# The Future of Finishing

January 1, 2008

NCMS

3025 Boardwalk Drive Ann Arbor, Michigan, 48108

- 3266

Contact:

Paul D. Chalmer, Ph.D.

NCMS Phone: (734) 995

- 4911 Fax: (734) 995

- 1150 paulc@ncms.orgFuture of Finishing, page 2 of 65



## Contents

Introduction

................................ ................................ ................................ ................................ ..... 3 What do we mean by “surface finishing”?

................................ ................................ ................. 3 What is special about surface finishing?

................................ ................................ ..................... 3 Implications for the future of finishing

................................ ................................ ....................... 5 Global pressures

................................ ................................ ................................ .......................... 6 Acknowledgements

................................ ................................ ................................ ......................... 9

I. Economic Trends

................................ ................................ ................................ ....................... 10 Introduction: a note on methodology

................................ ................................ ....................... 10 Overview of the finishing firm’s recent experience

................................ ................................ . 10 Profitability challenges will continue

................................ ................................ ................... 11 Larger job shops faring better, but are not insulated from pressures

................................ .... 12 Small job shops holding their own on market share

................................ ............................. 13 U.S. finishing industry has resized, declined significantly

................................ ................... 13 Job shop revenues in nominal terms

................................ ................................ ..................... 14 Finishing industry revenues in real terms

................................ ................................ ............. 15 Finishing revenue decline greater than U.S. manufacturing base

................................ ......... 16 Job shop plating revenue as a share of manufacturing revenues

................................ .......... 17 Job shop employment

................................ ................................ ................................ ........... 18 Job shop plating employment as a share of manufacturing employment

............................. 19 The finishing industry will remain extremely fragmented

................................ ................... 19

Trend analysis

................................ ................................ ................................ ........................... 21 II. Regulatory Trends

................................ ................................ ................................ .................... 23 Overview of existing U.S. regulations

................................ ................................ ...................... 24 Air pollution control

– the Clean Air Act

................................ ................................ ............. 24 Wastewater pollution control

– the Clean Water Act (CWA)

................................ .............. 28

Hazardous waste

– the Resource Conservation and Recovery Act (RCRA)

........................ 32 Toxic chemical reporting

– EPCRA

................................ ................................ ..................... 33 The Toxic Substances Control Act (TSCA)

................................ ................................ ......... 36

International trends

................................ ................................ ................................ ................... 39

The future

................................ ................................ ................................ ................................ .. 41 III. Technology Trends

................................ ................................ ................................ ................. 46 Technology survey results

................................ ................................ ................................ ........ 47 Optimizing existing technology

................................ ................................ ................................ 49 Optimize conventional wet processes to achieve near zero discharge and risk

.................... 49 Improve process monitoring and control systems

................................ ................................ 51

Pursue sustainable manufacturing

................................ ................................ ......................... 54 Improve energy efficiency

................................ ................................ ................................ .... 56 Developing and implementing new technology

................................ ................................ ....... 57 Change to “greener” process chemistries

................................ ................................ ............. 57 Change from “wet” processes to “dry” processes

................................ ................................ . 58 Change substrate materials from finished metals to non

- metals

................................ .......... 60 Develop new metal alloys that reduce surface finishing requirements

................................ . 62 Develop nanotechnology

................................ ................................ ................................ ...... 63 Remarks on technology trends

................................ ................................ ................................ .. 64Future of Finishing, page 3 of 65



## Introduction

If you have a sta ke in the surface finishing industry, this report was written for you. Business owners, employees of job shop or captive surface finishing operations, suppliers and customers, environmental regulators and the public they serve

– all will face some difficu lt choices in the next few years, and all have much to gain or lose by the outcome.

We can’t foretell the future, but we can do our best to understand the past and present. The report looks at recent trends in three crucial areas

– economics, environment al regulations, and technology. Looking at the facts, we can try to distinguish what will continue, what will change,

and what we can do about it.



### What do we mean by “ surface finishing ” ?

First, we need to agree on what kinds of operations we want the term “surface finishing” to
include. We will use the term to refer to the application of relatively thin coatings, applied to protect a substrate layer, to improve its function, or to enhance its appearance. By “relatively thin”, we mean coatings that would not ordinarily be able to stand on their own

– this distinguishes surface finishing from laminating. We also want to exclude surface treatments

such as purely mechanical grinding, shot peening, or purely thermal heat treatment

– operations

that do not add any material to the substrate layer.

