There have been a number of changes in the Canadian pigment industry in recent years. The magnitude, significance and uncertainty of these changes have brought the industry to a crossroads. This article considers an overview of the Canadian pigment market, the impact of globalization and environmental legislation on domestic manufacturing, and how the Canadian market needs to adapt to the changes.
Canadian Market OverviewThe Canadian economy and Canadian pigment market reached a pinnacle at the turn of the century, followed by a market correction that was amplified by the general economic downturn that followed September 2001. The industry now appears to be returning to modest positive growth.
Given the proximity to the U.S. market it is not uncommon to assume that the Canadian and U.S. markets operate in unison, but this would be erroneous. The Canadian market offers unique opportunities and challenges even though it is heavily influenced by a market approximately 10 times its size. The Canadian pigment market is approximately 217,000 million kilograms. Table 1 provides a breakdown of the Canadian pigment market. Forecast growth is approximately 2-3% for 2003 and is tied to GDP. It is also linked to growth in the coatings, ink, plastics, construction and paper industries.
GlobalizationThe growth of economic globalization has not ignored the Canadian market. The Canadian pigment industry is under constant and increasing price pressure from low-cost Asian and Indian imports. The low prices offered by Asian suppliers are driving down overall market prices by as much as 50%. While Canadian companies are hesitant to switch suppliers due to supply and quality issues, the threat of switching has had a dramatic downward effect on price. Consistent supply is an issue when dealing with economies controlled by centralized governments, because policy changes can occur for political agendas. For instance, the Chinese government diverted its naphthalene production for domestic consumption. China, one of the world’s largest suppliers of naphthalene, (pigment precursor) caused a shortage. The naphthalene diversion was alleviated by the U.S. government relaxing Chinese steel restrictions.
Additionally, globalization has resulted in consolidation and nationalization. A Canadian aspect of globalization and consolidation is that most Canadian companies with foreign head offices have the head office dictate the pigments. Globalization has also led to the nationalization of production for pigment-consuming industries. A recent example is Flint Ink consolidating its North American ink operations into the U.S. This substantially diminished ink production in Canada. Transfer of pigment technology to Asian and Indian sources by leading pigment producers, mostly in Europe, has led to increased competition from lower-quality and low environmentally committed countries. This has placed producers of pigments in North America at a competitive disadvantage.
Environmental LegislationThe Canadian pigment industry has also reached an environmental crossroads with the revision of The Canadian Environmental Protection Act (CEPA) in 1999. In brief, CEPA creates significant reporting and compliance requirements for the import, manufacture, use and export of chemicals, including pigments. Of significance is the requirement to implement CEPA by September 2006. This deadline has created tremendous uncertainty. To date, only 120 of the more than 20,000 items on the Domestic Substances List (DSL) have been classified and screened by CEPA.
With the backlog and deadline approaching, it is most likely that PBT profiling will be implemented instead of empirically determined categorization and classification. PBT profiling is the use of computer-modeling programs to determine the characteristics of chemicals. The programs are used by Environment Canada and other governmental bodies to examine the chemical structure of the DSL substances in order to identify whether a substance is Persistent (P), Bioaccumulative (B) and/or Toxic (T).
Unfortunately, PBT profilers do not take into account the crystal structure of a substance, but simply the chemical structure, and therefore calculate erroneous solubility profiles that lead to incorrect conclusions for many substances including pigments. With the uncertainty that a listed product could be scheduled/banned or further regulated under the CEPA classification system, there is significant risk to registering new products. This is causing manufacturers to produce in foreign countries on a toll-manufacturing basis or through production nationalization.
As is true globally, Canada wants to reduce the usage of heavy metals and VOCs. As the world’s leading supplier of lead chromate pigments and a significant manufacturer of organic pigments, the concern for Dominion Colour Corporation (DCC) is legislation to reduce or eliminate pigments based on assumptions or inaccurate information. It is important to note that many forms of heavy metals and organics pigments are a concern. However, lead chromate is almost totally insoluble, i.e., 0.00007g/ml in water, and the lead and hexavalent chromium are not bioavailable. This is how profiling can lead to erroneous assumptions and inappropriate legislation. For instance, the Quebec government is attempting to introduce workplace legislation to reduce or eliminate lead chromate in traffic marking and industrial coatings without testing or without evidence of lead chromate being carcinogenic.
Effects on Canadian ManufacturingThe effect of globalization on Canadian manufacturing has been negative and has resulted in plant closures, such that only one Canadian pigment manufacturer remains. Paint manufacturers are similarly closing and consolidating into the United States and Europe, and are then serving Canada from foreign sources.
While there is overcapacity in global pigment manufacturing, there is misdirected expansion in the Asian sub-continent. This overcapacity and expansion only intensifies the price competition and fuels the further shift of jobs from North America, Europe and Japan to Asian countries.
Environmental regulations are also rendering Canadian manufacturers at a competitive disadvantage. Environmentally responsible corporations such as DCC incur significant environmental costs that cannot be recovered in the price-sensitive market. DCC is one of the very few ISO 9001- and ISO 14001-compliant pigment companies in the world, yet we have difficulty realizing value for these achievements when prices fall by 50%. There has been a globalization of markets and a globalization of supply, but there is no globalization of environmental regulations. Asian competitors do not have environmental costs in their products. This allows Asian producers to price their products at unrealistically low levels and makes environmental responsibility a significant disadvantage for Canadian producers. This reduces the ability of Canadian producers to invest in research and development. Unfortunately the dramatic reduction in pigment prices in North America and Canada, particularly by ruthless distributors (often one-person operations from a home office) has tempted Canadian and U.S. consumers of pigments to switch to environmentally irresponsible manufacturers, and at the same time has caused job transfers to non-complying countries.
Needed Canadian Market ReactionWith the pressure of increasingly tight environmental regulations and the new global economy, what is the outlook for the Canadian pigment industry? A recent survey indicated that companies are demanding three key criteria from their pigment suppliers: product quality and consistency; reliable delivery; and competitive pricing. Canadian pigment companies have historically consistent product quality, local inventory and proximity over their Asian counterparts, but must continue to improve on these strengths by investing in manufacturing efficiency. Domestic pigment suppliers must strive to build strong technical relationships with their customers.
The Canadian pigment market has a formidable challenge with the dual assault of globalization and inequitable environmental legislation. This environment will lead to greater focus on the needs of the customer and the development of new and innovative products. The Canadian pigment industry is at a crossroads -- it cannot afford to wait for CEPA, and we must innovate now!
For more information, contact Steve Whate, Dominion Colour Corporation, 515 Consumers Rd., 7th floor, Toronto, ON M2J 4Z2 Canada; phone 416/791.4200; fax 416/497.9528 or visit www.dcc.ca.