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Brussels, October 24, 2000

CEPE: The Decorative Paints Group Activities, a Revue @
CEPE: Market Developments in the European Paint, Coatings and Printing Inks Industry @
CEPE: The Role of CEPE in a Changing Global Economy @
CEPE: Coatings Industry under Pressure from Rising Raw Material Costs @

by Mr. Jean Schoder, Secretary General of CEPE

Brussels, October 24, 2000.

I will start my presentation with an analysis of market developments in our industry. Then, I will give you an overview of the major issues CEPE is currently dealing with.

Before I present the statistics I would like to point out that it is always difficult to give exact market figures. There are no universal definitions of the market segments. Different companies have different ways of collecting figures, the same applies to the various countries. When we collected figures from our members, we had to deal with the same problems. Therefore, our figures are not to be considered as absolute but as the best approximation.

According to our information, more than 5.6 million tonnes of paint were sold in Europe in 1999. Compared to the previous year, the market grew by around 3 percent in volume.

The European market is driven by Germany, Italy, France, Great Britain and Spain. Together they account for almost 80% percent of the volume.

Domestic sales in Germany amounted to 1.4 million tonnes, in Italy to 814,000 tonnes, France sold 737,000 tonnes, the UK 727,000 tonnes and Spain 714,000 tonnes of paint. This slide give an overview of sales in all EU countries.



With regard to the individual segments, the market shares do not change significantly from year to year. With about 60 percent of the volume, decorative coatings take the lion's share of the total European market.

The rest of the market is divided as shown on this slide (Powder 4%, Protective 2%, VR 4%, Wood 8%, Can 3%, OEM 5%, Coil 2%, Marine 2%, General Industry 10%).



Margins under pressure

We all know that in a mature market competition is fierce and paint producers have to cope with high pressure on prices and thus on profit margins.

Now, additional pressure is coming from the raw materials market. It had been fairly stable for quite a long time, but in the last months prices increased substantially. The price for titanium dioxide was raised already twice this year, for example. Solvents, pigments and other raw materials also went up. Our industry expects this trend to continue. The rise was triggered by the soaring oil price which has doubled over the past two years and reached ten-year highs. The persistent weakness of the Euro against the US Dollar does not make things easier for European producers. Crude oil is traditionally traded in US Dollar per barrel, and the price rise hits European producers particularly hard.

This means that paint manufacturers will have to adjust their prices in the near future.

Printing inks

The printing ink sector is, of course, also affected by the price increase for raw materials. Growth rates in the printing ink sector vary considerably between the countries, but the overall European market grew in 1999 and moderate growth is expected to continue.

However, the ink market is closely linked to the development of the GNP: In times of economic growth, more goods are being produced and have to be packed, advertising increases, etc., all this rises the demand for printing inks.

Should the high oil price slow down the expected growth in the European Union, it will have negative effects on the printing ink market too, not only because of the raw material prices.

In 1999, about 1 million tonnes of printing inks were sold in Europe. Germany leads the market with sales amounting to over 280,000 tonnes, followed by the UK with 190,000 tonnes and Italy with 125,500 tonnes of inks. The biggest segments are offset inks with around 40% and packaging inks with about 30% of the market. Interestingly, in the German market, publication gravure and offset inks have almost the same importance with around 100,000 tonnes, whereas in most other EU countries publication gravure is a fairly small segment.



Major fields for CEPE's action

Let me now turn to the current work of CEPE.

I would like to focus on only a few aspects of our work, which have our main attention at the moment.

VOC certainly remains one of the most prominent issues. The Directive on VOC emissions from industrial installations is a very good example for the legislative process in the EU and CEPE's involvement in it. It took more than ten years to work out the final Directive. This means that CEPE had to show determination and perseverance to advocate the industry's interests. But the result proves that it is both necessary and worthwhile to participate in the discussions with the European authorities.

