Readying for REACH

Coatings companies face hurdles posed by REACH.

By Sean Milmo
European Correspondent

The European coatings industry is beginning to take action to ensure that it does not face major problems with the collection of safety data for the European Union’s controversial REACH scheme which involves the registration of approximately 30,000 chemicals, a lot of which are used to make paints.

REACH starts its pre-registration process next month (June) when producers and importers of chemicals with an output of over one metric ton a year have to provide minimal details of the substances they plan to register. The registration procedure is being stretched over a period of 11 years.

Pre-registration is expected to raise some difficulties for chemical suppliers, particularly the small operators (SMEs) because of the problems of ensuring that chemicals are given the proper identity. This will ensure that companies with the same substances can share the cost of gathering safety data for the full registration.

But it is now becoming clear to coatings companies that the biggest challenge posed by REACH for their sector will be the collection of data on the uses of each individual chemical, which has to be provided for its registration.

A registration dossier has to contain not only information about toxicological and other potentially hazardous properties of the substance but also data on its uses. For chemicals in coatings products that means not only details about their function within different formulations but also information on the way the coating is applied by downstream users.

With chemicals which are manufactured or imported in quantities of ten metric tons or more annually, chemicals safety assessments will have to be conducted on all identified uses. This will involve the drawing up of exposure scenarios giving details of conditions under which a substance is manufactured and then used during its life cycle in terms of the way people and the environment are exposed to it.

The exposure scenarios will not only be an important part of registration dossiers but they will also provide additional safety data and details on risk management in the Safety Data Sheets (SDS) on individual products. One of the main aims behind REACH is that more comprehensive safety information on products should be communicated down the supply chain.

The completion of exposure scenarios could be a formidable task for the coatings sector which is one of the biggest in the EU to be covered by the REACH legislation. This is on account of the numbers and range of chemicals in its formulations and the numbers and diversity of its downstream customers.

Approximately 1,000 paint producing companies, accounting for 85% of the European market by volume, are members of the European Council of the Paint, Printing Ink and Artists’ Colours Industry (CEPE), the industry’s European trade association. However the actual number of coatings manufacturers could be well over 2,000 because of the many SME producers of decorative and industrial paints.

There are an estimated 250,000 businesses which could be classified as downstream users of paints. A large proportion of these are small operators in the interior decoration segment.

Coatings producers apply a total of approximately 10,000 different products in their formulations, with an average of 20-30 in each one. Large paint manufacturers may utilize as many 3,000 substances while even with small ones the total could be as high as 500. With each chemical there are multiple uses at the formulation and application stages for each of which exposure scenarios may be needed.

The coatings industry had been hoping that the European Commission, the EU’s Brussels-based executive, and the European Chemicals Agency (ECHA) in Helsinki, which is responsible for the registration process and the operation of the REACH scheme, would propose ways of simplifying the procedure for exposure scenarios.

When the Commission recently issued a guidance document on exposure scenarios it made the industry even more confused.

“We’re not at all happy with this document,” said Jacques Warnon, technical manager at CEPE, which has complained to both the Commission and ECHA about it. “It is very long and complex. It is does not give a clear direction to SMEs who are in the most need of guidance.”

Now both the industry and the chemical suppliers led by the European Chemical Industry Council (Cefic), the trade association for chemical producers, have decided to come together to provide their own advice and assistance on exposure scenarios.

“The best thing to do is for the industry to work out its own specific guidance on this matter by providing tools to simplify the whole process,” said Warnon. “The Commission’s guidance is only a set of proposals. We just have to make sure that what we put forward is in line with the REACH legislation.”

Both representatives of the coatings sector and of chemical suppliers seem to agree that a system needs to be devised which will enable information about uses and applications of chemicals in paints to be passed easily up and down the supply chain.

“We need to help companies to develop exposure scenarios which can be communicated without difficulty between each part of the chain and the key to doing this is to have a system of standardized data,” said Jacques Wille, an IT specialist on REACH at Cefic. It has already started collaborating with chemical distributor organizations on putting together a software program on exposure scenarios.

The solution to the problem of collecting data on uses is seen to be generic exposure scenarios which cover a range of similar applications. Experimental work on generic scenarios has already been carried out by coatings associations in Scandinavian countries and is now been further developed by CEPE.

“It is a complex task,” sais Warnon. “We hope to reach a common position with the chemical suppliers so that we can provide guidance to our members on the issue by early next year.”

CEPE’s target is the drawing-up of tens rather than hundreds of exposure scenarios which will be able to embrace approximately 90% of uses without being too narrow or broad in their scope.

“We will not be able to cover everything,” Warnon explained. “There will be specialist uses for which companies will have to develop their own scenarios.”

A crucial requirement of the generic scenarios is that they should be short, clear and easy to understand. Otherwise, health and safety experts in the industry warn, workers using paints will not bother to read them.

Latin America

Chilean paint market tightens with competition

Chile’s paint and coatings industry is one of the most developed in Latin America and expects positive growth.

By Charles W. Thurston
Latin American Correspondent

Chile’s estimated $200 million paint and coatings market is coming under increasing pricing pressure as manufacturers compete more aggressively for sales, while raw materials costs escalate and paint overproduction continues, according to Fitch analysts Andrea Jiminez and Rina Jarufe, in Santiago.

