermoplastic, Blox resins are flexible, making them suited for applications like metal furniture and sporting equipment. The resins offer performance similar to that of nylon, but at a reduced cost, Dow claims. "There are a lot of applications where people have passed over nylon in favor of commodity resins," Polak says. "Blox might bring them back."
Over the next year, Atofina Chemicals, Philadelphia, intends to commercialize a water-based fluoropolymer resin for use in architectural coatings for outdoor exterior applications such as water towers and bridges. "It will have the same curing mechanism as water-based acrylics, but with the properties of a baked-on fluoropolymer," says Jim McCarthy, Atofina's market development manager for technical polymers.
According to Nerlfi, acrylics, vinyl acrylics, vinyl acetate-ethylene, epoxies, and polyurethanes together account for 93% of the resins used in water-based coatings. The major suppliers of these resins include Dow Chemical , Rohm and Haas , Union Carbide , Reichhold , Eastman Chemical , Air Products , BASF , BF Goodrich , and S. C. Johnson Polymer.
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Industry consolidation
Mergers and acquisitions have also been driving the paints and coatings industry, and that trend has continued in 2000. Among the noteworthy deals is Minneapolis-based Valspar's $975 million bid to acquire Lilly Industries, Indianapolis. Valspar's 1999 sales of $1.4 billion came mostly from architectural, packaging, and industrial coatings. In that same year, Lilly generated $656 million in revenues, primarily in wood and metal coatings. The Federal Trade Commission is scrutinizing the deal closely and may delay the projected year-end completion date.
In another industrial coatings transaction this year, BASF bought Rohm and Haas's industrial coatings business, which racked up $155 million in sales two years ago, mostly in coil coatings. BASF says the Rohm and Haas business, coupled with its own industrial coatings operations, makes it one of the world's strongest coil coatings players. The company is even talking about developing coil coatings technology for automotive applications, which may enhance its top-three position in that segment.
PPG has acquired Monarch Paint Co. and will buy the retail paint business of New Dean & Barry to improve its downstream count of paint stores. Monarch's sales are about $90 million annually. And Akzo Nobel says it became a leading aerospace coatings supplier when it acquired Dexter Corp.'s aerospace coatings business.
Over the past few years, the consolidation among coatings makers has influenced their raw material suppliers. Paint companies now require homogeneous supply throughout their global operations, which has prompted suppliers themselves to consolidate and globalize. In 2000, this has been playing out in the coatings resins industry.
Eastman's $355 million purchase of McWhorter Technologies, including debt, embodies many of the reasons that coatings raw material suppliers are consolidating. Eastman has been one of the preeminent suppliers of coatings raw materials for decades through solvents, additives, and cellulose-based binders.
In the early 1990s, Eastman, seeing the tide turn against solvents, started to develop a line of waterborne emulsions in-house. This was the basis of Eastman's Hydreau line of waterborne styrene-acrylic polymers unveiled earlier this year. In addition, its purchase of Lawter International in 1999 gave Eastman acrylic resins that could be used in the coatings industry.
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| In coil coating, special coatings are applied by rollers to continuous strips of steel or aluminum, which are then cured. The strips can be used for siding, roofing, and appliance housings. [Photo courtesy of Voest-Alpine Stahl AG ] | |
The combination is yielding other benefits, says Jeff Nodland, Eastman's vice president and general manager of coatings, inks, textiles, and composites and formerly McWhorter's chief executive officer. He recalls that McWhorter was also looking to expand its base beyond resins. "We wanted to supply a greater percentage of the paint can," he says. To that end, the company acquired Accurate Dispersions, which sells pigment dispersions to the paint industry. The Eastman acquisition is a continuation of what McWhorter started to do on its own. Similarly, with its own global operations and connections, Eastman can expand the resins business globally better than McWhorter could by itself, Nodland says.