So for the purposes of this report, surface finishers are in the business of applying coatings to surfaces and making them stick.

Within that basic definition, surface finishers have many techniques at their disposal . The coating material s can be conveyed to the surface with the help of a liquid carrier , and the surface can be sprayed, spread, or dipped. The materials can be applied passively, or can be joined to the

surface with the aid of a chemical or an electroc hemical reaction. Or the materials can be applied directly, with no carrier medium at all, in the form of a heated spray or an ionized plasma. Each method has its own advantages

– and its own worker safety and environmental challenges. Many examples are considered in detail in the report.



### What is special about surface finishing?

To put the trends in context, we begin by considering some of the factors that give the surface finishing industry a unique structure as an industry sector.

A major fault line ru ns through the sector, dividing surface finishing operations into two distinct categories. We can see both the causes and the consequences of this rift mirrored in the structure of the trade and professional organizations that have developed to represent the interests of the

two divisions.

Electroplating and related coating

. On one side of the divide, we have the platers. The art and science of depositing neutral metal coatings from metal ions in solution goes back over two centuries, slowly evolving fr om a laboratory research tool to a common industrial process. In the United States, industrial electroplating is typically carried out by two types of facilities, independent “job shops” that typically provide plating services for a variety of partsFuture of Finishing, page 4 of 65

manuf acturers, and “captive shops” that operate as in

- house production units for parts that are often manufactured in the same facility. Although the business models are different, the operations share many common features. Process details are typically worke d out and supervised by skilled electrochemical engineers or electrochemists , or by platers with long experience. In smaller shops, the proprietor will be able to supply the expertise; in larger shops or captive operations, there will be trained professio nals on staff. In either case, successful operation depends on the abilities of the process operator.

Until quite recently, three independent national organizations represented the interests of companies and individuals involved in industrial electroplat ing. The American Electroplaters and Surface Finishers Society, AESF, was the professional organization, with a strong emphasis on education and technical research. The National Association of Metal Finishers, NAMF, represented the independent “job shop” businesses . The Metal Finishing Suppliers Association, MFSA, represented suppliers of chemicals and equipment to plating operations. The organizations have since merged into a new organization (the National Association of Surface Finishers, NASF), but t heir individual functions are still represented in the range of activities of the new organization.

Paint and specialty coating s

. On the other side, we have a very different landscape. Paint shops are ubiquitous in manufacturing facilities. In contrast to the situation with platers

, independent businesses that specialize in painting parts that are manufactured elsewhere are virtually nonexistent

.

Manufacturers of paints and coatings have a national trade organization, the National Paints and Coatings A ssociation, NPCA. But when we search for trade or professional organizations that specialize in representing general paint and coating applicators , we find

– nothing. There are trade organizations that promote specialized coating types, such as ultraviol et

- curable coatings and powder coatings, and professional organizations that deal with general surface topics such as corrosion. But there is no counterpart to the AESF (as a professional organization) or the NAMF (as a trade organization) for this catego ry of surface finishing.

The roots of the difference. What characteristics can account for the differen ces between plating operations and those involving other types of coatings ?

It isn’t the use of electricity in the process: “electroless” nickel, a p lating process, is carried out without electric power, and electrostatic spray coating, an “organic coating” type application, requires electric power. It isn’t necessarily the composition (inorganic vs. organic) of the coating

material: galvanizing ( coa ting with an inorganic material, zinc) is a dip coating process that has more in common with the “organic” coatings than with plating.

Nor is it simply a historical accident that platers have coalesced into a community with perceived common interests, wh ile other types of coaters have remained, at least in their roles as users of coatings technologies, largely disconnected. There is a key characteristic in the coating process itself that accounts for the differences between to two subsectors, and which h as implications for their respective futures.Future of Finishing, page 5 of 65

The crucial difference lies in what is normally considered a mere bystander in the coating

process

– the carrier medium used to transport the coating material to the surface . M ore particularly , the crucial di fference is the mode in which th e carrier medium is employed.

