Coatings Industry Navigates Supply Chain Disruption

Just over a year ago, the manufacturing world began bracing for the rough times that the COVID-19 pandemic would surely bring. Some sectors, like commercial aerospace, were hit particularly hard, while others fared better than originally anticipated. As everyone looks ahead to a rebound, the challenges are far from over. The fight against COVID-19 continues and though vaccination efforts dominate the headlines, there are myriad additional related struggles caused by more than a year of disruptions in business as usual. Supply chain issues continue to hamper the whole of manufacturing. From COVID-related workforce disruptions to winter storms, things keep seeming to go sideways — note the not-so-subtle reference to the 400-meter long cargo ship that spent almost a week stuck in the Suez Canal blocking traffic. It’s hard to look at the global supply chain and not say aloud, “pretty much everything that can go wrong has.” But saying such a thing might set us up for the next “hold my beer” moment, so let’s not even think it. 

Michael Guckes, chief economist for Gardner Intelligence, writes in his May column that the Gardner Business Index survey reported a 90% increase in the number of survey respondents who reported slowing supply chain conditions in March. Industry associations have indicated that paint manufacturers the world over are facing difficulty procuring raw materials.

Disruption after disruption

When it comes to the coatings industry, the supply chain disruption has numerous causes:

• A V-shaped market recovery in China has led the country to use up many of the raw materials it normally exports, resulting in a very limited supply of materials needed for the production of resins and epoxies that are used to make coatings.
• Workforce inconsistencies at major seaports have led to a backlog as well as a shortage of container vessels for shipping new product.
• The Texas energy crisis triggered by winter weather in February continues to reverberate throughout the oil supply chain and has contributed to shipping disruptions.
• Unexpected incidents have caused the interruption of raw material production in Asia.  For example, factories at LG Chemical Plant in South Korea and at Godnu Chemical Resin Factory in China suffered explosions that forced the halt of production.

Products Finishing is hearing reports of chemical suppliers extending lead times roughly 2 weeks due to the effects of COVID on the workforce. Powder lead times have increased even for stock powders produced in large volumes for the industry.

“Lead times are a challenge for anything other than the most high-volume stock colors,” says Tim Milner, owner of JIT Powder Coating (Farmington, Minn.). “We are at 4 weeks for regularly used products and closer to 7 weeks if we need something matched. One supplier has rumored a major TGIC constraint due to trade issues in China and has been seriously increasing TGIC pricing while pushing HAA alternatives. We have seen a price increase of 4-7% on all powder — all justified by ‘material supply chain issues.’”

Price increases on chemicals

It’s no surprise that this disruption of the supply chain has led to rising prices. The costs of key components of coating systems, such as epoxies, have increased by as much as 60% in Europe. The global chemical industry B2B website Echemi reported in late March that more than 20 chemical companies including BASF, DuPont, Dow, DSM and LANXESS have raised prices. The price hikes are in large part due to difficulty in procuring raw materials used to make such materials as resins and epoxies. Examples include neopentyl glycol (NPG), an ingredient used in many of the resins used in powder coatings and triglycidyl isocyanurate TGIC, a curing agent used in polyester powder coatings. In mid-March, Echemi reported that architectural coating companies such as Nippon and Dulux were out of stock of white coatings because of a titanium dioxide shortage. 

“Our sector is experiencing a moment of great instability in the availability of raw materials — a situation that caused an increase in their price and that surprised the entire production chain, from suppliers of raw materials to coating manufacturers,” summarizes Guido Pozzoli, CEO of Stardust Powder Coatings, in a statement released by the company promising it has consolidated its relationship with suppliers to guarantee a constant supply of raw materials in the face of difficulties.

Many coating manufacturers are working with their suppliers to try to ensure they have materials on hand. But there’s only so much supply to be had.

Quint Towle, Director of Sales and Marketing, Powder Technology Inc. (Schofield, Wisc.), sat down with Products Finishing and provided insight into the plight of U.S.-based suppliers struggling to procure materials to make coatings for their customers.

“Finished raw materials are more expensive now because the precursors are more expensive, and there’s more demand now than there was a couple of months ago,” he says. “And there’s less supply than there was a couple of months ago.”

It would be simplifying matters to say the supply chain woes that the whole of manufacturing are experiencing are due to a perfect storm of events. Plenty of comparisons have been drawn to periods like the Great Recession occurring between 2007 and 2009. However, there are some unique factors about the COVID-19 pandemic that will fuel economic discussions and cases for reshoring for years to come.

Towle is worried that the end is still not in sight. “This is by far the largest supply crisis that we’ve ever dealt with,” he says. “Our initial concern was ensuring we had access to enough raw materials — not everyone does ­— and we feel like we have solved for that. Our secondary concern is price containment and forecasting: the prices on some epoxy products have now increased roughly 100% from November of last year – and are predicted to go even higher before they stabilize.”

Towle points out that many of these raw materials like TGIC simply aren’t made anywhere other than Asia. As long as China continues to use up the supply, the prices will remain inflated. At the end of the day who absorbs the price increases? At the moment, coating suppliers are caught in the middle of raw material providers and the OEMs and customers they serve, and many of them are eating the cost — but how long can they hold out? 

Towle says, “We’ve been telling our customers, ‘let’s first focus on making sure you get good product when you need it, then, let’s work together on pricing to find the right solution for everyone’. While some customers may be open to some degree of reformulation using less expensive raw materials, most OEMs have stringent coatings specifications that require premium ingredients.”

Who’s to say what the landscape of the coatings industry will look like when the supply chain stabilizes. Hang in there.