In addition, McWhorter and Eastman were both heading in the same direction technically. Although about two-thirds of McWhorter's product slate goes to solvent-based applications, the company's waterborne emulsions business has been growing at about 25% per year, about four times the industry average.
Like Eastman, Bayer A.G. is taking an audacious step in coatings resins through its $325 million offer for Sybron Chemicals, parent company of polyester powder coatings resin maker Ruco Polymer. Bayer says Sybron's stake in environmentally friendly coatings will complement its own strong business in polyurethanes for the coatings industry.
In 1999, Solutia made a dramatic move when it acquired Vianova Resins. Solutia is emphasizing the cross-fertilization of Vianova--which is predominantly a European player--with the North American business Solutia has in amino-based cross-linkers, says John Moore, Solutia's resins business director for the Americas and Asia. The company has also completed expansions in Thailand and Brazil and is considering building a U.S. resin plant at one of its existing manufacturing sites.
Moreover, like many of its competitors, Solutia , historically a strong player in solvent-based coatings, is steering toward powder and waterborne coatings resins in the future. Moore says Solutia's growth in environmentally friendly resins has been more than 5% in North America annually. "In certain areas, we are growing faster than the rest of the market," Moore says. "In powder and waterborne coatings, for example, we are seeing excellent growth."
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Raw materials pressure
Epoxy resin makers have been troubled by rising raw materials costs. Two players, Ciba and Shell , have divested their businesses to institutional investors over the past year. Shell is selling its Resins & Versatics business to New York City-based private investment firm Apollo Management. The business, which has been renamed Resolution Performance Products, generates about $1 billion in sales each year. Likewise, Ciba sold its resins business to Morgan Grenfell Private Equity--the firm that bought Vianova Resins from Hoechst and sold it to Solutia--in May for about $1.16 billion.
Dow Chemical is holding onto epoxies, but it concedes that the market has been difficult in recent years. "As with many petroleum-based raw materials, we are feeling the pinch from petroleum costs going up," explains Pete Pendergast, Dow's North American market manager for epoxy products and intermediates. He notes that markets for two raw materials, bisphenol A and epichlorohydrin, were also tight.
High polycarbonate demand has driven the bisphenol A market. Downstream markets for epichlorohydrin such as epoxies and glycerin have also been robust. Epoxy resin consumption increased 6% last year in North America, and it is expected to jump by about 5% this year, Pendergast says. "We are seeing strong demand at a time when the market for some key raw materials is also fairly tight," he notes. These market fundamentals allowed producers to enforce a price increase in July after trying unsuccessfully for a year and a half.
Alderman of Air Products Polymers, which makes a variety of acrylic-based emulsions, says oil prices have hurt her segment of the resins industry as well. "Despite repeated initiatives to increase emulsion prices, we have not been able to keep up with the raw material cost increases," she says. "We'd be surprised if this wasn't an industrywide issue."
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Architectural paints
With most of the fundamental formulation changes behind it, the architectural coatings industry has eased into more gradual shifts. Formulators mostly are making incremental improvements to products, if they are making changes at all, says John Martin, a senior consultant with Arthur D. Little Inc. , a Cambridge, Mass.-based consulting firm. "Many of the resin technologies that folks have used in past years are still being used extensively today," he adds.
Architectural paint makers say the desire to lower the VOC content of their coatings still underlies many new developments. "The primary area we and other coatings makers are working on is tied to environmental concerns and making low-odor paints," says Richard Beuke, president of PPG's architectural finishes business. "Solvents allow you to cover up the sins that were made in preparing the surface before painting," he explains. "Painters like to use paints with a lot of solvents because it makes their lives easier," he says, adding that the challenge is reducing the amount of solvents without sacrificing performance.