For a typical non

- electroplating application, the carrier does its job once, and then goes away.

Paint solvents help spread the paint solids on the substrate, and then evaporate

. Even when the carrier is needed to support chemical reaction at the surface, once the reaction has proceeded beyond a certain point, the carrier will leave the surface, and will play no further role in the

process.

In contrast, most plating processes involve a medi um that stays in the picture for the long haul. Typical plating baths are complex mixtures to begin with, and a variety of reactions occurring at two electrodes act continuously to shift the composition during the course of the process. Reagents consumed during the process must be continually replenished, and wastes must not be allowed to build up. Unlike others coatings applicators, platers need to keep a large suite of parameters within acceptable limits, often for months at a time. The requisite know

- how is perhaps the most critical distinction between platers and others.

Bath maintenance might seem to be a routine chore, not a critical process element that shapes an entire industry. But the consequences run deep. It is much easier to design a car rier system that has a single job to do in a limited time than to devise a system that can maintain itself for months without human supervision. For many painting and coating processes, the intelligence is

built into the coating system , and the process ca n be carried out by operators needing little knowledge of the details. But for plating, the skill and the knowledge of the coater remain indispensable.

As a result, plating retains an element of craft that is missing from other types of coating. And,

at least until recently, suppliers of the materials and equipment for plating have not appeared to

exert the same dominan ce on the technical side of their subsector as suppliers have done for other types of coating.



### I mplications for the future of finishing

H ow is this configuration, with suppliers dominating in areas other than plating, and a balance between suppliers and coaters in the plating sector, likely to develop in the future? There are two potential ways that the future could diverge from the histor ical pattern. Either new technologies could appear that require a particular level of judgment and skill on the part of the coater, or existing plating technology could evolve to the point where little skill is needed other than the ability to follow the supplier’s directions.

Consider the first possibility . W hat are the chances that a new craft will emerge alongside plating as a specialty enterprise? Among the new technologies reviewed in the Technology Trends section, the “dry” coating met hods (such as HVOF and PVD) represent most radical departure from existing practice. Although the coatings, coating conditions, and application equipment needed for dry coating processes differ markedly, the skills required to apply such coatings successf

ully are similar to those for wet spray processes. It is easy to imagine the development of fully automated lines to apply the dry coating methods

. The skill of theFuture of Finishing, page 6 of 65

operator is not likely to be a crucial factor. As far as the other technologies discus sed below are concerned, most either are variations of existing processes, or are concerned with topics other than the coating process. Thus, we do not see that any of the new technologies are likely to create a new subsector of independent firms speciali zing in coating applications.

Looking at the other possibility, what are the chances that the independent plating firm will be

automated out of existence? One of the trends covered in the Technology Trends section,

“ Improve process monitoring and control systems ”, bears directly on this point. As noted in that discussion, improved process control will almost certainly prove to be so advantageous that finishing firms will need to upgrade continually to remain competitive. But there is a wide gulf

betwee n a system that can provide better information to a process supervisor, and a system that can replace the supervisor by a set of algorithms. Suppliers to the finishing industry will no doubt continue developing process control technologies that attempt to approach that level of

autonomy. How long it will take for them to succeed in creating plating systems that can essentially run themselves for long periods of time

, wit hout the intervention of human judgment

, is an open question.

Based on the trends des cribed in the report, we believe that the independent plating shop will continue to exist for at least another generation, if not longer, but that success will increasingly involve a willingness and ability to adapt to change. At the same time, suppliers to the industry

will also achieve some success in broadening the range of processes that can be carried out by

non

- specialists.

It is possible that the industry may go through a hybrid phase. Certain plating processes may be automated to the point that t hey can run unattended for extended periods, but still need

occasional attention. Manufacturers might find it advantageous to set up captive operations using the process, rather than sending the work to a job shop. However, they might also be deterred by the need to keep some one on staff with the requisite skills, who is also familiar with compliance requirements

. The availability of these “nearly automated” processes might provide an opportunity for firms that would specialize in ensuring bath quality a nd regulatory compliance. Following the “chemical management” model, these “plating management” firms

could offer manufacturers the option to contract out the management of their in

- house finishing operations. Process supervisors working for the plating management firm would be responsible for operations at several facilities, so that no single manufacturer would bear the entire cost of plating expertise that was no longer required in a full time position. The ability to provide plating management servic es in addition to job shop plating could help keep some independent shops in business during the transition.

