Covering the World European Show Capitalizes on Global Expertise
“I’m searching for technology and tinting systems for decorative paint,” Azm says. In Egypt, he adds, “People are interested in new colors and they prefer them as ready-made colors with [color] cards.” He was looking for ideas on how best to meet this demand.
He had a lot in common with other industry formulators and suppliers from Europe and abroad who attended the show, held in Nürnberg, Germany, jointly with the 5th Nürnberg Congress. Like other visitors, Azm met with technical experts on hand at exhibitor booths to discuss his company’s needs. Visitors say the availability of and opportunity to speak with supplier chemists and engineers is what is most valuable at the Nürnberg show. The event, sponsored by Vincentz Verlag, is billed as the industry’s largest worldwide with 569 exhibitors from 28 countries.
“You see a lot of lab people, people from the bench, [staffing] the booths here,” says Manfred R. Hammer, Angus Chemical’s marketing director for Europe based in Essen, Germany. “A lot of visitors here ask specific questions, like ‘We are having a problem with curing time. What do we do?’ and they want answers.” He says the main reason for such detailed questions is that the fragmented European coatings market, which largely consists of small- to mid-size firms, relies more heavily on raw materials suppliers for technical expertise and support than does its U.S. counterpart.
Suppliers at the show projected worldwide industry growth at 2% to 3% per year through 2001. While growth estimates for the Asia Pacific and Latin America regions have been lowered, growth in those regions is still expected to be higher than that of the industry overall. Despite Asia’s economic crisis, coatings growth will be about 5%, says BASF’s Dr. Thomas Weber, director of marketing, Coatings Raw Materials.
The economic crisis this year in Brazil, South America’s largest paint market and one that has been expanding production especially for the automotive and appliance industries, is expected to have an impact on coatings growth, say suppliers. South America is projected to grow at only 3% annually, down from earlier projections of 4.5%, says Weber. Europe growth is expected to be 1.5% at best.
Michael Maagefelt, Eastman Chemical regional business manager for Europe, the Middle East and Africa, predicts 2.45% coatings growth for those combined regions. “For ink, growth will be slightly faster than GNP but there has been a little recession there,” he says.
The rate of consolidation of some of the industry’s major raw-material suppliers kept its brisk pace weeks before, during and after the show and was the subject of many encounters. In the last year especially, major raw-material entities have been changing hands and/or adding partners to remain competitive and keep up with the multinational paintmakers doing the same.
During the three-day show, news of major deals spread, such as Huntsman’s plans to buy four major chemicals operations of ICI, including titanium-dioxide producer Tioxide (see p. 38). Also, merger talks between Lawter International and Clariant were abruptly called off. Two weeks later, Eastman emerged as Lawter’s new suitor. That same week, Rohm and Haas, whose cash tender offer for Morton International had to be withdrawn because of lack of shareholder interest, reported that it would acquire the paintmaker through a single-step merger plan.
Klaus-Dieter Buttler, Vianova Resins marketing services, is positive about the pace of merger and acquisition activity. He says win-win supplier relationships are being established, enabling suppliers to keep up with their customers increasingly global demands. In December 1998, Hoechst sold Vianova to private equity firm Morgan Grenfell Development Capital (MGDC). “The intention is to bring us to the stock market in two to three years. They will finance our investments,” says Buttler. Because of such investments, Vianova can establish a long-awaited foothold in the U.S. market, he says. Such a move, he adds, will strengthen MGDC’s investment.
Other suppliers are strengthening product chemistries. Last year, Eastman strengthened its waterborne technology portfolio, gaining its first specialty polymer plant in Europe with the purchase of Germany’s Ernst Jager, Fabrik Chemischer Rohstoffe. “We have some waterborne chemistries developed in the States,” says Maagefelt. “The only way to get that technology to Europe is to make it in Europe.” He says Eastman, which also recently brought a Singapore facility onstream, is continuing to invest in waterborne technology. He says this was a major reason behind its purchase in late 1996 of ABCO Industries, a South Carolina textile chemicals manufacturer that specializes in waterborne systems.
