Introduction
I’m writing this less than a week after an election that may or may not have a profound effect on the coatings industry for the foreseeable future. It’s probably safe to say that the regulatory picture for coatings and industry in general in the United States is going to change. Trade policy changes could also affect supplier bases and relationships. In last year’s article on this topic, I said “the truth is that trends don’t wait until New Years’ Day to start trending”. If promises of the incoming administration are kept, January 20, 2025, could be a watershed day for trends in the coatings industry.
Tariffs and Supply Chain Disruptions
Supply chain disruptions with roots in the pandemic are still rippling through the coatings industry and new hiccups keep emerging. No one can predict disruptions due to catastrophic events like hurricanes or fires. Some supply interruptions can be anticipated, for example increased costs for imported materials due to tariffs or shipping costs. A potential trade war with any number of countries would put price pressure on any industries relying on imported raw materials. Industry groups are already preparing to take action against import taxes which would increase raw material and component costs.
For example, a group of EU based coatings makers are pushing back against recently imposed tariffs on titanium dioxide and epoxy resins brought into the bloc from countries such as China and Korea. A solution to both tariffs and possible shipping problems is to move points in the supply chain nearer to the end user. This trend is called re-shoring or near-shoring. While this sounds like a good strategy it must be properly executed to achieve the desired results. Near-shoring to countries without tariffs or reduced tariffs can help control costs of imported materials. Countries targeted for tariffs are subject to change so this approach must be used with caution.
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Merger and Acquisition Activity
2024 saw an uptick in M&A transactions especially near years end. There were several large M&A deals in the coatings industry which have regional and global impacts. Three globally important raw material suppliers were acquired by either other industry suppliers or equity partners. The first two are examples of industry consolidation which has been a trend for decades and will continue through 2025 and beyond. Specifically, I would like to point out the takeover of Heubach by Sudarshan, and that of Silberline by Altana (parent company of BYK and ECKART). Another interesting aspect of these two mergers is that they are both in the pigments segment. This mature segment has been consolidating for several years with more profitable players acquiring struggling ones.
Other transactions within the industry are examples of equity groups both private and public acquiring raw materials suppliers and coatings manufacturers. Raw material supplier Covestro was acquired by the Abu Dhabi National Oil Company or ADNOC whose majority ownership is the Emirate of Abu Dhabi. Major US headquartered coatings manufacture PPG recently agreed to sell its’ US and Canadian architectural paints business to private equity firm American Industrial Partners. This division contributed about 2 billion US dollars annually to PPG’s revenue but was not a profitable as several of its’ other coatings manufacturing operations. This could be part of a trend to try to bring profitability or extract value from struggling coatings companies by private equity groups. Most of us involved in the industry are aware of Kelly Moore ceasing operations in early 2024 after being acquired by a private equity group in October of 2022.
Regulatory Changes
The regulatory environment is another factor of the coatings industry whose trends are based on exterior influences. Under the Biden administration there was a commitment to environmental protection, consumer and worker safety, and climate change regulations. The incoming pick for EPA Administrator, former New York ADNOC Congressman Lee Zeldin, has already publicly declared he will pull back “left-wing” regulations. How the EPA addresses two issues could shape coatings industry trends in 2025. President-elect Donald Trump has already pledged to withdraw the US from the Paris Accords on Climate Change this will affect how the US regulates Carbon Dioxide emissions and accounts for product carbon footprints.
The EPA is currently considering regulation of so called “forever chemicals” how the final regulations are shaped will depend on the incoming administration. Even the definition of these “forever chemicals” depends on the regulatory environment. The scientific community and the public at large are becoming aware of the negative health effects of these per and polyfluoroalkyl compounds commonly referred to as PFAS. The EU is considering expanding current restrictions on PFAS materials and is even considering an outright ban in all consumer products in the future.
Industries using PFAS are working at an accelerated pace to remove them from their products. Throughout 2024, raw material suppliers have announced plans to remove PFAS materials from their products. This has mostly been in anticipation of regulations restricting or prohibiting the use of PFAS in various products. Replacing PFAS in coating formulations is difficult since they can bring enhanced performance to coatings containing them. Some coatings producers may curtail their efforts to replace PFAS if restrictions are unlikely.
Reducing Product Carbon Footprint
Plant-based raw materials are emerging as a means to reduce a products carbon footprint. The European Parliament, like the incoming US administration has also shifted its makeup with more populist and conservative parties gaining seats. There are no definitive indications as to how these ideological changes might affect the European Green Deal. This is one of the primary global drivers toward a European circular economy and a major force behind the use of plant based raw materials. The influence of the European Green Deal is actually global since it will apply to materials imported to the bloc as well as those produced there. Reducing the product carbon footprint of coatings formulas could trend up or down depending largely on the EU Parliaments actions.
Artificial Intelligence
The adoption of AI has gone full steam ahead since late in 2023 when I wrote the article on trends for 2024. Throughout 2024 AI offerings by large tech companies expanded. These concentrated in the areas of AI enabled search engines and data interpretation/presentation. Smaller tech companies and start-ups are looking to expand AI utilization into specific industries including coatings and allied formulation based operations. Many of these offer AI modules which work with other IT functions such as design of experiments and electronic laboratory notebooks. Combining AI with other functions helps to justify investing in new software platforms. As with all emerging technologies, we can expect a shakeup in these coatings oriented AI applications as winners and losers are determined.
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