In any case, the changing nature of the finishing industry will affect both suppliers and finishers. Here is a brief summary of some of the likel y changes that are considered in more detail in the rest of the report.



### Global pressures

For many decades, the United States dominated the global economy. But in the past few years, the U.S. has experienced:

 a declining manufacturing baseFuture of Finishing, page 7 of 65

 the rise of new global competitors

 an accelerating trade deficit

 a decrease in its commitments to scientific research Some analysts argue that the American economy is at an “inflection point,” a “unique and delicate historic juncture” at which the U.S. for the first time in its history is facing challenges it has never before encountered. Are we witnessing the final days of the era of American

economic dominance?

During most of that era, U.S. finishing firms served North American markets. What would the

end of the American economic era mean for those firms?

A look at U.S. trade and global economic developments points to a world significantly different from what finishing firms faced only a decade ago. As recently as 1998, the Surface Finishing

Marke t Research Board (SFMRB) asked in a survey, “What do you see as the greatest challenge to your metal finishing operations in the next 5 years?.” At that time, only 2.7 percent of respondents were concerned about “loss of manufacturing” in the U.S., and on ly 7.1 percent expressed concern about “foreign competition.”

But all the while, powerful economic forces, accelerated by the explosion of information technology and communications capabilities, were already altering the global competitive landscape. Thi ngs were changing so quickly that, by the 2004 SFMRB finishing survey, firms ranked “business moving offshore” as the industry’s number one challenge, an astonishing contrast to the prevailing view just several years earlier.

How has the finishing industr y responded to the changes? A sizable percentage of finishing firms have simply exited the industry. Some observers have suggested that this trend is an ominous sign for what awaits those remaining. But others argue that a smaller industry, populated by more “stable and able” competitive firms, would be a welcome outcome.

Regardless of one’s view, several key indicators

– some informing us of long term structural trends, and some of cyclical trends

– indicate continued challenges, as well as opportuniti es, for U.S. finishers in the future. We can summarize the trends under the headings of

 price

 product

 process Figure 1 illustrates these broad and momentous changes now underway in the finishing industry:

Price competition from Asia and U.S. “Profit Sq ueeze”

– U.S. finishers face intense pricing pressures from China and other emerging economies. Particularly in China, low labor costs, currency policies, commodity subsidies and other trade protections together have driven prices down for manufactured go ods and led to nothing less than a transformation of the global manufacturing supply chain. Finishers are living with the new reality of global sourcing by their multinational customers and intensified direct competition from Asian

- based finishing operati ons. At the same time, steep structural overhead costs to operate in the U.S. (e.g., energy, metals, health care and regulation) are constraining profitability.Future of Finishing, page 8 of 65

Product and Materials Regulation from the European Union

– The European influence since

the 1 990s on global manufacturing policies and practices of multinational companies continues will continue to influence the nature and role of key metals and other chemicals associated with surface finishing. Regulatory restrictions on a growing number of fin ished materials for whole categories of products, informed primarily by more expansive European approaches to minimizing environmental and health risks under the “precautionary principle”

– will continue to reshape and, in some cases, shrink market demand for certain metals and coatings while providing opportunities for alternative finishes.

Process Regulation from U.S. Environmental, Health & Safety Requirements

– While the industry has in recent years successfully challenged certain poorly

- conceived regu lations on traditional finishing processes, finishing firms face the prospect of ever

- tightening controls on an expanding range of operations and new demands for alternative coating technologies.

Figure 1

These three trends

– the new global pressures on prices, products and processes

– and the phenomena associated with them

– global sourcing, changing market and regulatory demands, and emerging coating options

– describe in essence the future terrain for finishing. We deal with them one by one in the following three sections.

