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    Features

    Exterior Architectural Coatings Market

    Rising raw material costs, an overall slowdown in economic activity in mature markets, tightening VOC regulations and consolidation are all key trends facing exterior architectural coatings manufacturers.

    Tim Wright10.17.07
    The global exterior decorative market declined from 2005 to 2006. In North America exterior architectural coatings demand was down from five to six percent in 2006 compared to 2005. "This is in contrast to interior coatings demand which was up approximately one percent during this period," said Scott Detiveaux, a senior consultant at Orr and Boss.

    There are four key challenges facing exterior manufacturers, according to Detiveaux. "The first is rising raw material costs. While raw material prices have stabilized of late, the increases have far outpaced manufacturers ability to pass them along to customers," he said. "The second challenge is the overall slowdown in economic activity. The decline in the U.S. housing market has been well documented. The construction market has suffered a similar decline in Europe. The third challenge is customer and channel consolidation. The final challenge is manufacturer consolidation. These latter two have a particular impact on the smaller suppliers as they struggle to compete against global giants among fewer customers.

    The softness in the exterior market is continuing in 2007. "The continuing trend of declining market share for exterior coatings has been ongoing for the last decade," Detiveaux continued. "Ten years ago, exterior coatings represented approximately 40% of North American decorative architectural coatings. In 2006 exterior decorative coatings represented only approximately one-third of demand."

    Exterior Deco Market Trends




    Cetol Maintenance was launched in March 2007 under the Sikkens brand in the U.S. and Canada. This product is colorless and is intended for maintenance over existing Sikkens products.
    There are three main issues keeping Akzo Nobel busy at the moment, according to Gerry Koutavas, director, sales and marketing woodcare coatings North America, Akzo Nobel. "These include tightening VOC regulations in many markets we are active in and increasing globalization of competition both on the level of large construction projects as well as in the retail sector with big box chains going international, which may offer growth opportunities for global paint suppliers to the exterior deco market. Lastly, the declining housing market in the U.S. is also an issue we are concerned with."

    "The exterior paint market in North America is flat or declining due to non-paintable surfaces/substrates," offered Jeff Spillane, senior marketing manager, Benjamin Moore. "Better, more innovative products are required to build share and win over new customers."

    Concurring with Spillane, Detiveaux agreed that the most significant trend facing manufacturers is the loss of paintable surface. Going into further detail he said this trend has manifested itself in two ways. "First there has been a move away from wood in exterior accessories such as window frames, doors, soffits, trim and shutters among others," he said. "Second there is an overall trend away from wood exterior construction. Twenty years ago more than 40% of all new homes built in the U.S. had exterior wood siding. Today less than ten percent of new homes in the U.S. are built with wood siding. Vinyl is now by far the leading material of construction in the region."


    Berger Paints' WeatherCoat Long Life elastomeric emulsion helps to bridge hair-line cracks on the exterior wall surface due to its ability to expand and stretch to accommodate expansion and contraction. In India, this paint is useful in places like Kerala, Mumbai and West Bengal which are very high rain fall areas.
    Across the globe, exterior deco paint makers are dealing with other challenges unique to the markets they serve. In India, for example, despite high profile marketing campaigns on the part of all manufacturers, the market is still taking time to upgrade itself from cement paints, according to Srijit Dasgupta, vice president, finance and accounts, Berger Paints India. "A substantial portion of exterior coatings customers still use cement-based paint, which is unique to India," he said. "Our company launched Walmasta a few years ago, which is a high quality exterior paint but with an affordable price tag for economy segment consumers."

    With widespread leaky homes issues earlier this decade and changes in building regulations in New Zealand, councils are taking longer to approve plans and specifications and are being more cautious with their approvals, according to Karen Warman, marketing manager for New Zealand-based Resene. "This is making it more difficult and expensive to launch new textured and specialist coating systems for use over monolithic exterior substrates," she said.

    Giorgio Rupnik of Italy-based Boero Group, talked about issues the company faces operating in the Italian market. "One of the major issues faced has been the adaptation to the VOC Directive 2004/42/CE," he said. "Another issue faced successfully has been the introduction of the spectrophotometer and the development of tinting systems, which have improved enormously in recent years. Nowadays the main part of Boero's customers are equipped with their own tinting systems, with the possibility of reproducing a wide choice of color shades."

    Russia, which accounts for 3.2% of the world market for exterior deco paint, according to according to Alexander Plikus, marketing director, Empils, is one of the most dynamic coatings markets around the world. "Exterior painting is most often performed by professional builders in Russia," Plikus said. "The main challenge is communicating with end-users. In addition, professional builders generally have been using the same products for a long time. To get them to switch to new products is a long and hard process."

    The Environmental Issue



    Early compliance with up-coming environmental standards particularly concerning VOC is a key issue, particularly in the highly regulated mature markets of Europe and North America.

    A recent example is the introduction of the first step of the EU directive on January 1, 2007, which will be followed by the second step in 2010, according to Koutavas. "Whereas in Europe, the laws have been set forth well in advance and with a 'step' like format, we are faced with smaller windows of time to comply in North America, perhaps only a year after the rule has been approved. Compound that with a mix of various geographical regions that demand different limits and different implementation dates and you have a very complicated scenario.

    "We are also seeing an increase in the 'green' movement and the trend towards LEEDS (Leadership in Energy and Environmental Design) certified buildings and Green Seal (at the coatings level) leading to an additional customer demand for environmentally friendly paints," Koutavas added.

    On the research side, Koutavas said an interesting development is the onset of PACES (Paint and Architectural Coatings Environmental Study), an independent study being conducted at the University of California, Riverside, to study the total effect of a coating taking into account it's whole life cycle. "This study investigates the total impact of paint on a range of environmental criteria as compared to judging its impact on just mass-based VOC content in the finished products," he said.

    The study is designed to answer questions like: What is the total effect of a low VOC coating if you need to apply it three times as often to get the same durability as your higher VOC counterpart? What are the differences in the ozone reactivity of different types of VOCs?

    "In some instances a lower VOC product could be considered worse in terms of its ozone creating potential than its higher VOC counterpart," Koutavas explained. "Packaging costs, energy consumption, solid waste disposal and water quality are other components that affect the total environmental impact of a paint investigated in this important study which could trigger new developments in environmental legislation."

    Paint companies must prepare for the impending changes to VOC rules, which is still the most immediate issue company's are facing, according to Spillane. "Making paints that perform better while reducing VOCs is the challenge," he said. "This requires new thinking and new technology."

    Also discussing the impact of environmental regulations was Kees van der Kolk, general manager decorative coatings R&D, SigmaKalon. "The last decades have shown an increasing tendency of public authorities to force new regulatory initiatives on our industry. This originates in the very legitimate concern for the wellbeing of the population and the protection of the environment," he said. "The most important issue on the horizon is the upcoming VOC 2010 regulation and the need to maintain the durability performance of coatings, while maintaining overall application coherence. Stricter environmental labeling limits the choice of dry film protection ingredients. To maintain performance levels alternative raw materials require careful selection."

    Climate change in general is an important environmental issue for Finland-based Tikkurila. "Warm and damp winters that cause mildew problems on painted surfaces is a challenge," said Tikkurila's Arja Schadewitz. "This is partly due to the fact that some raw materials have been classified poisonous or hazardous and cannot be used any more due to VOC regulations imposed by the EU."

    Weather is also an issue in India. "Due to global warming, weather patterns have changed globally," Dasgupta said. "Today, exterior painted surfaces in coastal areas are subject to heavy onslaughts of rain. Consequently, fungal growth as well as crack development in buildings is more pronounced than before. Thus, the performance benchmarks for all exterior paints have increased over the years. There is also an increased awareness amongst consumers and users of environmental-friendly products."


    In the past few years a number of exterior deco products have been launched by Italy's Boero Group including the Ariete family of products-a system based on siloxane resins with different granulometries-and Silnovo, which represents a new type of modified polysilicate paint. Due to the versatility and capability in obtaining the look of ancient effects such as color washing (glaze), these products are now widely used in the restoration and retrieval of old city centers, an activity that is strongly promoted in Italy, where Boero is involved in the Colour Plan, which involves the beautification of a number of historical villages such as Capri, Ischia, Santa Margherita Ligure, Camogli and many others.
    In Italy Boero is facing the VOC reduction issue as well. "Boero's R&D lab and technicians are engaged in working on better solutions," Rupnik said. "Another important issue, from an environmental point of view, was the adaptation to the new European directives, that led to the partial or total substitution of many raw material products including carbendazime, formaldehyde and zinc phosphate among others."

    In Russia, Empils' products satisfy the requirements of existing environmental laws in the country. "However, it must be mentioned that Empils does not supply coatings to the European and North American markets, where environmental restrictions are especially strict," said Plikus.

    State of the Selling Market



    Customers and channels of distribution are intimately linked in the architectural market. "The exterior market is much more of a professional market than is interior," said Detiveaux. "Consequently exterior products are more prominent in channels, such as company-owned paint stores, that are preferred by the professional contractor."

    A general trend in the selling market is the continuation of consolidation both in the number of outlets as well as the breadth of manufacturing brands carried per outlet, according to Koutavas. "Retailers are being more sensitive to the sales metrics performance of coatings products on their shelves. Large-scale outlets in the DIY market have less selling space to devote to wood care coatings compared to an independent retailer specializing in these products for example," he said. "Also, these larger DIY outlets will be more risk aversive in carrying new products that require time to develop demand, and tend to distribute brands and products that fulfill established consumer demand.

    "In building construction we see an increasing share of pre-fabricated construction elements such as faade elements, sidings, windows, doors and roofing, which are often coated using other coatings technologies like coil, powder, industrial wood and plastic coatings," he continued. "In the long run this will impact the volume spent on exterior decorative coatings and favor coatings manufacturers which can also offer the full range of industrial coatings technologies."

    The biggest change in the market, according to Spillane, is that paint used to compete with paint, whereas now it competes with vinyl, composites and mineral surfaces like brick, stucco and Hardy Plank. "Marketing effectively in this environment requires developing new products to coat new surfaces," he said. "It also entails promoting the flexibility and cost to durability benefit of modern coatings.

    "In addition, exterior palettes continue to evolve in subtle ways," Spillane continued. "Color selection is still very driven by geographic regions. For example, Florida's palettes are very different from Chicago's. While interior colors follow design and fashion trends, exterior colors continue to be dominated by the classic and neutral palettes."

    In the Finnish market, according to Tikkurila's Schadewitz, there is a minor shift among homeowners from DIY to using contractors. "This is due in part to the improved wealth and lack of skill or time among home owners to do the painting job themselves," he said. "Also, the share of single-family houses with mineral facades is slightly growing in Finland, where wooden houses have been very common for centuries."

    The entire selling pattern in India's exterior segment has undergone a metamorphosis, according to Dasgupta. "Today, customers' needs have evolved and they are looking at products catering to specific problems much more than general products," he said. "Also their brand consciousness has increased and today pricing is not the sole criterion in choosing a brand.

    "While contractors continue to play an important role in this segment, the launch of a plethora of feature-based products has generated a need for consumer education and application expertise," Dasgupta continued. "For example, a run of the mill contractor would not be able to bring out the best finish out of an elastomeric paint or heavy-duty coating unless he is properly trained in the use and application of these paint types. The DIY market in India is negligible and is likely to remain so in the near future. Cross category competition in terms of glass, ACP and panels has increased manifold in the last few years especially for office buildings and malls among others. They are likely to eat in to the 'paint pie' in the coming years."


    Resene Cool Colours look the same as normal colors but are designed to reflect the sun's energy reducing the heat buildup in the coating and substrate and reducing heat transference inside. This is beneficial for unstable substrates by reducing the likelihood of warping and also reduces the need for air conditioning during the hotter months.
    According to Warman, a decade ago monolithic substrates were commonplace in New Zealand. "With the leaky homes issue, the market has swung more towards brick for residential and concrete, often uncoated, for commercial," she said. "This has reduced the market for exterior paint in the new construction sector. Market demand is also moving to lower sheen finishes, with semi-gloss and satin finishes overtaking high gloss finishes."

    Russia's exterior decorative coatings market is changing in line with the rest of the Russian coatings industry. "Existing consumer trends such as ecological compatibility, broad color palettes, new formulas which can enhance the protective and decorative properties of the coatings cannot be ignored by coatings manufacturers," said Plikus. "Naturally, Empils considers all these tendencies both in development and production as well in the promotion of its novelties. As for the alternative materials market, which is developing in Russia, it must be mentioned that most of the new home construction in Russia are apartment houses and generally traditional paints and coatings materials are used for their finishing."

    Tracking the Housing Market



    The housing market is an important factor for any company in the paint business. "In addition to watching the numbers, Benjamin Moore listens to its retailers because housing markets are very localized," said Spillane.

    Naturally, the housing market is strongly affecting the market for exterior paint and it does so twofold, according to Koutavas. "A downturn in the number of new construction projects not only leads to an obvious loss of turnover in the project business, but as less people move from their old into new houses this may also reduce the number of relocation-triggered renovation activities," he said. "We follow the trends of the housing sales and we do see the impact of a slower market in the U.S. right now. The numbers are down overall and dramatically in the Midwest. There are still growth areas in the country, but these areas have slowed as well. On the other hand, wood-sided homes that have been decreasing for decades have bottomed out and are even showing a slight increase in the last five years. And you have homeowners sprucing up what they currently have instead of tearing down and building new, so we continue to see sales growth in some areas of the maintenance sector."

