Market outlook: Chemicals and coatings producers need to cooperate

The chemicals industry needs to work closely with the coatings sector to ensure it understands the changing needs of this large consumer of chemicals

With annual global revenue of $120bn and a complex set of formulation technologies and end-use markets, the coatings industry is an important outlet for the chemical industry. When it comes to new product development and supply chain management, it is the interface between these two industries that is critical to the future success of both parties.

The annual ICIS Chemicals and Coatings Conference provides a window on this interface. The conference – now in its third year and held in Amsterdam in October – brought together representatives from both industries and facilitated improved communication and understanding along the supply chain. Raw material supplies, the growth in the use of renewable materials, changes in downstream demand patterns in the coatings industry and sustainable development were addressed. The main points raised at the conference provided food for thought for all participants.

Chemicals and coatings producers need to cooperate Copyright: Rex Features

DEMAND FOR COATINGS
The traditional roles of coatings are to enrich lifestyle through decoration and to protect substrates on which coatings are applied. Global demand for coatings continues to grow albeit at rates that are less than those seen in recent years. Long-term demand growth forecasts range from 2%/year to 5%/year, with some sectors growing at an even higher rate. Much of the future growth is expected to come from Asia, which will soon represent 50% of the global consumption of paint. To create demand, coatings relies on applicators of decorative paints such as consumers and professional decorators, as well as construction, aerospace and automotive, which protect materials such as metals and wood.

The decorative coatings market may look homogeneous compared with its industrial paint However, the conference presentation by the Paint Research Association illustrated the different local formulation preferences in European decorative coatings, and provided an insight into market sizes and the different polymer resin technologies used in them. This plurality of requirements is driven by a mix of tradition, climate, fashion, sensitivity to cost, behaviour, local regulations and philosophy of life!

Industrial paints thrive on their protective qualities or as Sherwin Williams put it, “corrosion is our friend”. The iconic Forth Rail Bridge in Scotland exemplifies the value of extending the life time of protective coatings. Unlike the decorative coatings sector, there is a trend for customers in the industrial paint sector to press for global specifications which can be difficult to satisfy, given variations in raw material quality around the world. A significant proportion of original equipment manufacture (OEM) industrial products destined for the European market are now coated outside Europe in low cost economies. However, there is a significant opportunity for maintenance business across Europe and elsewhere.

While demand for paints in both the decorative and industrial sectors mirrors general economic trends and suffered during the recession of 2009, it is difficult to find adequate correlations between the demand for coatings and simple economic measures such as GDP or consumer spending to understand more recent market dynamics. Consultants AT Kearney argued that the paint industry is made up of a large number of sub-segments, each one having its own requirements and demand drivers. When one adds to this picture, variability of requirements between continents and countries, one quickly recognises the complex nature of the coatings industry and the natural barrier to entry for any potential new entrant.

AT Kearney has developed early warning systems for clients in the coatings industry that flag up significant changes to patterns of demand in a highly volatile market place. The company is also advising clients to consider converting fixed-cost expenses along the value chain into variable costs via third parties to smooth out business risks generated by occasional economic peaks and troughs.

RAW MATERIAL SUPPLIES
Starting at the upstream end of the supply chain, conference speakers addressed the current states of the markets for pigments, solvents, additives and binders. No shortages of supply were identified although there were some changes in sourcing as capacity is withdrawn in Europe and replaced by new capacity elsewhere, particularly in China. As an example, consultant Kline and Company reported that both Celanese and INEOS had shut down the equivalent of half the European manufacturing capacity for vinyl acetate monomer; the balance of supplies now coming from imports. ICIS reported stable prices for solvents and flagged up novel bio-renewable sources of supply. Further upstream, consultants Nexant addressed the need for purposely manufactured propylene through the dehydrogenation of propane (DHP) reflecting the swing of the refinery industry to lighter feedstocks around the world. However, investment in DHP would only be needed if the trend away from naphtha cracking continued into the future. A significant further fall in the price of oil might change that current view.

Overall, the tight supply conditions for the majority of coatings ingredients that existed during 2010/11 have eased considerably. Market intelligence group ARTIKOL noted that the shortage and resultant price upsurge for titanium dioxide (TiO2) prompted several global companies within the coatings industry to invest in upstream joint ventures to build new TiO2 plants in China. Two such plants recently came on-stream in Henan and Guangxi provinces, but there have been no announcements of similar projects over the past two years. The favourable long-term supply outlook for TiO2 has been further enhanced by the implementation of a new project in Canada, which will represent the first employment of a radically new method for manufacturing TiO2 developed by Argex.