The issue of VOC continues to be on the agenda. Over the last year, one of our major fields of action was a Commission proposal on National Emission Ceilings for VOC and other substances. The proposal included VOC emission ceilings which were too tight for our industry to comply with. CEPE explained the industry's view and worked with the Technical Committees of the Commission and achieved another success: In June, the Council of Ministers adopted a new proposal for a Directive on National Emission Ceilings, which embraces the figures CEPE has been endorsing. I would like to point out that these figures correspond to those laid down by the United Nations Economic Commission for Europe in December last year. The Council proposal has been referred to the European Parliament for discussion and we are expecting a decision soon.

In addition, our industry is facing new VOC legislation on vehicle refinishes and decorative paints.

Risk Assessment

Another highly important field of CEPE's work is risk assessment of substances used in paints and printing inks. It is so important, because it concerns all sectors of our industry. It is indispensable that risk assessments are based on real data and not on worst case scenarios. Only then can we develop effective risk reduction measures and avoid an unnecessary strain on the industry.

Therefore, CEPE has a special group dedicated to risk assessment: the CEPE Advisory Group, which consists of toxicologists, physicians and HSE experts of our members. The group is actively involved in risk assessments carried out on the basis of an EU Regulation from 1993. The Regulation stipulates that all existing chemicals have to undergo a risk assessment. Up to now, the Commission has drawn up four priority lists of substances to be assessed. (Priorities are set according to production volume and exposure of workers.) The lists contain 140 substances in total, and about 50 of them are used in paint and printing ink manufacturing.

The CEPE Advisory Group is not the only working group dealing with risk assessment. The Task Force 'Printing Inks for Food Packaging' is co-operating with the Council of Europe, which is currently drafting a Resolution on printing inks for food packaging. CEPE's Task Force has developed a test method for assessing the risk regarding the potential migration of ink additives through the packaging material. The members of the Task Force will also finance the testing to be carried out by an independent laboratory in Munich.

In the field of marine paints, CEPE's Antifoulings Manufacturers Working Group has co-operated with the University of Amsterdam to develop a computer model for testing TBT-free antifouling paints. With this model, the reaction of biocides in specific environments can be tested quickly and effectively. The model helps CEPE's marine paint manufacturers comply with the ban on TBT which will come into force by 2003.

Alliances

Many of CEPE's issues do not concern the paint and printing ink industry alone. Therefore, we form alliances with a wide range of organisations outside the paint and printing ink industry to represent the industry best at European level. There are many fields of co-operation. To give you an impression of the scope of our work, I will name our most important partners:

We have close contacts to CEFIC, the European Chemical Industry Council, of which CEPE is an affiliated member. Co-operation exists in many fields. For example, CEPE is involved in issues such as endocrine modulators, food contact coatings, risk assessment, and dangerous substances and preparations.

In the field of food contact coatings, we take part in several joint industry groups. One of them is the JIG Metal Packaging, where raw material suppliers, can manufacturers, and coating manufacturers work together.

Another important group we participate in is the European Solvent VOC Co-ordination Group ES-VOC-CG. It was formed back in 1992 to provide a co-ordinated industry approach to matters concerning VOC, ozone and national emission ceilings. The group unites more than 20 organisations representing producers and users of solvents.

CEPE also co-operates with consultants appointed by the European Commission. For example, our experts contribute to the preparation of the proposals for EU Directives on VOC in decorative paints and vehicle refinishes.

In some cases, we work together with Universities in studies which are commissioned by the European Union. I have already mentioned the co-operation with the University of Amsterdam regarding the computer model for testing TBT-free antifoulings.

It is also important for CEPE to stay in close contact with the industry's customers. Therefore, we have an active information exchange with UNIEP, the International Union of Professional Painters. Regular meetings offer a forum for discussing the concerns of the users of paints.

CEPE will continue to strengthen and expand the co-operation with other stakeholders. This will improve the dialogue between all partners, increase our knowledge about the different issues, and support the advocacy of our common interests.