Section I provides an overview of important economic trends relevant for the U.S. finishing industry, including the conditions of some of the primary finishing customer segments, domestic

cost pressures and profitability trends for metal finishing job shops. Section II gives an overview of the regulatory context within which the finishing industry operates, and then discusses emerging and future legal requirements on finishing processes and pro ducts that are driving alternative coating technologies. Section III identifies the most relevant technology trends underway in the industry and the direction and scope of innovation.Future of Finishing, page 9 of 65



## Acknowledgements

Several individuals well known to the surface finishin g industry contributed to this report. Christian Richter of The Policy Group, who has served as the leading representative of the surface finishing industry in Washington for the past decade, wrote the economics section and

the “Global pressures” section of the introduction

. George Cushnie, Technical Director of the National Metal Finishing Resource Center (NMFRC, the compliance assistance website for the surface finishing industry, at www.nmfrc.org), wrote the part of the regulatory section covering

U.S. regulations, and Paul Chalmer of NCMS wrote the international and future parts

. Kevin

Klink and Peter Gallerani of Integrated Technologies, with the assistance of George Cushnie, conducted the survey and wrote the technical section.

Although the report has benefitted greatly from the contributions of these authorities, their work has been edited in order to integrate the sections. The conclusions and interpretations offered in the report represent the outcome of NCMS Project 170414, Benchmarking Environ mental Performance, and do not necessarily represent the opinions of the contributors. Please direct comments and suggestions to Paul Chalmer at NCMS, paulc@ncms.org or (734) 995

- 4911.

This study was fund ed through a cooperative agreement with the Environmental Protection Agency. The project would like to thank EPA Small Business Ombudsman Karen Brown, and our Project Officer, Angela Suber, for their support throughout the Benchmarking Environmental Performance projec t.Future of Finishing, page 10 of 65



## I. Economic Trends

Introduction: a note on methodology

This section presents a picture of current economic trends affecting the U.S. finishing industry

, and outlines what they may portend for the future. The picture is based primarily on U.S. Censu s data

, proprietary data, and industry market research information , as well as qualitative information about the industry from countless discussions and interviews

.

We need to proceed with some caution. It is not easy to present a clear and simple pictur e of anything as complex as the finishing industry. In the story “The Blind Men and the Elephant”, the characters each touch different parts of an elephant and draw entirely different conclusions about what kind of an animal it must be. Similarly, our co nclusions about how the finishing industry is faring and where it may be headed will depend on where we look

. Focusing on

d ifferent finishing process types or different customer segment s may lead to entirely different interpretations of the same data

. Nevertheless, we believe that the information is consistent enough that we can make reasonably accurate and meaningful statements about the economics of the finishing industry.

There remain some noteworthy challenges. For example, we can’t say with cer tainty how many jobs shops are currently operating in the U.S. Another challenge arises when we try to evaluate the impact of global competition on U.S. metal finishing.

The second challenge results from the way the Census bureau groups U.S. economic dat a.
P roduction, employment and related data for finishing services ( collected under NAICS code

332813

– electroplating) are collected and organized as a subsection of the larger “fabricated metals” sector (NAICS 3328) in the industrial census . T racking in creases or decreases for U.S.

domestic production, employment and related activities is relatively straightforward. But imports and exports are another matter. F inishing is not a manufactured product that is imported or exported per se . Instead, it is t he customers’ parts that are imported or exported. Finishing is

considered a service performed on the parts. O fficial data are not available for the U.S. trade balance in finishing services. As a result, information on the finishing of imported and exported parts is not available directly. T he U.S. “trade balance” in metal finishing can only be deduced by analyz ing import or export patterns of the customer sectors, such as automotive or motor vehicle parts, hardware, appliances, electrical machinery , aircraft parts, and others , that purchase metal finishing services . These important trends are discussed further below.



### Overview of the finishing firm’s recent experience

So what is happening to U.S. finishers at the firm level? To answer this question , we reviewed and analyzed data on manufacturing and the finishing industry from various sources, as well studies and literature from various organizations, think tanks and economic forecasting firms. In addition to the easily available data , we also look ed at some harder to find information on profitability, growth in output and employment and related measures of economic health.Future of Finishing, page 11 of 65

We found that the finishing industry’s experience in the past decade partly mirrors that of larger U.S. manufacturing

– a seve re downturn beginning in 2000

, followed by a modest recovery since

2003. R eports from many finishing firms in 2005

- 06 indicate that many finishers had begun setting monthly or annual sales records. But a t the same time, others were experiencing modest

to severe difficulty . Some have even fail ed to sustain consistent revenue growth.

