For top-tier coil coatings producers, BASF has stirred the pot by jumping into the market and taking the lead.
The company is betting on what it calls “future coatings” with its $175-million acquisition of the Morton Industrial Coatings business of Rohm and Haas, some 85% of which is all-liquid coil coatings. The deal, finalized in March, positions BASF second, behind Akzo, in the worldwide market, and first in North America.
BASF now accounts for one-quarter of the $600-million North American market, according to Mike Growney of Kusumgar, Nefi & Growney. The company joins Akzo, Valspar, PPG and Lilly, the other North American leading producers which, combined, hold some 85% of the market.
“Why coil and is it a future technology?” asks Frank E. McKulka, executive vice president of BASF Corp., and president of the company’s Coatings and Colorants Division. The answer, he says, lies less in the coatings’ traditional applications, such as appliances and siding, but more in the further development of pre-primed coil for automotive body panels, an area of research that BASF as well as other major paintmakers are working on with OEMs.
“The part that we find particularly fascinating is what the automotive manufacturers are doing with them. Several have projects under way today [in which] they can incorporate pre-painted, or at least pre-primed, coil ... to reduce the amount of painting done in an automotive assembly plant,” he says. “As a global player in OEM, we want to also be there in coil, to continue to support coil itself as a good solid market, but also [to support] its expansion into the OEM side.”
One of the challenges that coatings producers face is developing a “weldable primer,” a coating that can survive the stamping and welding process of automotive manufacturing. McKulka says that it will take time and concentrated R&D efforts before a solution for this problem is found.
BASF began building its position in coil coatings last year with the purchase of the coil coatings business of Norsk Hydro ASA (Oslo, Norway). With this business, BASF’s industrial coatings base climbed to 20% of total global coatings sales. Hydro also further strengthened BASF’s geographic presence in Europe and Southeast Asia.
BASF’s recent purchase is part of the industrial coatings business R&H inherited in June 1999 with its Morton International purchase. R&H says it will retain Morton’s remaining industrial coatings business. The acquired business, now part of BASF’s Industrial Coatings business group, is based in Batavia, IL. It had FY98 sales of $155 million and employs some 500. It has manufacturing sites in Batavia; Chicopee, MA; Colton, CA; Decatur, AL; and Orrville, OH — as well as R&D facilities in Batavia and Columbus, OH. Besides coil, the business includes extrusion and general industrial coatings.
With global headquarters in Muenster, Germany, and North American headquarters in Southfield, MI, BASF’s Coatings operation ranks sixth worldwide in the coatings marketplace [“PCI 100,” p. 44, PCI July 1999]. The coatings division is part of BASF’s Colorants and Finishing group. With a workforce of about 10,000, the coatings division posted 1999 sales of about $2 billion. More than 50% of BASF Coatings sales are generated outside of Europe.
McKulka says the promise of things to come in automotive is only one reason for BASF’s decision to expand into a new market. “We’re acquiring profitable businesses that are additive to sales and additive to income. We can improve our overall growth, in terms of our target for above-average sales and earnings growth, by making smart acquisitions.”
He says both the Hydro and R&H deals are synergistic to BASF. “Purchasing is one example, production is the second example. Morton is not a resin producer, not the business we bought. We are a resin producer, so we have capability of bringing our resin capacity to the Morton acquisition, plus technology. They bring some things that Norsk Hydro did not and vice versa. So we can bring together various technologies.” In the next five years, about $350 million (DM 670 million) of the $1 billion earmarked for BASF’s North American capital investment program will go toward coatings. Of this, about $100 million will be spent on the NAFTA region where two large coatings projects are under way. The company is building a 10,000 metric tons a year (MTA) powder coatings plant in Morganton, NC, initially for non-automotive applications. The project is due to start up in September. Morganton is the main site for BASF’s Industrial Coatings group in the NAFTA region.
Another project involves site consolidation, which has involved some of the closings at coatings sites over the last few years. At present, the company is in the process of closing one of its oldest coatings sites, its 15,000 MTA automotive OEM facility in Detroit, a city where it once had three coatings operations. BASF will have none there when it closes the plant this month. The company says it would be too costly to upgrade to remain competitive. Also, its Xalostoc, Mexico, coatings plant, near Mexico City, is being closed. Production from the facility will be transferred to its plant in Tultitl
At present, about 40% of BASF coatings sales are in automotive OEM, with 25% in automotive refinish, 20% in industrial and 15% in the South American-based deco market. While automotive coatings will continue to dominate BASF’s coatings business, the industrial portion is likely to grow as BASF goes after the sector in coming years.
McKulka says the industrial sector provides growth opportunities for the multinationals because of its fragmentation, especially in the United States, although this market too is consolidating. “We think that consolidation will continue,” he says. “If you look at the powder market [for example], it goes all the way from little operations that have niche markets up to people like Ferro, Fuller, PPG and now the Herberts operation that DuPont acquired.” No one multinational could be characterized as the prime competitor in such a market, he says.
In the OEM coatings sector, there are no significant acquisition opportunities possible, he says, “with the exception of what we are doing with the announced NOF venture. There aren’t many OEM suppliers left in the world to acquire. You know, if my friend Lou Savelli [who heads DuPont Automotive Coatings] or E. Kears Pollock [former executive VP, PPG Industries Inc.] wants to sell his business to us we’d certainly be happy to do that. But the reality is I’m not even sure you could get it through the FTC if you wanted to do it because of concentration factors. It would be a real challenge to make that happen,” he says. Odds are only slightly better in the refinish market, which is dominated by Akzo and Sherwin-Williams, he adds.
But the industrial coatings market remains wide open, and most of the major coatings producers are strategizing about how best to take control of various segments of it. BASF is most interested in coil, powder and, to some extent, wood coatings. McKulka says these sectors have technological possibilities and deserve R&D dollars.
“How would we describe ourselves to competitors? The number-one thing is that we are strong in technology and manufacturing of products,” he says. “We have done a lot of work in terms of improving the efficiency of our manufacturing systems and how we make paint.” In today’s marketplace, he says, that is the name of the game.