While the supply position appears settled, the current volatility of world economies could lead to both sudden peaks and troughs in demand which are difficult to forecast. Given the complexity of the coatings industry and the potential for supply volatility, manufacturers Arpadis Benelux advised that long term relationships with ingredient suppliers are an essential feature of procurement policy going forward either direct or via distributors.

THE PACE OF INNOVATION
Behind the scenes, there is a degree of frustration within the specialty chemical industry over the slow pace of adoption of new ingredient technology offering paint manufacturers improved environmental performance as well as enhanced durability, longevity and functionality. In an earlier ICIS Chemicals and Coatings conference, it had been reported that the research and development (R&D) investment rate of the specialty chemical industry at 3.5% of sales was far ahead of that of the coatings industry at 2.1% of sales. Sherwin Williams challenged the view that the coatings sector is very slow to change. The company’s focus on product innovation is reflected by its ranking in the Forbes Top 100 list again this year for being one of the world’s innovative companies.

Furthermore, against the backdrop of Reach legislation in Europe and the call for low or zero Volatile Organic Chemical (VOC) paints, the coatings industry has succeeded in switching from solvent-based to water-borne paints particularly for the decorative markets in Europe and North America. However, key parts of Asia lag behind in this regard as does a large proportion of the global industrial paints sector.

During the conference, Dow Chemical was recognised for several novel technologies that it has developed for the coatings industry in recent years with new products designed to partially replace Ti02, abate formaldehyde from the air and prevent emission from substrates. The company has also been instrumental in introducing novel acrylic binders and solvent-free rheology modifiers. The company’s award of the US EPA Presidential Green Chemistry Award reflects this technology leadership role.

SUSTAINABILITY CATCH 22
TMA Consulting recognised AkzoNobel’s outstanding achievement leading the Dow Jones Sustainability Ranking for the chemical sector for the third year running in 2014. However across the industry as a whole, the drive towards sustainable development, once on everyone’s lips, seems to have been overtaken in terms of priority by initiatives that address energy efficiency and economic recovery. These days, companies, such as Dutch manufacturer Corbion Purac, that wish to promote novel ingredients based on bio-renewable feedstocks, choose to focus their marketing platforms on property enhancements rather than improved environmental performance.

It would appear that many innovative materials suffer from a Catch 22 situation in which trials are prevented unless demands for cost savings versus existing materials and large scale production are satisfied. From the suppliers’ side, without early sales in small quantities, there is little justification for further manufacturing investment. One solution proposed at the conference is for suppliers to piggy-back on other developments and work with ingredients that have been successfully promoted for other markets or are by-products from other manufacturing processes. The sustainability theme was underlined with a presentation on waste paint recycling. It has been estimated that each year in Europe 500,000 tonnes of water-borne waste paint are sold but are not used and are eventually disposed of in landfill or sent for incineration. NewLife Paints in the UK has developed proprietary processes for analysing, blending, restabilising and repacking waste water-borne paints for resale at DIY shops and warehouses. While it remains early days for this kind of operation in the UK, Newlife Paints has the support of large paint companies and is expected to increase its capacity in the future. This kind of initiative is being mirrored in different forms in Canada, US and Holland and will no doubt be taken up elsewhere in due course.

Local governments along with retailers need to play a stronger role to educate consumers and develop distribution channels to collect waste paint committed to sustainable development. NewLife Paints reminded the conference that recycling should be equally practised on paint containers. At this time, there is no viable recycle route for polypropylene paint pots.

WORKING TOGETHER
A number of joint ventures were touched on during the conference such as Succinity, BASF’s joint venture with Corbion Purac, formed to evaluate options for bio-sourced succinic acid. This kind of relationship exemplifies the importance of working across industry interfaces to tackle long-standing problems. Collaboration is a powerful mechanism to speed up the rate of innovation to meet the continual requirement for improvements in quality and functionality in an increasingly environmentally responsible manner at reduced costs. The challenge is there and the ICIS Chemicals and Coatings conference demonstrated that there are plenty of opportunities for both industries to move forward … together.

Tony Mash is president of TMA Consulting. Contact tmaconsulting2@gmail.com