A number of paint companies have put out low-odor products. "Waterborne paints still have 8 to 10% solvent in them. The strong odor you get when you paint a room is the solvent evaporating. There has been some interest in getting that odor out so people can use these paints in hospitals, schools, and other inhabited buildings," Martin adds. He credits emulsion technologies for this development. "Companies supplying emulsions, such as Rohm and Haas, are working on finding the right balance of properties that will allow latex particles to flow together and coalesce into suitable films without the aid of solvents," Martin says.
These paints can be applied in busy buildings without offending anyone. "There are people out there who react to the chemical smell and say, 'If I can smell it, then it can't be good for me,' " says Tim Baechle, Sherwin-Williams' vice president of architectural marketing. When Sherwin-Williams first released low-odor products, Baechle says, it targeted the health care industry. "Who wants to go to a hospital and smell paint?" he asks.
In architectural markets, paint makers are also making coatings that can dry on substrates as cool as 35 
F, which extends the painting season for exterior paints beyond spring and summer. "The painting season has been one of the problems of waterborne formulations, and I see some of the developments in the industry attacking that," Arthur D. Little's Martin says.
Resins have also helped Sherwin-Williams develop a high-durability exterior paint, another type of product that paint companies have been adding to their portfolios. Sherwin-Williams launched its Duration high-performance exterior coatings in spring 1999. The company offers a lifetime warranty for a single coat of the product on exterior walls. Baechle remarks, "People thought it was too good to be true until they used it." He says the paint is based on a modified acrylic that the company developed internally. The resin adheres well and is flexible, which allows protection against the cracking and chipping problems that make painted surfaces deteriorate, he notes.
Such high-performance exterior coatings are nothing new to PPG, according to Beuke. About 30 years ago, the company transferred technology from its automotive group to its architectural coatings division that became the basis of its Manor Hall brand. To do this, he says, PPG modified an automotive clear top coat with an acrylic to make it suitable for exterior architectural paints. Although the paint can cost as much as $30 per gal in stores, it lasts 10 to 15 years, Beuke claims.
Air Products Polymers' Alderman says painting contractors are starting to favor expensive, high-performance paints. "Since the primary cost of their job is labor, rather than paint, they will pay more for a high-quality paint because it may mean the difference between being recommended to someone's neighbor or not," she says.
Although not a technical development, designer paints are reshaping the interior architectural coatings industry, Martin says. Traditional paint companies are teaming up with popular consumer brand names like Crayola and Ralph Lauren to put a recognizable face on premium paints that come in eye-catching hues. "The trend has pumped some life into the architectural market, which is typically slow moving. Ten years ago, there were boring monochromatic colors on walls. This is a way to sell more paint. It has allowed companies to demand and get a premium for these products," he adds.
Despite all the new products, Beuke says that about half of PPG's development efforts go into cost savings. "Cost is a factor in everything." On one hand, he says, paint makers have to contend with huge customers like Wal-Mart or Home Depot and all their purchasing power. On the other hand, paint suppliers have been pressured by rising costs for petroleum-based raw materials. "If you can get the same performance with less expensive raw materials, you do it," Beuke says. For example, paint makers substitute fillers like calcium carbonate for some portion of TiO2, one of the most costly coatings raw materials. Companies also blend acrylics with other, less expensive resins.
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Powder coatings
Like architectural paint producers, powder coatings makers--despite the high growth in the market--are also feeling a pinch. Phillips of P. G. Phillips says margins in powder coatings are very low compared with other segments of the coatings industry. The markets, after many years of growing at double-digit rates around the world, have amassed considerable size: about $1 billion in North America in 1999, $1.5 billion in Europe, and $600 million in both Asia and the rest of the world. However, many competitors are in these markets, he says. North America alone has 72 producers. In addition, each of the five largest North American producers--Morton, Ferro , PPG, DuPont, and Valspar --has at least $90 million in powder coatings sales in North America.
Phillips says some powder coatings companies, which were once small liquid coatings suppliers, reduced prices to get a foothold in the market. "Of the 72 producers, only about 10--at the most--have some sophisticated idea of what their costs are and what markets they really are in. That leaves about 60 companies fooling around with prices," he says.