Here are some of the more important trends for U.S. finishing industry

, set against the context of the larger U.S. manufacturing picture :
Profitability challenges will continue

Profitability for the finishing industry overall is down from historic patterns. Chart 1 shows that while it has improved somewhat since the deep trough in 2001

- 02, it had not bounced back to historical levels moving into 2004. While more recent U.S. Census information is not yet available, a closer look at proprietary data on the pre

- tax profits of the industry (NAICS 332813)

indicate that for more than a decade between 1989

– 2000, profits fluctuated but remained in the range of 3 to 6 percent. Starting in 2000, profits dropped from over 4 percent to under 0.5 percent, and while trending back upward more recently, had only recovered to 1.5 percent by 2003 and 2.4 percent by 2004.

Chart 1

Profitability trends in finishing appear to corresp ond to general profitability swings in U.S. manufacturing this decade. It is interesting to note that manufacturing profits in general are continuing to drop steadily overall

– by about 2 percent a year for the 35

- year period starting in 1970, reflecting increased global competitive pressures, among other factors. Some analysts expect that the decline in profits and manufacturing growth may continue. While finishing firms have been faring better recently, they will continue to face some challenging headw inds on the profitability front.Future of Finishing, page 12 of 65

Larger job shops faring better, but are not insulated from pressures

To determine whether the recent profit pressures for finishing are falling equally on small vs. larger finishing firms, we reviewed data for the 15

- year p eriod since 1990. Charts 2 and 3 below indicates what has appeared to be generally true

– that larger plating firms, in terms of revenues, assets, or employment, have been more profitable than smaller ones. But the same is not necessarily true in other industries. Although some small shops have shown outstanding performance

– particularly those with expertise and experience in niche markets

– larger finishing operations face comparatively fewer hurdles in innovation and productivity improvements. Larger operations also frequently, but not always, find it easier to manage the burden and complexity of the many environmental, health and safety requirements and challenges facing the typical operation.

Chart 2

While profitability has tended to be higher for larger operations, anecdotal evidence and knowledge of recent industry developments indicates that even the largest operations are not immune from significant financial pre ssures associated with the recent manufacturing downturn. Indeed, some of the largest and well

- known U.S. finishing firms have ceased operations in the past several years due to foreign competitive pressures and related factors.

Pretax Profit by Asset Class For Surface Finishing Opera tions

- 4.0% - 2.0% 0.0% 2.0% 4.0% 6.0%

Pretax Profit

- 2.0% 0.4% 2.4% 4.7%

0

- 500M 500M

- 2MM 2

- 10MM 10

- 50MMFuture of Finishing, page 13 of 65

Chart 3

Small job shops holding their own on market share

Despite the consistent historical lower profitability of smaller job shops relative to larger ones, small job shops appear to be maintaining their market share in the industry during the recent period for which data is available. From 1992 to 2002, smaller job shops (< 20 workers)

continued to account for about 21

- 22 % of industry revenues and 24

- 25% of industry employmen t.

There has, however, been a slight shift over time in industry employment toward the largest job shops (100 or more employees)

– in 1992 about 22% of industry employment was in these large job shops and the trend was continuing upward to 26% in 2002. This small shift in employment toward the largest job shops has not been matched by a similar shift in revenues. In general, smaller job shops have seemed to “hold their own” within the industry in terms of both employment and revenues, despite consisten tly lower historical reported profitability.

One important factor behind this phenomenon is that that the vast majority of small firms are family owned. Family capital is tied up in the business and family members are employed in the operation, and hence there are few options but to keep the shop open regardless of the business demands on the operation. Another factor is that a smaller business offers more opportunity for

tax

- advantaged accounting than does a larger operation. The small firm can take st eps to keep reported earnings low while taking reasonable sums out of the business in ways other than through earnings. Overall, some of the difference in reported profitability is likely real and due to intrinsic economic advantages of a larger job shop, while some of the difference is due to the ability of firms to manage profits.

