The Cutting Edge
In other words, manufacturing and marketing products in the industrial wood coatings segment is anything but business as usual.
For evidence of consolidation, industry observers need look no further into the past than the blockbuster deal that combined coatings giants The Valspar Corp. and Lilly Industries Inc. Completed at the end of last year, the merger positioned Valspar as the world’s biggest producer of industrial wood coatings, supplanting the previous leader Lilly.
For indications that regulatory initiatives have left their mark on the industrial wood coatings segment, the industry can take the measure of a major U.S. rulemaking that about five years ago placed new limits on VOCs and HAPs emitted during wood furniture coating processes. And looming on the near-term horizon are new regulations on the emission of HAPs from coating processes involving wood building products, with an EPA proposal anticipated virtually any day now.
And finally, there can be no denying that globalization has caused major changes in the segment, particularly for suppliers to the wood furniture manufacturing industry. Driven by economic forces that have caused a major migration of furniture makers to lower-cost regions — particularly to Asia — the big two industrial wood coatings manufacturers Valspar and Akzo Nobel have followed the action, opening a number of production sites in Asia in recent years.
“The one thing that stands out today vs. a few years ago is that the business has become a global business,” says Hugh Cates, Valspar’s global manager for Wood Coatings, who headed Lilly’s wood-coatings business prior to the acquisition by Valspar. Cates is a 35-year-plus veteran of the wood-coatings industry, and joined Lilly in 1991.
“We’re positioned around the world to serve our customers and grow with them,” says Cates, referring to Lilly-Valspar’s expansion of operations worldwide. The results of this global migration have been especially dramatic in Asia, most notably in southern China. Economics — primarily lower labor costs for furniture makers — is the driving force. As a consequence, Cates estimates that wood-furniture production in China has surged at an astounding rate of 40% a year during the past three years alone.
And the migration continues. Little more than a month ago, the biggest U.S. residential-furniture maker — Furniture Brands International — said it would eliminate 1,000 U.S. jobs, or nearly 5% of its work force, due in part to the company’s transfer of manufacturing overseas. The company’s brands include Thomasville, Broyhill and Lane. Furniture Brands International says about $200 million of its annual sales, or 9%, come from products made overseas. The company’s domestic plants are all located in the southeastern United States, long the focal point of the U.S. wood furniture manufacturing industry.
Responding to the furniture industry’s geographic shift, Lilly had opened a number of production sites in Asia in recent years, beginning with a plant in Taiwan more than 10 years ago. In just the last five years, Cates said the company had started production at sites in Malaysia and South China, and a new plant in Shanghai was poised to go online this spring.
Akzo Nobel, the number-two producer of industrial wood coatings, can relate a similar story of global extension. The Netherlands-based company, the world’s biggest coatings manufacturer, has also pursued a major expansion program in Asia, opening production sites in China, Thailand, Malaysia, and Indonesia.
Another significant industrial wood coatings producer — PPG Industries Inc. — occupies a markedly different position in the market, and focuses on products applied in highly automated, high-speed assembly processes. Thus, says Mark Wolff, PPG director of Market Development-Industrial Finishes, the company emphasizes technologies such as UV-cure coatings and other catalyzed materials. Unlike Valspar and Akzo Nobel, PPG is not a supplier of nitrocellulose lacquers, still the dominant chemistry for wood furniture coatings.
“We’re probably the largest supplier of specialty coatings for wood,” says Wolff. “Our focus is thermoset coatings and high-performance coatings for flooring, doors, window and door sash, prefabricated post-assembled furniture, and hardwood flooring.” As a result, Wolff says PPG has not joined any exodus to the east and operates no production sites in Asia to supply furniture makers. The company’s products, he says, are less tied to users who have sent operations overseas to take advantage of lower-cost labor. PPG’s industrial wood coatings business focuses on acrylic and urethane chemistries and advanced curing mechanisms.