Despite greater competition in the architectural paint market, the outlook for consumption in Chile is strong and expected to rise with the four to five percent gross domestic product (GDP) growth projected for this year. Last year Chile’s economy grew at 5.1%, according to the Chilean Central Bank.

One reason for the strong expectations for the Chilean economy is record prices for copper exports, which have largely insulated the country from the fallout of the U.S. economic slowdown. Indeed, Chilean GDP per capita is well over $11,000, one of the highest levels in Latin America, and inspired a 7.7% increase in household spending during 2007. Per capita consumption of paint in the country is only 1.3 gallons.

In a recent review of the credit risk for Tricolor S.A., of Santiago, one of Chile’s leading domestic paint producers, the Fitch analysts indicated that the architectural segment represents approximately 60% of overall sales for all manufacturers in Chile, while the industrial segment represents the other 40%. In contrast, Tricolor derives 70% of its sales from the architectural segment, and 30% from the industrial segment. Some two-thirds of Tricolor architectural sales are made through hardware or box stores, while one-third are through large distributors like Sodimac, Easy and MTS, Fitch reported.

Tricolor reported roughly flat sales of approximately $94 million in 2007 compared with 2006, but still maintains a stable outlook, the Fitch analysts reported. The company had little success in raising prices during 2007 despite rising oil and petrochemical costs, which account for 80% of Tricolor’s materials costs. As a result, Tricolor margins eroded by 5.8% last year, the analysts reported. The market preference for oil-based paints in Chile is growing faster than water-based paints, the Fitch analysts noted.

Tricolor has sales offices throughout the country, including the cities of Antofagasta, Concepción, Temuco, Puerto Montt and Punta Arenas. The company manufactures latex paints, enamels, varnishes, anti-corrosives, industrial paints and other products at factories in Vina del Mar, and in Lima, Peru. Tricolor controls the Pinturas Iris brand in Chile and the Pinturas Vencedor brand in Peru.

The Fitch analysts noted that the Peruvian paint and coatings market is far less developed than in Chile, with per capita paint consumption only 0.3 gallons per year in Peru and a per capita GDP of only approximately $6,500. Still, Peru’s economy expanded by nine percent during 2007, and early International Monetary Fund indicators suggest that this year seven percent GDP growth will take place. Fitch recently upgraded Peru’s sovereign credit risk to investment grade, indicative of expectations of strong economic performance there. Chile was previously the only country in Latin America with an investment grade for sovereign risk.

North America

Canadian outlook for 2008 is cautiously positive

A review of Canada’s paint and coatings industry in 2007 and forecasts of what to expect in 2008.

By Charles W. Thurston
North American Correspondent

Canada’s paint and coatings industry is expected to grow less than two percent during 2008 as the national economy as a whole struggles to expand by one percent this year, with automotive and industrial segments lagging architectural sales, industry officials and executives say. Total paint and coatings sales for 2007 rose an estimated one percent to Cdn$1.9 billion, with exports down two percent to Cdn$450 million, while imports declined one percent to Cdn$960 million, according to data from the Canadian Paint & Coatings Association (CPCA), in Ottawa.

While architectural segment sales grew by approximately 1.5% during 2007, Canada’s automotive industry is shrinking, and offshore relocations of other industrial plants are hurting industrial segment sales, paint executives indicated. During January, the Canadian economy grew by 0.6%—the biggest one-month increase in three years—on the heels of a 0.7% decline in December, suggesting that the country might avoid the recession widely expected in the U.S. Similarly, the Canadian automotive sector reported growth of 12% in January, contrasted with a 27% contraction in December, according to data from Stats Canada.

“A majority of industrial paint end-use market segments will post declines for 2007, including coil, building products, auto parts and furniture, to name a few,” said Jim Quick, president of CPCA, citing internal survey results for the first three quarters of 2007.

“In 2008, there will be continued rationalization of the sector as companies continue to vie for position in the marketplace,” Quick continued. “We will continue to see an increased emphasis on the environment, with governments everywhere rushing to prove their environmental credentials. And in the immediate future, we will continue to see the economic challenges of a high Canadian dollar and a possible downturn in the U.S. economy.”

CPCA indicates that there are more than 230 paint and coatings manufacturers in the country, employing approximately 15,000 workers. By segment, CPCA indicates that the architectural segment accounts for 41% of sales, while automotive accounts for 39% and industrial coatings account for almost 20% of total sales.

Niche players in Canada’s paint and coatings industry may stand the best chance for growth this year, suggested Steve McFarlane, president of A.R.Monteith Corp. in Mississauga, Ontario. “There’s been a lot of consolidation in the Canadian paint and coatings market and a lot of production has moved from Canada to the U.S.,” he said. “The weaker U.S. dollar is hurting the industry as a whole, mainly for exports. But for companies like mine, not reliant on exports, the exchange rate helps offset higher oil costs.”

A.R. Monteith’s production by volume is largest in the architectural segment, followed by wood stains and industrial coatings, and by specialty latex flats for theaters. Toll production accounts for approximately 35% of total production, according to McFarlane. “People still are looking for local suppliers, so our sales are still growing for low VOC formulations, especially for new water-based wood stains,” he said. He suggested that the paint industry as a whole will not grow as fast as Canadian GDP this year.

Europe