Paints and Coatings Industry Profile

Introduction

The paints and coatings industry consists of manufacturers of paints, varnishes, lacquers, shellacs and stains. It includes two distinct subsectors—architectural and industrial—which are about equal in size in terms of value of shipments. The architectural coatings subsector depends heavily on the performance of the construction sector, whereas industrial coatings are linked closely to the automotive, major appliance and industrial equipment sectors.

Architectural coatings include interior and exterior house paints, primers, sealers, varnishes and stains. They are sold to contractors and the general public through retail and wholesale outlets as well as direct to large commercial accounts. A large and growing portion of retail sales is through large chains such as Canadian Tire, Wal-Mart and Home Depot, largely in the form of private-label brands.

Industrial coatings include automotive paints, can coatings, coil coatings, furniture finishings and road-marking paints. Most of these products are sold direct to the end user.

Paints and coatings are formulated products. The base material, known as the binder, is the film-forming ingredient that largely determines the performance characteristics of the coating. In the past, binders were natural products such as linseed or soybean oils. Today, to achieve higher performance, almost all binders are synthetic polymers, including high-volume resins such as alkyds, acrylics, vinyls, epoxies and urethanes, or lower-volume specialty resins such as polyesters, phenolics and silicones. The binder is compounded with fillers to extend the product, pigments to impart colour and solvents to control viscosity. Small quantities of a large number of other chemicals, such as thickeners, biocides, plasticizers, dispersants, defoamers, ultraviolet absorbers, driers, emulsifiers and adhesion promoters, are added as required in each formulation.

Structure and Performance of the Industry

The Canadian paints and coatings industry had shipments of $1.9 billion in 2010, and employed 5830 people in 261 establishments (see the table entitled Principal Statistics on the NAICS 32551 Paints and Coatings page). Weak demand following the recession continued through 2010.

The regional distribution of establishments is shown in Figure 1.

Figure 1: Regional Distribution of Establishments in Canada (percentage of total)

Source: Statistics Canada.

There are at least one or two paint producing establishments in just about every other province. This reflects the strong regional character of this industry where production tends to be shipped to customers within close proximity of the producing site. While most of the larger manufacturers of industrial coatings are located in southern Ontario, some of the larger architectural coatings producers have plants in several provinces. Regional manufacturers of architectural paints serve local markets across the country in competition with national firms. The majority of larger firms (see Table 1) operating in Canada are owned by U.S. and European multinational firms that operate subsidiary or joint venture operations around the world.

Trade

Trends in trade orientation are shown in Figure 4. In 2010, exports totalled $271 million and imports were valued at $990 million. Trade is predominantly with the United States. In 2010, 93 percent of imports originated in the United States, while 89 percent of exports were shipped there.

Figure 2: Trade Orientation (percentage of total)

Source: Statistics Canada.

Under the Canada–U.S. Free Trade Agreement (FTA), tariffs on paints, and the resins used to make them, on goods traded between Canada and the United States were completely eliminated on January 1, 1993. Under the North American Free Trade Agreement (NAFTA), tariffs on paints between Canada and Mexico were completely eliminated by January 1, 2003.

Technology

Although the manufacture of paints and coatings involves relatively simple processes, extensive knowledge and experience with the raw materials as well as their formulation and compounding is essential. Few companies perform research and development (R&D) in these areas in Canada. Most Canadian subsidiaries depend on their foreign parents to provide new technology. A few of the larger coatings manufacturers are vertically integrated, producing resins, either in Canada or elsewhere, for captive consumption. For other firms in the industry, there is a high degree of dependence on raw material suppliers for the introduction of new technologies. The paint companies then assume responsibility for formulation of these new raw materials into coatings offering improved performance. This aspect of formulation is where most paint companies derive their competitive advantage—by designing and producing coatings to satisfy a particular market demand. The role of new technology in determining a company's competitiveness is most pronounced for industrial coatings. In architectural coatings, there is a higher degree of similarity in the technologies used by all companies, and in this case product differentiation is created through superior marketing and customer service.

Environmental Challenges

Environmental as well as health and safety considerations are motivating much of the ongoing technological development in this industry. For example, paints and coatings have been identified as significant sources of volatile organic compounds (VOCs). In combination with nitrogen oxides, VOCs are responsible for the buildup of ground-level ozone in populous regions of Canada. This ozone causes respiratory problems, vegetation damage and material degradation. A program of voluntary monitoring was proposed by the industry, and accepted by the Canadian Council of Ministers of the Environment, to ensure that emissions of VOCs from coatings fall within prescribed limits.

There has been a significant shift during the past 20 years in the use of formulations based on petroleum solvents to formulations based on water as the primary solvent. In addition to reducing VOC emissions, water-based formulations offer advantages such as easier clean-up, and less odour. However, there are still applications where the necessary performance can be achieved only by using solvent-based systems. Research is continuing to further reduce solvent content while retaining its beneficial properties. Products such as radiation-curable and powder coatings contain little or no solvent but require specialized application equipment and are not suitable for use on all surfaces.

Another environmental issue has related to the handling of post-consumer paint. In most households you will find leftover cans of paint containing residual amounts of liquid paint. In most jurisdictions these are not accepted in landfill sites due to their potential for contamination of the soil, and so waste paint is normally collected in special depots, along with other household hazardous waste. The industry has developed techniques for collecting paint from these waste depots, testing for contamination, and reformulating the paint into a useable product. Recycled paint can be produced in a limited range of colours, and it has been difficult to establish markets for the product. Some municipalities have developed a closed loop philosophy for their waste, and they buy back reformulated paint in proportion to the amount of waste paint that they collect. Even though the collected paint is tested, there is still the risk that undesirable chemicals may be present in recycled product. For this reason these paints are recommended for use in exterior applications so that people are not exposed to potentially harmful emissions.

Canada–U.S. Comparison

The value of shipments per employee (adjusted to constant Canadian dollars) had been consistently higher in the U.S. paint industry than in the Canadian industry (Figure 3), but this differential has disappeared in recent years.

Figure 3: Canada-U.S. Comparison of Shipments per Employee (thousands of constant 2002 Canadian dollars)

Source: Statistics Canada and U.S. Department of Commerce.

Average salaries in the United States (converted to constant Canadian dollars) have also been consistently higher than those in Canada (Figure 4).

Figure 4: Canada-U.S. Comparison of Average Salaries (thousands of constant 2002 Canadian dollars)

Source: Statistics Canada and U.S. Department of Commerce.

Gross margins [defined as (value added—production wages)/shipments] are used as a crude measure of profitability for the paint industry in the two countries in Figure 5. Whereas the Canadian and U.S. industries were at a comparable level in the early 1990s, margins have been higher in the United States recently.

Figure 5: Canada-U.S. Comparison of Gross Margins (percentage of total)

Source: Statistics Canada and U.S. Department of Commerce.

Prospects for the Future

As a mature industry, the paint industry is projected to continue to grow in close relation to overall growth in the economy. Within the industry, there will of course be subsectors that grow much quicker. These higher growthsectors will tend to fall into the higher technology portion of the industry, where a new type of coating is developed in response to a performance or environmental shortcoming in a more traditional product.

Major Firms

Industry Association

Canadian Paint and Coatings Association
170 Laurier Avenue West, Suite 900
Ottawa, Ontario K1P 5V5
Telelphone: 613-231-3604
Fax: 613-231-4908
Email: cpca@canpaint.com