When the production line slows at the manufacturing plant, industrial coatings makers know they’ll be applying the brakes at their own facilities. Regardless of size, companies that make coatings for original equipment manufacturers (OEM) are praying for the economy to show signs of recovery soon. But the smarter ones are doing-or have done-something to help them weather the storm.

“Last year was a challenging but rewarding year for our industrial coatings business,” said Jean-Pierre Monteny, president of BASF Group’s coatings division and CEO of BASF Coatings AG. “We faced a very weak business environment, as most of our relevant markets showed a significant decline. Nevertheless we were able to considerably improve our business performance. Reshaping and innovation have been the top two priorities for this year, along with efforts to improve our market position.”

Streamlining product lines, refocusing core businesses and investing in R&D are some of the activities coatings companies have dabbled in during this downturn. While not a cure-all for the ills of the market, coatings companies contend their efforts will help them in the long run.

“We have done our homework. We have used 2002 to further optimize our processes,” said Mr. Monteny. “We have been quick to implement the necessary structural measures and will continue to address this issue next year. Our extensive measures to increase efficiency, cut costs and restructure processes have all paid off. We were able to more than make up for the impact of the current economic situation, and this has also provided us with the basis for sustainable profitable growth.”

According to Mr. Monteny, in Europe, BASF underwent measures to align its business structure for continued growth. Efforts included customer and product portfolio management and adaptation and restructuring of its sales force, as well as raw material consolidation. Mr. Monteny remarked that the number of raw materials processed in BASF’s production facilities has been reduced by six percent in 10 months. In addition, BASF has improved manufacturing efficiencies by shuffling and consolidating production locations of certain resins and select powder and liquid coatings products.

At PPG Industries, the latest effort to realign and refocus its position in the OEM market was headlined by the renaming of its light industrial coatings operations as PPG TrueFinish industrial coatings.

“The name was changed to reflect PPG’s heritage and brand as an authentic, leading global manufacturer of industrial coatings,” commented Greg De Camp, general manager, PPG TrueFinish industrial coatings. “The name TrueFinish reaches back over decades of experience, performance and leadership, and conveys our strong industry reputation.”

PPG’s TrueFinish Coatings are used on a variety of products, including toolboxes and violin bows.

PPG’s TrueFinish line replaces its former light industrial coatings, One Source and Icron brands. The new product line encompasses Spectracron solvent-based, lead- and chrome-free liquid coatings, Aquacron water-based, lead- and chrome-free liquid coatings and Envirocron powder coatings.

According to Mr. De Camp, in terms of service, the new name reflects PPG’s “sharper focus and renewed commitment” to its customers. “Being responsive to our customers and providing them with superior liquid and powder coatings technologies is our primary emphasis,” he said.

Through the TrueFinish structure, PPG contends its expertise and sales staff will be a better match for the U.S. light industrial coatings industry-a market which is comprised of a growing number of small OEM and contract paint businesses that require small, custom batches in two or three days-about twice as fast as traditional paint-manufacturing processes can provide. Those customers include metal fabricators, cabinet, office furniture business machine and medical equipment makers, consumer electronics producers and assorted machinery and equipment companies.

In general, TrueFinish customers operate as outsource businesses that serve larger companies and, as has been the trend in other segments of the coatings industry, offering these clients value-added services is key to helping them save money.

PPG has recognized this opportunity within the light industrial coatings marketplace. “These services could include line design, problem-solving support, training and paint line management support,” said Mr. De Camp. “We feel this support could be invaluable to coatings users who do not have sophisticated paint line engineering or application resources. We are selling our experience gained from years of technical service support to the automotive, industrial and automotive refinish industries. We strongly believe this could generate significant cost savings and increased efficiencies for our customers.”

BASF has also recognized the need to offer support. In the important coil coatings market, BASF has worked to improve its on-site technical assistance at major customers. BASF’s Pevicoat technical service centers are now in Europe, Asia and Africa, with the newest center in place at Alumasa, a Spanish maker of venetian blinds and window shutters.

While BASF and PPG are global giants, smaller companies in the OEM and industrial coatings market are also finding themselves operating under difficult market conditions.

“Like all companies serving the OEM market, our overall sales have been negatively affected during this economy,” said Hank Godshalk, president, Finishes Unlimited, a Sugar Grove, IL industrial coatings company. Mr. Godshalk said his company is faring quite well, thanks in part to its size. “While many of our customers are buying less paint from us now, we have not really lost any important business and, as a matter of fact, we have added several important customers in the past few months. We are a small company so we can be fairly agile in responding to both market downturn and opportunities,” he commented.


Product Development
Of course, the R&D department doesn’t sit idle during slow economic times. While there may be a deceleration in the speed at which new products come to market, companies continue to launch coatings and improve existing technologies to meet demands for better performing products at lower price points.

“There is continual demand for improved performance at lower costs and our product development experts in our industrial, refinish and automotive OEM coatings businesses are responding,” said Mr. De Camp. Among efforts made at PPG’s industrial coatings business has been the development of improved scratch-resistant powder topcoats. “Certain end-use segments, such as agricultural and construction equipment, have upgraded performance requirements for durability and are moving from alkyds to powder or liquid urethane technologies. Lower-temperature cured coatings, especially powders, which perform equal to their high-temperature-cured counterparts, are being introduced at lower costs,” Mr. De Camp added.

About a year ago, Finishes Unlimited successfully introduced a quick drying, air-dry coating that is HAPs-free. “We focused on creating a fast drying product for customers running high volume manufacturing lines that wanted to use an air-dry paint line and to have their finished products ready for shipment in the shortest time possible. The fact that it is also HAPs-free is another attraction,” said Mr. Godshalk, who added that the product has demonstrated excellent moisture resistance in the field.

More recently, Finishes Unlimited has been awarded a Phase I Small Business Innovation Research (SBIR) grant to continue research on the application techniques for its near-zero-VOC bake enamel waterborne coating.

The grant is quite a coup for the company-more than 300 companies applied for Phase I funds and only 31 were successful. Through the SBIR program, 12 federal agencies make funds available to small companies for R&D efforts on products or processes that may have strong commercial potential and which also meet the funding agency’s own research needs.

The SBIR grant will enable Finishes Unlimited to continue work on Ultra Aqualite, a bake enamel coating with VOC levels of between 0.1 and 0.5 lbs./gallon without water. According to the company, field tests on Ultra Aqualite revealed several application issues not encountered in the laboratory. While Finishes Unlimited was able to correct most of the field problems by the time it submitted its proposal for the SBIR grant, one problem remained: unacceptable surface roughness. This will be the focus of the company’s efforts going forward.

“We are optimistic we can solve the problem,” said Mr. Godshalk.

Hempel has introduced two new industrial coatings products. The first-Hempaxane 55000-is a new topcoat for steel structures that are exposed to severely corrosive environments. Based on epoxy and polysiloxane binder chemistry, the product provides corrosion protection and long color and gloss retention. Hempel contends Hempaxane 55000 outperforms polyurethane topcoats in many respects, and due to the combination of color/gloss retention and corrosion protection, it can be used in place of an epoxy coat and polyurethane coat, reducing the number of coatings used on a structure.

The second new product to come out of the Hempel R&D lab is Hempadur Multi-Strength GF 35870, a high build epoxy coating reinforced with lamellar glass flakes. By using impermeable glass flake, Hempel has been able to increase the distance water has to take to get through the paint film. The product has a volume solids as high as 87%, according to Hempel, which allows it to be applied in dry-film thicknesses as high as 350-500 micron, even on vertical surfaces. Hempadur Multi-Strength GF 35870 is also self-priming and fast drying.

For metal coating applications, BASF has launched a new e-coat technology, Cathoguard 500, which delivers limited foaming, reduced dropping and run-outs, improved mechanical properties and a reduction of VOC emissions.


New Contracts Continue
Despite the sputtering economy, industrial coatings companies are still inking major contracts with customers seeking innovative products that will enable them to win a larger share in their respective markets.

AK Coatings has signed a new accord with Carrier, Corp., the Farmington, CT-based maker of air conditioning and heating units. AK Coatings, Inc., a wholly owned subsidiary of AK Steel Corporation, specializes in supplying antimicrobial coatings and antimicrobial-coated steel to customers in heat ventilating and air conditioning (HVAC), construction, food equipment, food processing, appliance and medical equipment industries.

Carrier’s 39M Aero air handling units will be available with AK Coating’s AgION antimicrobial-coated steel as an integral material for the pre-painted steel inner liner. AgION, a silver ion-based compound that suppresses the growth of bacteria, molds, mildew, fungi and other microbes, is made by AgION Technologies, Inc. The compound has been registered by EPA for use in HVAC applications.

Carrier recognized the opportunity to deliver a product that addressed customer concerns with a special coatings technology. “Recently, public awareness about mold, mildew and other microbes has increased, particularly in the education and healthcare sectors, as the general public has learned that heat and humidity allow these elements to infiltrate their buildings,” said Todd Bluedorn, Carrier’s North America commercial president. “We’re proud to offer the AgION antimicrobial compound on our air handling units to our customers.”