    In the U.S. new construction makes up only a small part of the overall exterior decorative paint market, according to Detiveaux. "Few new homes are being built with wood siding, therefore a decline in new home sales has only a minimal effect on overall exterior decorative sales," he said. "However, houses are often painted whenever they change hands, thus sales of existing homes does impact exterior paint sales. Sales of existing homes in the U.S. for 2007 are expected to be down nearly 20% compared to the peak year of 2005 and are forecast to be down nearly ten percent versus last year."

    For Tikkurila, weather conditions impact its sales of exterior paint in Finland more than the housing market. "Of course, many people want to renovate a house they have bought, but usually people only paint their house when it is necessary to keep the house in good condition," Schadewitz said. "We monitor general trends in the building market."

    "In India approximately 30-35% of paint consumption is in major cities and approximately 15-20% in smaller cities due to new construction," said Dasgupta. "The rest of the paint consumption for exteriors is due to repainting of existing buildings. Therefore any slowdown in the new housing market will adversely affect the sales of exterior coatings catering to this segment."

    "When the housing market is booming, paint sales shift more to the new homes sector as existing homeowners find it harder to secure a painter to complete their projects," according to Warman. "When the housing market slows, painters tend to move back to repaints. Therefore, paint is not as affected by the housing market slowing than many other types of building materials. We find the average quality of professional painters is better when the market is slower as the less qualified painters at the bottom end of the market tend to drop out of the market altogether."


    In the spring of 2007 Empils launched its self-titled Empils product series. It includes both interior and exterior decorative coatings, in particular anticorrosive alkyd enamel for roofs, water-dispersion weatherproof facade paint and water-dispersion weatherproof facade filler.
    Like other exterior deco paint companies, Empils monitors the housing market closely and its impact on the exterior paint market in Russia. "In the first half of 2007, Russia's economy witnessed an acceleration of growth across many industries. Building and commerce continue to be the main growth drivers," said Plikus. "In the first half of 2007, new house construction grew 34.8% in Russia, representing the highest growth rate during the last several decades. This is the result of a shift in building activity from Moscow to the surrounding region, the growth of social, low-cost housing projects, the complex development of territories according to plans of industrial zone reorganization and the destruction of old five-story 'Kruschev' blocks.

    "As the construction boom continues in the years ahead and Russia's integration into the world economic system moves forward, tendencies that are peculiar to Western markets, which determine world trends, will soon be typical for the Russian coatings market," Plikus continued. "In other words, the decorative market will become the most dynamic part of Russia's coatings market and the architectural coatings market will be its most dynamic segment."

    Technology Trends



    The architectural paint segment has traditionally focused on imparting decorative value to the exterior and interiors of structures, according to Ray Foscante, a senior consultant with Orr and Boss. "New opportunities are evolving for architectural coating systems that provide significant value-added functionality through enhancing energy savings, biological protection and/or effects, safety and security, and self-cleaning features," he said. "These opportunities considerably expand the size of the architectural coatings market but they demand new technological approaches. An example of a growing area is the rapidly expanding 'cool roof' coatings market.

    "Moving forward in the year ahead, architects, engineers, designers and even DIY users are expecting greater contributions to functionality, and environmental and energy efficiency from the coatings systems used in architectural applications," Foscante continued.

    Water-based technologies continue to improve with more choices for coalescing agents that don't add VOCs and nanotechnology is another interesting area many companies are monitoring. "Without these technologies, we would be forced to offer softer coatings with poor properties such as dirt pickup," saidKoutavas. "Nanotechnology as a whole offers many exciting possibilities with improved properties such as better scratch resistance and UV protection for wood coatings, improved penetration, adhesion and flexibility through freeze/thaw cycles. But also in exterior wall paint nanotechnology allows for the development of new, unique product properties."

    SigmaKalon's van der Kolk agreed. "Nano-techology provides a very interesting and promising technology base for improving and extending the added value proposition of exterior deco coatings for the future," he said.

    Boero's Rupnik said a lot of new raw materials have been introduced to improve the performance of already existing products. "For example, new pigments that are more durable and are suitable for siloxane and silicate paints to achieve new trend colors have been introduced," he said. "Also, new raw materials based on modern nanotechnologies, such as nanoemulsions and photocatalytic pigments, are currently being tested in our labs."
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