Air Products and Chemicals bought the epoxy curing agent business of the U.K.’s Scott Bader Co. late last year. It also joined with Germany’s Wacker-Chemie and formed emulsion and redispersible powder joint ventures.
Like their U.S. counterparts, some European suppliers have questions regarding long-time customers who are now, as a result of recent acquisition, under another company’s umbrella for purchasing decisions. Several suppliers at the show, for example, said they did not believe production at paint plants would suffer as a result of mega-mergers, such as DuPont and Herberts, or Akzo Nobel and Courtaulds. However, they questioned whether, once plants are rationalized, supplier accounts would also suffer.
One supplier who did not wish to be identified says that it is not unusual for a new owner to keep its acquired company’s local R&D for a time, “and we still work with them.” But there is concern among some that accounts may be lost once a newly acquired company is fully integrated into another.
Pricing is another concern. Weber says even large, global suppliers like BASF feel a pricing squeeze. He says that pricing has not kept pace with demand for higher performing ingredients. “During the past five years, we did a lot in globalizing our business,” he says, naming investments in employees and in plants. “We have a presence in most countries and more than 25 production sites,” he says, adding that such investment needs to be supported by customers. While he concedes that customers also face a margin squeeze, he says he believes new marketing strategies need to be developed to inform end users about the advantages of new paints and lacquers. He says an education gap may exist involving end-user understanding of what a more advanced product contains and offers.
“There are only a few companies worldwide, as raw-material suppliers, that are committed to this business,” says Weber. “From the industrial side, there is Bayer, BASF, but we are not Clariant, Dow or Zeneca. We are not for sale. We are highly committed to this business and we are ready to invest in this business.”
The pace of major investments by suppliers worldwide will continue, says Detlev Lindner, marketing manager of Germany’s Degussa-Hüls. In a deal valued at $7 billion, Degussa merged with Hüls last year. The company is focusing isophorone chemistry growth in the NAFTA region. “At the moment we are only interested in supplying the NAFTA market. We don’t want to go to Central and South America. We think it is possible to serve these markets from Europe,” he says. The company’s newly built isophorone plant in Mobile, AL, is expected to be onstream soon.
The company also is planning to build a polyester facility, and Mobile is rumored to be the site. “We have some [existing] polyester production in Mobile, but, if you want to enter the NAFTA market, [the plant’s] production is too small,” Detlev says. Degussa-Hüls’ current U.S. polyester capacity is about 3,000 metric tons per year (MTA) and Europe capacity is roughly 40,000 MTA, plus or minus 10%, says Detlev.
In the Unites States, “we are thinking about adding another 15,000 metric tons for the free market. We think we are the market leader, but there is still a large captive market,” he says.
Scott T. Becker, president and CEO of Elementis Specialties, says the company has divested some $2 billion of non-chemical businesses in recent years. Becker says his company is highly focused on specialties and its colorants and additives business is growing by at least 10% annually. “We expect to keep that pace up,” he adds. The company is expanding production capacity at its Jersey City, NJ, plant. Becker says the long-range plan is to add new mills for colors and additives there. Elementis also is transferring technology from Jersey City to its facility in Oosterhout, the Netherlands, for European supply.
Angus, which produces amines for coatings in Germany and in the United States, recently expanded capacity by at least 10% at its Sterlington, LA, facility.
Wolfgang Laicher, product manager at Henkel, says the company is awaiting shareholder approval of Henkel’s plans to spin off its chemical products business and name it Cognis. While Henkel’s trade marked cosmetics, adhesives and detergents businesses will remain the same, Cognis will include oleochemicals and organic specialties, which contain some of the base materials for coatings.
Dr. Rainer Höfer, Henkel technical director, says the move helps to better position Henkel for global competition. He adds that, by separating Cognis from its other operations, Henkel is doing what other raw-material suppliers have been doing by way of merger and acquisition activity. That is, the company is restructuring and strengthening its international presence by focusing on high-growth specialty markets.