With the holidays carefully tucked away, it’s time to look forward to the New Year and the fortunes of the finishing industry. For the past 21 years we have brought you a detailed finishing forecast. This time our market research partner, Clear Seas Research, conducted the survey by soliciting finishing managers, engineers and company owners for their insights into the industry’s prospects for 2008. More than 200 experts were canvassed. Thanks to all of you who completed the survey and offered us a glimpse into the coming year.
Last year the theme was “cautious optimism.” Expert predictions came true in 2007; there was modest growth in some sectors, and stagnation and even contraction in others. The U.S. Census Bureau reports that the volume of 2007 OEM product coatings shipments fell 6.5% compared to those of the same period in 2006. The value of these products also dropped 6.0% from 2006 to 2007. Special-purpose coatings, however, outpaced gross national product growth by posting a 5.0% increase in volume and a corresponding 7.9% increase in value. Obviously custom coatings outpaced the commodity market.1
Elsewhere in the world, the picture appears somewhat rosier. Coatings sales in the Asia Pacific region continue to increase 5-6% per year, mirroring buoyant economic conditions and the expansion of end user markets. A similar trend exists in Eastern Europe and to a lesser extent in Southeast Asia. Western Europe expects modest annual growth rates of 2-3% after experiencing essentially no expansion over the past two years. Currency fluctuations are also influencing the market. Paul Johnson, president of Becker Powder Coatings, USA observed, “The weak dollar is helping exports but raising commodities. We expect the overall powder industry to remain flat to up 2-3%.”
Figure 1. 2008 operating level predictions.
Guarded Optimism
The trend for 2008 seems to be even more conservative than the previous year. Last year, 56% of finishers queried expected an increase in operations, and 38% thought operations would remain status quo. This year slightly less, 54%, foresee an increase in operations, and more, 41%, expect operations to remain equal to 2007 levels (see Figure 1). A majority of 70% of respondents expects to spend the same or less on finishing equipment versus 2007. Last year, 63% had the same notion. Some individuals remarked that incoming orders were decreasing or flat, whereas others mentioned that they had more business but are operating more efficiently. Becker’s Johnson noted, “2008 is shaping up to be a challenging year, especially for manufacturers tied to the housing and auto industries. But it appears that the economy will come in for a soft landing and we won’t go into recession.”
Figure 2. Monthly liquid paint usage.
Figure 3. Monthly powder usage.
Mike Barrett, a consultant to the automotive industry, commented that coatings producers need to focus on technology advances to help the U.S. finishing industry remain competitive. ”It seems to me that the volume of coatings to be consumed in the U.S. in 2008 will be down for many reasons, the chief one being the mass exodus of manufactured finished goods here,” he said. “The best prospect for the coatings industry is to commercialize new technologies that can accomplish efficiencies in application, performance and process savings. Change is the best hope for growing prosperity in the coatings industry.”
Figure 4. Reasons for investing in finishing equipment.
Spending
The reasons for investing in new finishing equipment have shifted somewhat from 2007 to 2008. In 2007, the prevailing motive was to upgrade operations (57%). In 2008, the most common reason was to reduce costs (53%) and to increase capacity (46%) (see Figure 4). It’s obvious that the industry is focusing on doing more with less. Finishers also are investing less in new technology. In 2007, 10% expected to install new technology, whereas in 2008 only 7% plan to spend money on technology advancements. Environmental drivers are less of an influence than probably perceived. Only 28% of respondents felt environmental concerns would influence equipment purchases in 2008.
Figure 5. Anticipated finishing equipment expenditures in 2008.
Third Party Influences
In 2007, we observed that more finishers were recommending or advising their coating suppliers on what raw materials to use. This trend continues in 2008, as 31% already recommend raw material choices and 7% plan to do so. In 2007, 19% made these recommendations, and 5% had plans to do so.The way we operate and do business has experienced a sea change in the past couple years. Nearly one-third (32%) of those surveyed plan to use custom coaters for at least some of their finishing needs. In 2007, only 20% had this expectation. Furthermore, half plan to outsource at least some of their parts in 2008, whereas only 33% responded in this manner in 2007.
Figure 6. Primary coatings used in 2008.
Technologies
For years, coatings pundits have forecast an ever-increasing market share for powder coatings. Our survey results indicate that this trend may be ebbing. Last year, 42% of finishers reported using some type of powder application technology (spray or fluidized bed); this year, only 38% expect to use powder coatings. The use of liquid industrial coatings seems to remain rather constant - 48% in 2007 compared to 47% in 2008. This slight difference could be due to a minor increase in “other” coatings from 4% in 2007 to 5% in 2008. E-coat consumption is forecast to increase in 2008, with 9% of the finishers queried expecting to use this technology versus only 6% of those reporting in 2007 (see Figure 6).We further broke out coating technology by application method employed. Air or airless spray technique was used by 44% of those completing the survey in 2007, and 41% expect to use this method in 2008. A slight increase in the use of powder application technique is expected in 2008 (43% versus 41% in 2007). The electrostatic spray technique seems to be in a decline: 17% responded as expecting to use this approach in 2008, compared to 21% planning to use it in 2007. High volume low pressure (HVLP) technology remains relatively steady at 27% expected in 2008 versus 28% in 2007.
The use of nonferrous substrates appears to be on the upswing. In 2007, 61% of respondents planned on coating ferrous substrates, whereas in 2008 only 57% forecasted using ferrous substrates. The biggest increase was reported in the use of plastic substrates, from 3% in 2007 to 7% in 2008. The use of nonferrous metal trended slightly upward from 25% in 2007 to 26% in 2008. The rising costs of steel combined with the weight savings experienced with plastics and nonferrous substrates are probably responsible for these trends.
Who We Queried
The Future
What do all of these figures say about the immediate future of the finishing industry? Foreign competition and tighter margins are compelling finishers to find ways to make more with less. Spending plans are modest, as are consumption forecasts. Operating cost reductions driven by greater efficiency and reduced labor components will help keep profit margins from eroding further.Fred Wells posits, “Overall growth in the industrial coatings market for ’08 will be somewhat flat - in the lower single digits. This will be mainly due to a slowdown in the economy and the fact that it’s an election year. The other issue facing coatings manufacturers will be margins.” He goes on further, “However, companies that seek out new markets and offer products that show cost reductions in other areas (e.g. energy usage, production efficiencies, etc.) will continue to have better than average growth and be in a better overall margin position.”
The forecast for the plethora of finishing techniques continues to evolve. Powder growth is no longer the king it once was. The focus on technology is efficiency and cost competitiveness. The automation of finishing operations and the use of outside parties (i.e., jobcoaters) to coat parts will continue to increase as finishers attempt to squeeze every penny possible out of their fixed and variable costs.
The entire 2008 Annual Finishing Market Study is available from Clear Seas Research. For more information, contact John Thomas at 248.786.1659 or thomasj@clearseasresearch.com.