Also holding a significant position in the industrial wood coatings industry is RPM Inc.’s Chemical Coatings business, based in Hudson, NC. Gary Shore, Chemical Coatings’ general manager, says the business’ UV-cure and acid-cure materials are enjoying solid gains in sales. The business focuses primarily on furniture applications, but also supplies some materials for other wood products. Shore also heads RPM’s Westfield industrial-coatings business in Massachusetts, another supplier of industrial wood finishes.
To survive and compete in the increasingly global industrial wood-coatings market, Shore says the coatings manufacturer must provide top-notch technical service. “The development of color on wood is an art, and you have to provide the service and find the people who can and are willing to do that, anywhere in the world.”
The Sherwin-Williams Co. also holds a significant share of the industrial wood coatings market.
Figures Suggest Domestic Industry Continues to GrowDespite economic and regulatory challenges in the United States, wood coatings production has continued to grow during the past decade — at least according to government figures.
In 1999, the most recent year for which estimates are available, shipments of wood-furniture, cabinet and fixture finishes totaled 60.54 million gal, valued at $607.04 million, according to the U.S. Census Bureau’s annual report on coatings output. The gallon total was up slightly from 1998’s 59.68 million, but the dollar value of those coatings slipped from 1998’s $610.28 million, the report estimates. Five years earlier, in 1994, shipments of wood-furniture, cabinet and fixture finishes totaled 35.86 million gal, valued at $342.53 million gal, the Census Bureau estimated. In 1991, the totals were 35.53 million gal and $295.82 million.
The smaller industrial wood-coatings sector of wood and composition board flat-stock finishes also has shown growth, going from an estimated 8.76 million gall worth $82.31 million in 1991 to 1999’s totals of 18.71 million gal and $188.18. The 1999 estimates represented a modest increase from 1998’s figures of 17.757 million gal, valued at $179.70.
No estimates were available on worldwide production of industrial wood coatings.
Lilly Deal Thrusts Valspar into Dominant Wood-Coatings PositionIn acquiring Lilly, Valspar significantly expanded its position in a range of industrial coatings markets, including coatings for furniture, appliances, general industrial, and other applications. In the industrial wood coatings segment, the integration process is proceeding in something of a reverse direction, with Valspar in effect merging its industrial wood coatings business into Lilly’s much larger operations.
“Lilly’s wood-coatings business was about five times the size of Valspar’s,” says Steven L. Erdahl, Valspar’s senior vice president responsible for the company’s Industrial Finishes and Refinishes Group. Erdahl, whose responsibilities include the combined industrial wood coatings operations of the merged company, says both Lilly and Valspar supplied products for a variety of markets including the furniture, kitchen-cabinet and building-products sectors. But he says Valspar had focused on “niches” within those markets and didn’t possess the size to compete “head-to-head” with the top industrial wood coatings producers, Lilly and Akzo Nobel.
Erdahl calls the merger a “natural” combination that yields significant market and product synergies. “We are taking a strong, number-one wood-coatings business and making it stronger,” he says. Valspar declines to provide sales figures for industrial wood coatings alone. Overall, Valspar says its annual sales following the Lilly merger will total approximately $2.25 billion, making the company the world’s seventh-largest coatings manufacturer. For the company’s most recent fiscal year ending Oct. 27, 2000, Valspar’s net sales were just under $1.5 billion.
Cates said Lilly had held the top ranking among suppliers of wood coatings for the wood-furniture and building-products markets, and was third in coatings for kitchen cabinets. The merger moves Valspar close to Akzo Nobel in the kitchen-cabinet sector, he says.
Technology Advances Focus on Performance, Environmental IssuesFor Akzo Nobel and Valspar, nitrocellulose lacquers retain their status as the dominant chemistry for furniture finishes, while waterborne coatings have recorded gains in the coatings markets for office furniture and cabinets. Radiation-cure coatings are seeing greater use in the office-furniture sector due to the technology’s high-performance capabilities, says Valspar’s Cates.
G.M. Currier, Akzo Nobel’s vice president of Research & Development for wood coatings, says radiation curing of waterborne coatings appears to offer great promise as a growth area, due to the potential for formulating products that allow greater control of film thickness than 100%-solids systems. The technology could provide advantages in spray applications, where 100%-solids coatings can result in excessive film build in spray-overlap areas.
Research also is under way on what Currier calls “visual light” UV-cure coatings, where the coating cures without the use of UV lamps. But he says such materials are in an early stage of R&D, and he declines to offer more specifics.
PPG’s Wolff says the company’s emphasis on new technologies has led to significant industrial wood coatings advances such as finishes for hardwood floors that boast much greater resistance to abrasion. These UV-cure materials, which contain aluminum oxide, are making their mark as a commercial success, he says.
A consensus of coatings producers appears to hold that powder coatings for application to wood are not expected to produce a sequel to the dramatic story seen with powder coatings for metal finishing. PPG’s Wolff describes his company’s work in the area as “test drilling” that is not being counted on to add to the bottom line any time soon.
“It’s not like everybody’s taking down their conventional (coating) lines and adding powder lines,” Wolff says. Still, he agrees that the technology offers some intriguing possibilities, due to powder’s inherent environmental friendliness and relative ease of overspray reclamation compared to radiation-cure coatings. UV-cure materials contain acrylates that can be skin irritants, posing handling complications for application personnel.
A broad consensus also has emerged that waterbornes are not taking the wood coatings industry by storm, due to a combination of factors including application drawbacks and R&D programs that have given the nod to alternative systems such as high-solids and radiation-cure coatings.
“It’s possible to address environmental concerns with waterborne materials, but they generally are more expensive and are labor intensive,” says Wolff. An example is waterbornes’ tendency to cause grain-raising in wood, a situation that often forces additional sanding. In some cases, he says, customers require waterbornes to meet compliance needs in specific geographic areas, and then “we make them as user-friendly as possible.”
PPG’s concentration on coatings designed for high-speed, automated application operations has benefited from strong growth in such key markets as kitchen cabinets and wood flooring, Wolff says. Those markets have expanded both as a result of robust growth in new construction and sales of existing homes. Those end-use markets have been growing at rates of 8% or more in recent years, he says.
EPA Regulation Spawns Reformulation Tidal WaveAkzo Nobel’s Robert Matejka, Environmental manager for Customer Services, says the greatest impact of the EPA’s national rule limiting VOC and HAP emissions from wood furniture coating process has been the reformulation — not the elimination — of solventborne nitrocellulose lacquers. He estimates that the wood coatings industry includes more than 50,000 different products, a vast total that results in part from the myriad color changes required by customers.
“I’ve personally put out more than 100,000 certified product data sheets,” Matejka says, referring to documents that are required to demonstrate end-user compliance with HAP regulations.
The national wood-coatings rule enacted by the EPA in 1995 requires coatings users to meet specific limits, either by averaging the HAP content of a complete coatings system or complying with individual limits for each type of coating applied.
A major compliance tool employed by coatings suppliers arrived on the scene with the “de-listing” of acetone as a VOC, which occurred shortly after the national VOC/HAP rule went into effect. By using acetone in combination with other, slower-evaporating solvents, solventborne wood finishes have retained considerable market share in the furniture market, allowing coatings users to continue conventional application methods and achieve desired appearance qualities.
Wood-coatings formulators are awaiting EPA action on another potential weapon in the compliance arsenal — tertiary butyl acetate (TBAc) — a solvent that the agency has proposed to add to its list of non-VOC compounds, Matejka says. TBAc appears to offer greater potential than acetone due to its slower evaporation rate, giving the formulator more flexibility in designing a coating system (see sidebar).
Next up: New Rules Affecting Coating of Building ProductsAkzo Nobel’s Matejka, who was involved in the torturous industry-EPA negotiations that resulted in the national VOC/HAP rule on wood-furniture coatings, says another rulemaking process — this one involving coating processes for wood building products — is sure to give coatings suppliers additional compliance issues to ponder.
Matejka has seen some of the preliminary proposals being floated by the EPA for a national emission standard for hazardous air pollutants affecting wood building products, and certain portions of those proposals are cause for concern, he says.