CEPE, the European Council of the Paint, Printing Ink and Artists' Colours Industry represents more than 110 paint and 150 printing ink companies. It consists of 22 National Associations in 17 countries and 12 company members.

CEPE: The Role of CEPE in a Changing Global Economy

Address by Mr. Neville Petersen, President of CEPE

Brussels, October 24, 2000. It is my pleasure to welcome you to this year's Annual Press Conference.

In June, I was elected President of CEPE. I took over from Prof. Rankl, who gave six years of his time and not inconsiderable energy to CEPE. His leadership abilities and his dedication to our industry are well known, and we thank him for all he did for our organisation.

Today, the paint and printing ink industry needs a stronger European association more than ever before. It has to deal with huge challenges arising from several fronts.

On the one hand, there is European unification supported strongly by political forces. The harmonisation process is progressing rapidly and consequently, we have to deal with an increasing number of decisions and regulations coming from the European Union. CEPE has to be vigilant, strong and very active to represent and protect the interests of the industry at European level – a special challenge because political decision-makers are generally not experts in coatings or printing inks.

On the other hand, there are the challenges arising from continued globalisation, a process not so much driven by politics but by the industry itself.

A few decades ago, the paint and printing ink industry was dominated by small and medium-sized enterprises with regional or national activities. When the customers of our industry – for example, the automotive industry or the can manufacturers – started to globalise their businesses, the coating and printing ink manufacturers had to follow. Today, we find multinational groups as well as many SMEs in our industry, and most European enterprises, small and big companies alike, supply customers everywhere in Europe and in the world. Trade barriers are gradually lifted all over the world, and even though during the last 12 months 'mega mergers' - such as the take-over of Courtaulds by Akzo Nobel or Herberts by DuPont – have not taken place, the process of globalisation continues. Recent acquisitions reflect the companies' strategies of becoming market leaders in chosen market segments. For example, BASF acquired the Morton Coil Coating business from Rohm & Haas and is now one of the top players in coil coatings world-wide. Akzo Nobel bought the coatings business of Dexter making Akzo Nobel one of the global leaders in aerospace coatings. ICI sold its vehicle refinish business to PPG and now concentrates on the decorative and can segment.

In January, the EU gave the go-ahead for the take-over of Totalfina's printing ink business Coates Lorilleux by Sun Chemical.

In the US, Valspar has announced the plan to acquire Lilly industries, which would strengthen Valspar's industrial coatings business. The transaction is still pending a decision from the US Federal Trade Commission.

The global approach

Against this background, it is important for European enterprises to be up to date on economic, political and legislative developments in the European countries and world-wide.

The coatings industry is more complex than generally perceived, and the environment in which companies operate is becoming ever more difficult.

Environmental issues are a good example and reflect the complexity of the business. We all know that environmental matters extend beyond national or European borders. CEPE and its partners in the US, Canada, Mexico, Australia and Japan have taken up the challenge and created the International Paint and Printing Ink Council IPPIC back in 1992.

What is the role of IPPIC?

IPPIC was founded to provide, above all, a forum for exchanging information and co-operating on common issues at global level. It co-ordinates positions of the paint and printing ink industry world-wide and communicates with other international organisations. A major ambition of IPPIC is the world-wide spread of Coatings CareŽ, the HSE management programme for our industry.

Now, after a decade of strong globalisation, it is not only environmental matters that need to be addressed at international level. Many other aspects of the coatings industry have world-wide implications. Just think of product development, production standards, logistics as well as cost pressure, to name but a few. The logical consequence is to establish global working groups. And indeed, the first group has been set up: the world-wide Product-Oriented Group for Vehicle Refinishes. The POG will follow and assess structural market changes, develop a common understanding of relevant regulations, and define a common policy and a clear position to be presented to legislators in the different countries.

