Resins Update

By Andy Teng | August 10, 2005

Squeezed by rising raw material costs and lackluster demand, resin suppliers put focus on cost reduction systems compatibility

With the Iraqi War casting apprehension in every market, resin manufacturers are finding themselves in an unenviable position. With global coatings demand already weakened by the sagging economy, they are finding customers-as well as themselves-under tremendous pressure. As coatings producers look to slash their costs, resin suppliers are entrenched in their own struggle to maintain profitability in the face of rising raw material prices. They are straddling a delicate balance between eroding margins and diminishing market share.

As a result, major innovations are being put on back burners because customers' key focus these days is cost reduction. While coatings manufacturers want to see improvements in adhesion, corrosion resistance, durability and other resin properties, few seem willing to pay a premium. Rather, they want incremental enhancements with no price change, or they are looking for resins that will help them achieve a lower systems cost.

While the current slump is industry-wide, some resin manufacturers are more affected than others. High-volume, commodity-type resin producers are seeing sizable declines, while some niche suppliers say they are barely affected by the downturn. Similarly, some resin suppliers whose raw materials are not directly tied to crude prices say they are insulated from sudden shifts in oil costs while for others, every week brings another need for pricing evaluation. In any case, coatings manufacturers can expect continued volatility from their resin suppliers.

"Volatility in raw material and energy prices seems to be the new norm. Many knowledgeable observers say in addition to volatility it is unlikely these costs will return to earlier levels," said Patrick Finegan, the group market manager for architectural coatings at resin manufacturer Rohm and Haas. Mr. Finegan, echoing the sentiments of many in the industry, said there is just no certainty as long as the war continues in Iraq.

According to Johnson Polymer, double-digit raw material increases has been the norm in the past year. For instance, methacrylate prices have risen nearly 25% in the past year while styrene has gone up as much as 15%. Cindy Fruth, the marketing manager for transportation, agricultural construction equipment and powder, said additional increases are likely in the second half of the year.

Growth Continues
What is certain is that despite political turmoil and economic uncertainty, coatings resin consumption continues to grow. According to Kusumgar, Nerlfi and Growney, a West Caldwell, NJ-based market research firm, domestic consumption is growing at two annually. In the U.S., the market is estimated at more than 4.6 billion dry pounds valued at more than $4.4 billion. Synthetic resins account for the majority at 3.5 billion pounds, with bituminous resins the single largest category at 1.2 billion pounds. The second largest category is acrylic, followed by polyvinyl acetate, alkyd, epoxy, polyesters and PVC.

Resin sales growth has been strongest in coatings sectors such as waterborne, UV and powder. Although much conversion has taken place over the past several years, coatings technology is still being driven in many markets by environmental requirements. In turn, the demand for resins used in aqueous products, energy-curable and high-solids has stayed strong. More often coatings formulators are asking for vehicles with low free monomers, reduced solvent contents and water-based dispersions with solventborne-like performance.

"It's all about environmentally friendly products," said Rich Stregowski, market manager, coatings resins, at Georgia Pacific Resins.

A phenolic resin supplier, Georgia Pacific has been focusing on creating "cleaner" products to meet environmental needs while enhancing performance and compatibility in a variety of systems. The company has developed a resin that provides phenolic-like properties in a solution or melt that acts as a modifier for alkyd resins. It helps to improve adhesion and corrosion resistance while reducing viscosity.

Mr. Stregowski said the challenge isn't the product development work-it's getting customers to pay for the added value. "While customers recognize new technology is more costly, they don't want to spend more," he lamented.

Still, customers are receptive to technology that might, say, reduce labor cost. In instances in which resin technology can bring about a return on investment, he noted, coatings suppliers are willing to make the investment.

But when price consideration is the critical factor, it stunts long-term R&D development, some industry observers pointed out. Resources are devoted more to addressing an immediate need with immediate returns than products that will be delivered years later. The product pipeline may be slowed, only to have the faucet fully on in better economic times.

One area receiving much attention from resin suppliers is the development of low-temperature-cure coatings for medium density fiberboard (MDF) and wood surfaces. In addition, coatings manufacturers, under pressure from their customers, are looking for resins that will improve cure speed, enabling faster production speed. Companies such as Akzo Nobel Resins and Johnson Polymer said low-temperature curing is a key performance demand from customers.

Johnson Polymer's Ms. Fruth said two products the company recently introduced allow curing at temperatures as low as 140� C. Additionally, the company is in the process of introducing a UV powder acrylic resin.

Bob Skarvan, sales and marketing services manager for Akzo Nobel, said coatings formulators continue to push UV technology forward, even though sales volume of resin remains small. He noted that despite their higher costs, new technology still draws interest for the value they bring. "When it comes to paint performance, there will always be people looking for value," he added.

While new technology can help formulators achieve enhanced performance properties, they also need products that fit well with their existing formulations. That's why system compatibility remains high on the list of demands voiced by coatings manufacturers. Resin suppliers say many of their customers have echoed the same wants for years: develop a resin which can be a replacement for many others, allowing coatings formulators to reduce complexity and inventory. Although a lofty demand, resin suppliers are nevertheless looking at ways to reduce the number of modifiers and enhancers customers use.

International Products
Performance, price and compatibility are some of the critical issues resin manufacturers need to address. Other concerns have also crept into the picture as the market evolves. For instance, international registration is key for a resin manufacturer supplying to global customers. As Ruud Koene, commercial director for Europe at Neville Chemical points out, compliance is a must. "The first thing [customers] ask [about a new product] is if it's registered all over the world. If not, forget it," he said.

As coatings manufacturers face the prospect of another weak market this year, they will look to raw materials suppliers such as resin producers to offer improved technology while keeping costs competitive. But with worldwide political and economical upheaval hurting the chances for a recovery in the near future, the only certainty they can look forward to is technological progress.

Related Market & Technology: