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The Powder Coating Oligopoly

Posted on Friday, September 29, 2017

When I began my career in the powder coating industry back in the late 1970s, there were about 20 powder coating producers in North America. Most had non-paint producing traditions, companies like Ferro, H.B. Fuller, Armstrong, Polymer, Celanese, Farboil, Dexter and Mobil. Of course, there was a smattering of true paint companies, such as SherwinWilliams, DuPont and Glidden, the place where I started my coatings career odyssey. Soon thereafter Sherwin and DuPont got out of the powder business, leaving Glidden as the only sizable paint maker in the fold at this juncture.

By the mid-1990s, the number of North American powder manufacturers had ballooned to nearly 70 as the demand for powder coatings flourished and the technology evolved. Not only had all the major paint makers secured a foothold, mainly through acquisition, but scores of small industrial coatings producers also set up powder making operations. The market quickly became oversaturated and the resultant overcapacity caused profit margins to plummet precipitously. Companies were selling powder coatings at record low prices, espousing a “just keep the lights on” mentality.

Since then, the pendulum has swung back, witnessing an unprecedented merger and acquisition spree that leads to our current situation. My unofficial count of powder producers currently operating in North America is 35. This figure doesn’t account for powder distributors, importers or resellers. If you sort the manufacturers by size a startling trend emerges. The top seven powder producers account for well over 80 percent of the North American market. Twenty years ago, this was not the case.

The consolidation that has occurred since the mid-1990s has been spellbinding. AkzoNobel bought Courtaulds (International Paint), Ferro (who had bought Glidden/ICI) and Dow (Rohm & Haas/ Morton). PPG acquired Evtech, Spraylat and IVC. Axalta (formerly DuPont) bought Herberts (who had gobbled up Dexter and O’Brien). And throughout all of this, Protech has quietly acquired at least 20 smallto medium-size powder companies, including Seibert, Govesan and Oxyplast. And finally, Sherwin-Williams has purchased Pratt & Lambert, Beckers and now Valspar (who had bought Lilly, Farboil and HB Fuller). SW’s acquisition of Valspar further consolidated the grip the few behemoths have on the market.

Dictionary.com describes an “oligopoly” as “the market condition that exists when there are a few sellers, as a result of which they can greatly influence price and other market factors.” Investors will trumpet the benefits that consolidation bring, including higher productivity, stronger purchasing power, increased pricing control and distribution efficiency, which all lead to a better return on investment.

To the consumer and employee, the benefits may be harder to discern. In Barry Lynn’s 2011 book, “Cornered,” he carefully detailed the rising concentration and consolidation of nearly every American industry since the 1980s. He found that dominance by two or three firms “is not the exception in the United States, but increasingly the rule.” The powder coating industry is not quite there yet, but if PPG had been successful in their quest to wrestle AkzoNobel from their shareholders, the North American powder market would have only six mega producers at the top. This includes 3M, which arguably doesn’t participate in the same arena as the other ones do.

The salient question regarding an oligopoly is whether the concentration of market share by a few causes an anti-competitive environment resulting in parallel activities in pricing, terms, and availability of products. We haven’t seen any evidence of this thus far. The future of the North American powder industry should be interesting nevertheless. Big companies can become cumbersome and lethargic, creating a culture that cannot innovate or respond quickly to market needs. This could provide opportunities to the nimbler small- to medium-size powder producers. Conversely, the big guys may keep absorbing their smaller counterparts and our industry could ultimately wind up like the cable companies. We wouldn’t like that, now would we?

Kevin Biller is technical editor of Powder Coated Tough and the president of The Powder Coating Research Group. He can be reached at kevinbiller@yahoo.com.