Tom Frauman, global marketing manager for Rohm and Haas subsidiary Morton Powder Coatings, says the powder coatings industry has two tiers of suppliers. "There's a high road and a low road in the industry," he says. "On the low road are all the price slashers. Those on the high road use technology and application expertise to show customers how to use less powder. If you give customers a 5-cent-per-lb price reduction, then they are happy for about 15 minutes. Show them how to reduce their powder usage by 20%, and you have saved them some real money," he explains.
Growth in powder coatings, although robust compared with the growth of the rest of the paints and coatings industry--which essentially paces the gross domestic product--has slowed from its high of 13 to 14% per year a decade ago. In North America, the sector's growth is about 7%; in Europe, 5.8%; in Asia, 11%; and in the rest of the world, 12.5%. Phillips attributes this slowdown to maturity in the markets that powder coatings have penetrated the most, such as general metal coatings and appliances.
Morton's Frauman says powder coatings makers must use technology to bring powder coatings into new markets to maintain high growth rates. "The growth in the late 1980s and early '90s was driven by environmental concerns. The next growth push is going to be driven by new technologies opening new applications and markets for powder," he says.
An example of that comes from within Morton. In 1997, the company unveiled Lamineer, a powder coatings system for engineered wood products. Lamineer is primarily geared for medium-density fiberboard, which poses some technical hurdles to powders, according to Steve Kiefer, Morton's director of Lamineer and new product development. Powder coatings typically cure at temperatures higher than 300 F. But Lamineer is based on curing systems that use low temperatures and ultraviolet light. Also, because powder coatings stick to substrates electrostatically before they are cured, making powder coatings adhere to nonconductive engineered wood surfaces is challenging. "Lamineer is very hot in terms of charge acceptance, which makes it apply readily to substrates that are less than ideal in terms of conductivity," Kiefer notes.
Kiefer says producers of medium-density fiberboard opt for powder coatings instead of vinyl and laminate films because of waste savings, because of the environmental advantage of eliminating VOC-containing lamination adhesives, and because applying Lamineer is a one-step process, not a multistep one like lamination. He says the product has done well since its introduction three years ago. Herman Miller Inc., he notes, has signed on to use Lamineer on its office furniture this year.
Although Morton has made the most inroads in North America, it intends to focus more on Europe in the future, where, Kiefer suggests, Lamineer will also succeed. "Engineered woods are extremely advanced in Europe, and environmental awareness in Europe is higher than it is here," he says.
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Automotive coatings
The automotive coatings market is much more mature than that of powder coatings--though the two markets sometimes overlap. Analyst Phillips says the $2.3 billion North American market for automotive OEM coatings is growing at 3.2 to 3.3% per year. Its major strength, he says, is robust car production and the popularity of sport-utility vehicles, which require more paint than average cars.
As in powder coatings, the growth rate is slower than it used to be, Phillips says, but for different reasons. The slowdown isn't due to pressure on prices or market maturity, but rather more efficient paint use by carmakers. Less waste at auto plants is leading to moderate growth for the three major automotive OEM paint makers: BASF, DuPont, and PPG. "Five years ago, you would see a 4.2 to 4.3% growth rate," Phillips notes. A few technologies have been introduced to the market over the past several years that will further streamline the automotive paint process, Phillips says, citing PPG's Power Prime system, BASF's powder slurry technology, and powder clear coats as the most important automotive coatings breakthroughs in recent years.
In the Power Prime system, the first two layers of paint are applied to the body by electrodeposition. The primer surfacer--the second layer of paint after the original electrodeposition coatings--is applied by immersing the negatively charged vehicle in a positively charged coating bath. This eliminates the spray-on priming step and the labor, energy, and capital costs associated with it.