In view of the increasing need for action on behalf of our industry at international level, IPPIC has decided earlier this year (in February), to apply for the 'consultative status as non-governmental organisation (NGO) with the United Nations' Economic and Social Council'. I do not wish to go into too much detail, but a short explanation will help to understand the benefits of such a status:

Among other things, the UN Economic and Social Council (ECOSOC) initiates studies, draws up reports, and formulates policy recommendations, which are submitted to the UN General Assembly. To fulfil these tasks, ECOSOC co-operates with competent and approved NGOs. The advantages for IPPIC of attaining consultative status with the UN become quite obvious when you think of the ban on TBT in marine paints, for example. This is a decision taken by the United Nations, which has strong effects on each individual marine paint producer in every country in the world.

Another example is product labelling. Our industry would more than welcome a quick world-wide harmonisation to facilitate international trade and to lower non-tariff trade barriers.

CEPE fully supports the efforts of IPPIC and has valid know-how to contribute to the work. After all, CEPE is the only association in our industry that has almost 50 years of experience in advocating the industry's interest at international level.

Supporting European harmonisation

The rapid developments in our industry also change the work of CEPE. Companies require more services from CEPE and they need quicker responses. To be able to cope with the increasing number of tasks, CEPE and its members have to undertake determined efforts to promote the responsiveness and effectiveness of the organisation.

This process requires the full commitment of all of CEPE's members and in particular of the national associations.

The national associations are a vital pillar of CEPE. Sometimes, people have the impression, that a European organisation could take over the work of national associations and make national structures superfluous. But this impression is quite wrong. The EU is a federal system. Each country has a national government, national authorities and national legislation, and economic conditions vary from country to country. Only the national associations are able to follow and understand what is going on in the individual countries. They know the politicians in charge, the authorities, NGOs, relevant national legislation etc. and they can and have to inform CEPE about new developments.

CEPE is responsible for the European level and above all for advocating the industry's stance to the European Commission in the various Directorate Generals. But once legislation has been adopted at European level, the national associations have to take over. National governments often undermine common legislation by introducing additional standards and regulations for certain areas, thus creating new trade obstacles.

A topical example is VOC legislation: In March last year, the much discussed VOC Directive on emissions from industrial installations was adopted by the Council and is currently being implemented in the individual member states. However, some national governments now say that the Directive does not go far enough and consider the introduction of stricter regulations on a national basis. In these cases, CEPE and the National Association have to continue to advocate and promote a true harmonisation throughout Europe.

To be successful, CEPE and its members must be well informed about the developments at the different levels.

Globalisation, environmental considerations, and draft legislation need our combined and well-balanced input. Therefore, we will strengthen the internal cohesion of CEPE to improve the flow of information in all directions. I will encourage dialogue at all levels. We must share and discuss our national and European objectives more intensively, and synchronise our planning processes.

E-Commerce

Now I would like to turn to a topic which has been high on everybody's agenda for some time now: e-commerce. The presence of our industry in the internet is developing rapidly: companies started out with merely informational web sites. The next step was to establish market places, i.e. to buy and sell products through the internet. But e-commerce is not just another channel for otherwise unchanged business transactions. It offers companies manifold possibilities of interacting and connecting directly with customers and suppliers. E-commerce has a lot of space for innovative marketing ideas. For example, different companies could join together on one site to provide the entire range of products and services a certain customer group needs.

The underlying objective of participating in e-commerce is certainly to increase a company's profitability by moving up the value chain. E-commerce may represent an opportunity for our industry to reduce marketing and distribution costs and to keep a larger share of the profit.

E-commerce will not change the general demand for paints and printing inks, but it will certainly change the way in which we do business.

It forces companies into a process of re-organising operations, which can lead to significant cost savings and increased revenues. Information Technology affects all of us! We better be prepared.

CEPE, the European Council of the Paint, Printing Ink and Artists' Colours Industry represents more than 110 paint and 150 printing ink companies. It consists of 22 National Associations in 17 countries and 12 company members.