Matejka says one draft provision would essentially force the use of waterborne coatings on a building material called “tileboard” — a four-by-eight-foot panel traditionally coating with thermosetting solventborne materials. He said attempts to find suitable waterborne alternatives “have been going on for 25 years,” but without success. Other solventborne coatings for wood-paneling products also could be targeted, and waterbornes also have come up short in delivering the needed performance properties for those materials, he says.
Matejka says a major issue looming for suppliers and users of thermoset coatings is related to emissions of “cure volatiles” — chiefly formaldehyde and methanol — that are difficult to measure, much less control. These emissions vary, depending on a range of parameters, and can even exceed the direct emissions of the HAPs specifically targeted by regulations, Matejka says.
The industry is campaigning for a delay in consideration of new controls on these so-called cure volatiles until the end of an eight-year “risk assessment” period, Matejka says. Substrates that could be affected by any rulemaking include hardboard, interior plywood and particleboard.
Also lurking as a potential regulatory headache is the possibility that air-quality agencies will enact indoor air-quality controls that seek to address the issue of ongoing — or post-application — formaldehyde emissions from cabinets and office furniture. The state of Washington has broken this ground with an indoor air rule, but so far is alone in imposing such a rule, Matejka says.
Sidebar: EPA to Issue Proposal for HAP Limits on Wood Building-Product CoatingThe EPA is expected to issue a proposed national emission standard regulating hazardous air pollutant emissions from coating processes involving wood building products — a regulation commonly known by the abbreviation NESHAP — sometime early this year. A final regulation is currently scheduled to be issued in early 2002, with compliance required two years after enactment of the rule at existing major emission sources.
Under draft versions of the proposed regulation, the EPA is considering HAP emission limits as low as zero — as measured in pounds of HAP per gallon of applied coating solids (lb/gal) — for certain industrial coating processes at new or “reconstructed” application facilities. Under a draft EPA proposal, the zero lb/gal limit is suggested for coating of wood flooring, exterior siding, doorskins and “miscellaneous” wood building products, and for coating of “other interior panels” at new or reconstructed facilities. Other emission limits suggested in the draft are 0.48 lb/gal for coating of doors and windows, and 0.04 lb/gal for interior wall paneling and tileboard.
The draft proposal suggests the following HAP limits at existing emission sources: 1.45 lb/gal for doors and windows, 0.78 lb/gal for flooring, 1.53 lb/gal for interior wall paneling and tileboard; 0.01 lb/gal for “other interior panels”; and 0.06 lb/gal for exterior siding, doorskins and miscellaneous.
Sidebar: Solvent Suppliers Users Await Final EPA Action on ‘De-Listing’ of TBAcFormulators of industrial wood coatings are anticipating the arrival of an important addition to the compliant-coatings assortment of raw materials courtesy of the EPA — when the agency gets around to “de-listing” the solvent tertiary butyl acetate (TBAc) at the request of Lyondell Chemical Co. The EPA in 1999 issued a proposal to remove TBAc from the list of compounds defined as VOCs. Lyondell says TBAc possesses “negligible photochemical reactivity.”
Gail Kelly, Solvents Development manager for Lyondell, said a final EPA ruling on the de-listing of TBAc had been expected in 2000, but was delayed by the presidential election campaign’s impact on the development and enactment of regulations. She said EPA action is thought to be imminent, but that there is no certainty on the timing.
Kelly said TBAc is expected to find broad applications in coatings, particularly automotive-refinish and industrial wood coatings that must meet stringent EPA regulations on VOCs and HAPs. TBAc offers a slower evaporation rate than acetone — another non-VOC that is often used in nitrocellulose lacquers — and has a flash point of 62(F, considered more than acceptable for use in coatings, Kelly says. Lyondell says TBAc also offers a broad solvency range.
TBAc’s combination of properties makes it a candidate for solvent substitution for a variety of VOCs and HAPs, including aromatics such as toluene and xylene and ketones such as MEK and MIBK and other esters, Lyondell says.