Allowing these two layers to work together was no easy task, says Rick Tepper, PPG's director of global automotive coatings technology. As paint is electrodeposited on the car's surface, it becomes an insulator. "The challenge was to develop a first coat that can be electrodeposited and can be made conductive enough for a second coat," he says.
The technology is already in use. For more than a year, DaimlerChrysler has used it in its Dodge Dakota assembly plant in Campo Largo, Brazil. Tepper says a couple of more assignments are already in the works. He admits, however, that Power Prime has some drawbacks. "It's not a product; it's a product and a process. Unfortunately, it's not a drop-in substitution, and it requires a second electrocoat bath," he concedes. Power Prime, for the most part, is geared toward new assembly lines, which car companies do not build every day.
Another drawback is that PPG, having developed the technology, is also the only company selling it, Tepper says. Being the first to market is a position not all that enviable in the cautious auto industry, he adds. "Automakers would prefer an environment where there is an alternate source of materials," he says.
Joseph Gdowski, global technical director for BASF's automotive OEM coatings, acknowledges the difficulties of being the first to market, but notes that it has to be done to push technology forward. "It takes some willingness to pioneer if you're introducing something that's totally new," he says. "The technologies that are being used today were giant steps at some point," he adds.
Gdowski sees other difficulties with systems like Power Prime. He says that, in Europe and the U.S., automakers prefer to have many different colors available for the primer. If the primer matches the top-coat color somewhat, then scratches and abrasions aren't as noticeable because there is less contrast. He says carmakers would have to install numerous tanks in their assembly plants to offer such variety in an electrocoat primer system.
Gdowski says a system that BASF will soon introduce to market, Twin Prime, addresses these issues. In this system, a wet-on-wet waterborne primer is applied to the electrocoat, and both are baked together in an oven. He says Twin Prime will allow automakers to use conventional spray equipment, saving on installation costs and eliminating the curing step that occurs after the car is electrocoated. He says Twin Prime will also allow for multiple colors. "In a more conventional spray booth, you can apply liquid coatings and you can have as many colors as you want," he says.
Another big BASF development has been the integrated process that includes the use of a powder slurry clear coating. This is when powder coatings are applied in an aqueous dispersion. BASF is using powder slurry in a clear coat on Mercedes-A class cars at DaimlerChrysler's plant in Rastatt, Germany. The powder slurry is applied to these cars electrostatically on wet color coats, and then the cars pass through an oven. BASF claims the method reduces paint consumption by 20% and significantly lowers VOCs and energy costs.
Gdowski says Mercedes has used powder slurry on more than 400,000 vehicles over the past three years. BASF will soon get its first North American client for the powder slurry clear coat, he notes, not disclosing who that may be. The company is also looking into a powder slurry primer surfacer. In the offing, BASF says powder slurry can introduce powder coatings to the color coat. Powder coatings systems have difficulty with the quick color changes required for top-coat application. The metallic pigments used for automotive top coats are also hard for powder coatings to accommodate. "You tend to get better orientation of the aluminum flake in a liquid system than you do in the dry-powder system," Gdowski says, noting that powder slurry can manage the color changes, but the system needs some development to incorporate the metallic pigments.
PPG is working on an analogous system to powder slurry, Tepper says: a zero-VOC waterborne coating. He says the company has also been ahead of the pack with powder clear coats, which it supplies to BMW in Dingolfing, Germany. DuPont, which two years ago purchased Herberts, the coatings business of Hoechst and a strong player in powder coatings, is also a supplier of powder clear coats to that site. In addition, the Big Three automakers in the U.S. tested the technology.
In a way, powder clear coats have been affected by all the more important trends in the coatings industry. The product is as environmentally agreeable, from a VOC standpoint, as a paint can be. One of the companies that makes it, DuPont, got into the business because of an acquisition. And the performance of the product, in some respects, like durability, is an improvement over conventional liquid clear coats. The product, if more car companies move forward with it after deliberation, will likely break the modest, mature growth that is typical of the paints and coatings industry.
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