Dow's Plan For Coatings Growth

The architectural and industrial paint business is reeling from the effects of the economic downturn, but Dow Chemical is hoping that the combination of its own coatings solutions division with Rohm and Haas’s paint and coatings materials arm will give it an edge over competitors such as BASF, Cytec Industries, and Evonik Industries. The company’s goal, once business picks up again, is annual growth of 3% above the rest of the industry.

Late last month, Dow unveiled its new coatings materials business, called Dow Coating Materials—a maker of emulsions, additives, and solvents with $3.5 billion in annual sales.

The debut follows the completion of Dow’s $19 billion acquisition of Rohm and Haas in April. Luis Fernandez, vice president of the new unit and a former Rohm and Haas executive, notes that it is an early example of the transformation Dow hopes to achieve through the merger by shifting its focus away from commodity chemicals to customer-centric, higher margin performance chemicals.

For now, the new business includes Rohm and Haas’s powder coatings operation, with about $300 million in sales. Makers of metal parts and auto components often use the heat-fusible powders to form durable protective coatings. But Dow plans to sell the unit because it makes a finished product, and Fernandez wants to focus on supplying raw materials to paint formulators.

The new Dow business does not include Dow’s emulsion systems unit, based in Cary, N.C., or its acrylic acid and esters business, in Clear Lake, Texas. Government antitrust regulators made the sale of those businesses a condition of approving the Rohm and Haas purchase.

Still, the new business is sizable. It starts out with 13 factories in the Americas, six in Europe, five in the Middle East and Africa, and 10 in the Asia-Pacific region, producing a variety of paint ingredients including acrylic emulsions, epoxy resins, rheology modifiers, oxygenated solvents, surfactants, and biocides. One or two of the plants may be redundant and may eventually go, Fernandez says, declining to be specific.

The business combines 13 research and technical development centers across the globe. As a result, Fernandez says, coatings materials customers will be able to take advantage of Dow’s prowess in high-throughput research techniques while benefiting from Rohm and Haas’s synthesis expertise.

The marriage of two research and technical service cultures will be a challenge for Dow, notes Phil Phillips, managing director of coatings industry consultants Chemark Consulting Group. “Both have excellent technology and procedures, and marrying the two makes sense,” he says. However, Dow’s challenge now is to learn from former Rohm and Haas employees how to service customers in helpful but unobtrusive ways. If Dow succeeds, Phillips says, it will be able to make its entire coatings operation as profitable, successful, and dominant as was the Rohm and Haas acrylic emulsions business.

Although confident of success, Fernandez isn’t counting profits just yet. Demand for architectural coatings is down 30% from its peak in 2006, he notes. He doesn’t predict a significant recovery in demand for paint, and thus paint raw materials, until the second half of 2010.

The uncertainty of the economic times prevents Fernandez from setting profit targets. But when demand revs up again, “we expect to do better than the market,” he says.