Posted in: Formulators Forum

Formulators Forum—Turning Raw Material Supply Challenges into Opportunities

Posted on Monday, May 9, 2022

For the powder coating resin industry, the past two years have certainly been an interesting ride. Our collective dependence on a few crucial ingredients—namely terephthalic acid (PTA), neopentyl glycol (NPG), isophthalic acid (PIA), and a variety of key catalysts and additives—has left us exposed to the turbulence the global marketplace has been experiencing and its related disruptions. And disruption anywhere means availability problems everywhere—not just for these key raw materials, but for their feedstocks and their feedstocks’ feedstocks in turn. In this light, the powder coating supply chain looks very vulnerable.

Sure enough, these concerns have proven to be well founded. Powder coating resin production was impacted by a perfect storm of externally driven challenges, from raw material shortages and supply issues to rising costs and high demand. Meanwhile, regional dynamics and disruptions have had variable regional and global effects on the powder coating value chain.

Operationally, we’ve faced labor difficulties caused by quarantines and higher-than-normal sickness rates, raw material constraints, and the need to keep up with customer-demand volatility. Logistically, we’ve dealt with shortages in sea freight container space, port congestions, and significant delays in the delivery of raw materials. In China, the implementation of the dual control policy (provinces are given targets for total energy consumption and energy intensity, which is the amount of energy consumed for each unit of GDP growth) has affected manufacturing output as well as market demand. And in terms of costs, we’ve seen strong inflationary pressure, ever-higher energy and raw material prices, and astronomical rises in freight rates. Add in non-pandemic-related challenges, such as rising trade tariffs and the Suez Canal blockage, and supply chain management has, let’s say, seen easier times.

How has the powder coating resin industry overcome these issues? Adaptability has been key. We’ve found that a diversified supply base and global scale have proven particularly valuable. Having the flexibility to source and transport materials from multiple locations means some sites can complete orders for others. Wherever possible, businesses have spread risk and re-allocated resources and logistical routes to ensure continuity for customers.

Relying on existing scale and a wide supply base is not enough to minimize risks in the long term: proactive scenario planning for sourcing and logistics processes is also extremely valuable. For example, one important contingency measure is to identify alternative supply routes in case major transport hubs become unavailable—a situation we faced during the Houston storms in 2021. This allows alternatives if key ports are hit by extreme weather conditions or other crises.

It’s also important to manage raw material shortages for production plants. At times our team has had to be resourceful in managing alternative supply forms for certain raw materials to continue production and guarantee product quality. This is where trusted key suppliers, and some creative thinking in obtaining raw material volumes from other regions, can help relieve this pressure and mitigate most of the impact on powder coating plants.

Open communication and transparency also play critical roles during a disruption. When lead times rise as sharply as they have, proactively keeping customers up to date about unavoidable delays helps maintain and build trust. In turn, regular contact has enabled customers to share their priorities with us, helping us to serve them better. External pressures don’t have to signal bad news for valuable customer relationships: with effective, transparent communication, it’s possible to strengthen client relationships during challenging times—a silver lining to all this supply chain turbulence.

Above all, the challenges of the past two years reminded us of the value of investment in supply chain efforts and resilience building. At Covestro, we’re using what we’ve learned to rebuild our stocks so we can continue to meet growing demand from the powder coating market. Taking a proactive, transparent, and agile approach positions us to maintain business continuity even in the face of future uncertainty.

Is more uncertainty expected? The outlook for this year and beyond is difficult to predict but based on what we’ve seen in the first quarter of 2022, the world is unlikely to become less volatile anytime soon. In Europe, the war in Ukraine is already having an impact on raw materials, and prices of both gas and oil are fluctuating at historic levels. China’s dual-control policy is still in place and pandemic lockdowns in cities and factories are tightening as COVID continues to be a factor.

With demand for raw materials still high and energy and material prices continuing to rise, supply challenges remain an ever-present (and future) reality for the powder coating industry. In this market landscape, shock-proof contingencies and operational resilience will be more important than ever in moving forward toward a more stable ‘next normal’.

Bob Cregg is business director North America at Covestro.