Unprecedented demand destruction

By Tim Wright | February 2, 2009

The troubling trend of revenue loss continues to plague the paint and coatings industry as the U.S. economy deteriorates rapidly. In 2008 2.6 million job losses were reported. With more layoffs coming this will certainly further deepen the recession as consumers spend less and creditors become more reluctant to lend.

Across the coatings supply chain, companies are hurting. DuPont reported a fourth-quarter net loss of $629 million as the slowing global economy reduced demand for construction and automotive products. The company has made plans to shut plants and eliminate 2,500 jobs as sales tumbled 17% to $5.82 billion, led by declines in the coatings unit, which is the world's biggest auto-paint maker.

As we went to press the second largest paint maker in the world, PPG, said it may cut as much as ten percent of its workforce because of weak global demand from automakers and homebuilders. The firm may eliminate up to 4,500 jobs on top of the 1,000 already slated for termination under a restructuring plan unveiled in September.

In this month's Business Corner Chemark Consulting's Dan Watson, vice president of the firm's Far East operation and a specialist in acrylic systems globally, offers up keen analysis of Dow's prosposed acquisition of Rohm and Haas. He says, "With the proposed Rohm and Haas acquisition, Dow will become the number one supplier of acrylic polymers to the coatings industry and in addition become a much more formidable competitor in the global market place, especially inside China."

However, Watson asks if the $15.4 billion Dow agreed to pay is too steep and if the failing global economy should be a greater cause for concern before embarking on such a venture.

Perhaps a seer by nature, Watson's concerns became very real issues in a short period of time. As we went to press, Rohm and Haas announced its plans to sue Dow for not complying with terms of the agreement and finalizing the buyout. Dow said it won't close the deal due to "uncertainties" in funding as a result of the global financial crisis. Dow cited a decision by the Kuwait government to cancel a planned joint venture last month as reason for the delay. That deal would have netted the firm $9 billion.

Now the whole merger is up in the air and we'll have to wait and see what a Delaware judge decides.

Dow Chemical CEO Andrew Liveris, said, "The world has changed significantly, and we still do not see the bottom of this unprecedented demand destruction."

Tim Wright