Like AK Coatings, Akzo Nobel has also signed a new deal to supply industrial coatings to a major project. Akzo Nobel’s International unit will supply products for four developments located on the world’s largest deposit of heavy crude oil. The company will supply more than 1.3 million liters of coatings for four facilities involved in heavy oil development on the Orinoco Belt of Venezuela, which has an estimated recoverable reserve of more than 270 billion barrels.

International Paint is the sole supplier for three (Petrozuata, Sincor and Hamaca) of the four construction projects which are all located near the coastal town of Jose. It will split supply at Cerro Negro, but has the largest percentage of that business. International’s products will be used to coat refineries, chemical plants, tank farms and the marine terminal, which will transfer the crude oil to vessels ready for transportation.

This latest deal with Akzo Nobel follows its recent divestiture of its Nordic industrial coatings business to Tikkurila, which was finalized on Jan. 1, 2003. Through the acquisition, Tikkurila Coatings has been able to significantly strengthen its market position in the Nordic countries and the Baltic Sea area. Sales of the business in Finland, Sweden, Norway, Denmark and Poland were E17 million in 2001.

H.B. Fuller has also signed a major accord that affects its OEM coatings business. The company has signed a deal with Darex, the division of W.R. Grace that sells can and closure sealants, coatings for the food and beverage industry and specialty polymers. The joint marketing and distribution alliance will allow H.B. Fuller to sell Darex’s Daran PVdC latex for flexible packaging in conjunction with its own Hydroflex family of waterborne adhesives for drybond and wetbond lamination. Darex’s PVdC latex coatings act as a barrier to transmission of oxygen, moisture, grease and even aroma in packaging used to protect food, consumer and industrial products.


Recovery Insight
As contracts continue to be signed and companies continue to improve their products, all eyes remain on the economy. Just when will conditions improve is the big question, and few are willing to place bets on when that will be.

“We don’t feel comfortable predicting a timetable for recovery,” said Mr. Godshalk of Finishes Unlimited. “We believe we will notice the recovery in increased sales to current and new customers that want to take full advantage of waterborne coatings’ potential to improve the environment within their production areas. This will include companies that want to lower VOCs in their plants and also adopt more aggressive agile or lean manufacturing practices while continuing to enjoy the application and performance advantages of liquid coatings.”

According to Mr. De Camp of PPG TrueFinish industrial coatings, the market may be nearing the turning point. “While it’s very difficult to pinpoint when a recovery will occur, we do expect the manufacturing segments in North America and Europe to be on the front end of the recovery. We feel there is pent-up demand for manufactured goods,” he said.

As a global company, PPG has been able to take advantage of growing markets in other regions, and will do so with TrueFinish. “We have seen very robust opportunities for growth in China over the last two years and are moving to position ourselves in that important region,” Mr. De Camp added.

BASF’s Mr. Monteny’s forecast was a bit gloomy. “There are signs that the year 2003 will be another difficult year,” he said. “Considerable uncertainties and risks overshadow the economic climate throughout Europe. We do not anticipate a fundamental economic improvement in the short term. At the same time, we are concerned that the developments in political, fiscal and statutory framework conditions may have a negative impact on our competitiveness.” Mr. Monteny mentioned the eco-tax in Germany and the policy on chemicals adopted by the European Union as areas of concern. “Although in our industry we are only indirectly affected by the policy on chemicals proposed by the EU, we are worried that it will weaken Europe’s competitiveness and innovative strength. In principle we favor a reorganization of the European chemicals policy, but such a reorganization must not have a negative impact when it comes to the choice of operating base.”

As companies look ahead to the market’s recovery, many are tweaking select areas of their businesses by focusing on customer service, enhancing marketing initiatives or seeking new contracts. Yet there remains a common denominator: finding the right raw materials at the right price. Said Mr. Godshalk, “One of the major obstacles is the ability to find higher volumes of more reasonably priced resins to use in our environmentally oriented product lines.”

BASF’s Monteny Comments on Activities in Asia Coatings World had a chance to ask Jean-Pierre Monteny, president of the BASF Group’s coatings division and CEO of BASF Coatings AG, about his company’s performance in the Asia-Pacific region. How is the current sagging economy affecting the BASF Coatings industrial coatings business? “In Japan, the economy is still very weak and is not expected to recover in 2003. Our results followed the market trend. However, our joint venture with NOF gives us the unique advantage of being able to access key decision makers at large Japanese corporations, such as the motorcycle industry, and to expand our business with these companies on a global scale. In the emerging markets of Asia we reallocated our resources in order to take full advantage of the growth trend in this region. China is the engine of growth in the Asia Pacific region with a forecasted growth rate in the area of 8%. We therefore decided to move our headquarter from Singapore to Shanghai.” Can you give an example of international teamwork when it comes to serving your customers world-wide more efficiently and with greater speed? “The formation of BASF NOF Coatings Co., Ltd. (BNC) in Japan has been proven over the last two years as a strategically important step towards strengthening our business in the Asia Pacific region.It can be truly considered as a successful example of a new form of global cooperation where international teamwork has become part of the daily routine. The 50/50 joint venture company of NOF Corporation and BASF became operative in 2001. With 500 employees and plants in Totsuka and Ako the company has made us the first Western coatings manufacturer with research and development as well as production and marketing operations in Japan and thus the first real global player in the coatings sector. � In the automotive OEM coatings business, BNC offers high-grade, eco-efficient products and services to the automotive industry in Japan. Through value-added systems for the plants in Japan and other parts of the world, BNC successfully competes to meet the requirements of Japanese automotive manufacturers, who increasingly operate globally. � In the automotive refinish sector BNC benefits from the synergies that arise from its close links to the automotive OEM coatings business, offering well-established environmentally friendly product lines. � In industrial coatings as well, greater benefits arise for Japanese customers because BNC offers leading-edge technologies and application know-how accessible from BASF’s matchless international network. In the wake of Nissan’s revival plan BNC was able to land a three-year contract for supplying spray paints to Nissan plants in Tochigi and Kyushu. The latter, with an output of 600,000 automotive units per year, is one of the largest Japanese production facilities of the company, now part of the Nissan/Renault Group. In addition Kyushu started a project in October 2002 to pioneer waterborne coatings in Japan. In anticipation of this move intensive preparations were made during the first half of 2001 for a switch to introduce cost-per-unit accounting between a Japanese car manufacturer and a coatings supplier. At the same time responsibility for Nissan’s paint mixing room was transferred to BNC. It took only a few months without any interruption of production until the paint lines were fully converted from rival materials to BNC’s eco-efficient coatings. Altogether 194 different products had to be replaced. Thanks to the joint efforts and ideas generated by the partnership of Nissan and BNC specialists, this challenge was mastered successfully. Unique in the Japanese automotive industry, this concept has been proven as a hallmark of a winning partnership. Nissan’s appreciation of its new coatings supplier was expressed when Nissan heralded the “most excellent appearance” of its top model, the Cima – known in Europe as the Maxima and in the USA as the Infinity. Besides Nissan, a strong position attained at Honda confirms that BNC is recognized as the right partner for the change to waterborne systems currently experienced in Japan. The know-how BASF has gained from more than 15 years of supplying waterborne coatings to OEM plants in other parts of the world is a decisive advantage for BNC’s customers to ensure a successful implementation. High-performance products coupled with process know-how have long been the key to the strategy applied by Western automobile producers in their striving for Class A finishes. Those patterns of cooperation established in the West are drawing considerable attention from operators in Japan’s heretofore insular automobile market. Following the success forged at Nissan, interest in cooperative efforts is bound to grow. Now other OEMs in Japan, too, are no longer as intent on relying on domestic production know-how exclusively. This becomes evident in the significant rise in visits by high-level BNC/BASF delegations and the welcome granted them by top executives at Japanese automotive manufacturers. These encounters are not regarded as “shopping and tasting” expeditions, often mocked in the West, but serious expressions of interest on the part of the Japanese. Global supply initiatives are also the key to BNC’s success in other product lines, especially industrial coatings, which account for about 40 percent of the company’s total sales. In the meantime, BNC’s motorcycle coatings, part of its industrial coatings business, have achieved a 60 percent market share. Currently we are formulating a global strategy for transferring the successes to the booming motorcycle markets in China and India. Moreover BNC is well prepared to target a 30% market penetration in coil coatings by expanding the implementation of BASF’s group know-how in cost-efficient environmentally friendly coating systems. BNC’s de facto technology leadership in waterborne refinish coatings has become increasingly valuable for car manufacturers in Japan, which is demonstrated by the considerable number of new supply contracts. Such renowned companies as BMW, DaimlerChrysler or Peugeot rely on BNC refinish coatings in their vehicle repair centers. BNC’s current objective is to expand its business also to the refinish coatings activities of the Japanese OEM accounts. Another highlight was the supply contract signed with the Autobacs group, which has a strong presence in the automotive OEM after-sales market and which will add BNC refinish coatings as an additional service to many of its existing outlets. During the last two years BNC has proven that it is more than just a new name. BASF NOF Coatings stands for the global vision of a global player. A dynamic part of an internationally active company that plays a major role in the shaping of markets. Innovation, partnership and world-wide presence are the three pillars of the concept of Triple Customer Focus. BNC is really decisive part when it comes to serving our customers world-wide more efficiently and with greater speed.”