U.S. finishing industry has resized, declined significantly

Available data and evidence show the finishing industry has experienced modest to significant contraction over the past several years. Recent SFMRB surveys indicate that decline can be seen Pretax Profit by Revenues For Surface Finishing Operations

- 1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

Profit 1.2%

- 0.6% 0.9% 2.2% 4.8% 3.9% 0

- 1MM 1

- 3MM 3

- 5MM 5

- 10MM 10

- 25MM 25MM & OverFuture of Finishing, page 14 of 65

across the board

– in U.S. surface finishing markets, jobs and th e number of operating companies. Even with anecdotal reports of U.S. finishing business moving to Canada or Mexico, both countries appear to be experiencing losses as well, although perhaps not of the same magnitude. The largest finishing industry chemic al and equipment suppliers recently reported that capacity utilization in the three NAFTA countries fell off dramatically over four years beginning in 2000. The largest decline was for the U.S., which was estimated as dropping off by

more than a third dur ing this period.

These capacity challenges are reflected in recent industry revenue and employment measures. In an attempt to better understand the revenue and employment picture, we reviewed available U.S. Census data. The period from 1977

- 2002 is ins tructive and shows several important trends that

are reviewed below.

Job shop revenues in nominal terms

Chart 4 demonstrates a trend in revenues similar to that of employment above. Revenue shows what looks to be strong and steady growth from 1977 through 2000, then a sharp drop in 2001

and 2002. The graph is in nominal dollars

.

Chart 4Future of Finishing, page 15 of 65

Finishing industry revenues in real terms

In contrast to the previous chart, the chart below

– in constant year 2000 dollars

– generally shows reasonably consistent gr owth from 1977 through 2000, but at a much lower overall rate of growth than is suggested by measurement in nominal dollars. Similarly, however, the drop from 2000 to 2002 is sharp.

Chart 5Future of Finishing, page 16 of 65

Finishing revenue decline greater than U.S. manufacturing base

Job shop revenues track manufacturing revenues relatively closely for this period, but the falloff in finishing since 2000 was steeper than that for manufacturing. This divergence may be an aberration, but it also may be a highly impo rtant, permanent trend. Data for finishing have not been available since 2002 to evaluate whether this relationship is continuing (the U.S. Census for 2003 combined the job shop NAICS code (332813) with other NAICS codes for heat treating, coating, engrav ing, and other industrial operations).

Chart 6Future of Finishing, page 17 of 65

Job shop plating revenue as a share of manufacturing revenues

This indicator is another way to explore the issue of the performance of the finishing sector vs. all manufacturing. It appears that job shops were slowly growing as a share of all manufacturing

for 1977

- 1993, with a temporary decrease and strong comeback after the recession of 1990

- 91. They have since remained in slow decline. The decline becomes sharper for 2000

- 02. It may be

accurate to say that "as manufacturing goes, so goes surface finishing", but since a high of 1993 the finishing industry has not been keeping pace with manufacturing generally.

Chart 7Future of Finishing, page 18 of 65

Job shop employment

Chart 10 illustrates that finishing operations experienced ra ther slow growth from 1977 through 2000, but showed a sharp drop in employment during the period 2001

- 02;

Chart 8Future of Finishing, page 19 of 65

Job shop plating employment as a share of manufacturing employment

With respect to the issue of finishing employment vs. all U.S. manufact uring, this chart shows a very slow but steady increase through 2000, then a drop. Surface finishing is traditionally more employee

- intensive than manufacturing generally

– the industry’s share of manufacturing employment is roughly 0.004, while its share of manufacturing revenues is less than half as much, roughly 0.0015. Finishers do have the option

– depending on product types and processes

involved

– to substitute technology for labor, but this metric seems to show that technology may not be replacing labor at a pace equivalent to U.S. manufacturing generally.

Chart 9

The finishing industry will remain extremely fragmented

Competition in the finishing industry has more recently taken on a more extreme dimension. Finishers have been under constant pr essure by customers in various industry segments to provide service at “the China Price”. In more than isolated cases during the recent recession, many finishers have serviced customers at unprofitable, unsustainable prices. This response to

customer dem ands has exacerbated the problem of pricing power that finishers have traditionally faced in various markets, often putting those weaker firms engaging in this practice out of business and harming stronger competitors quoting prices that are linked to a mo re realistic profit

structure.

This is dissipating with the recent recovery, but prompts some analysis of the nature of competition and concentration in the finishing industry. "Concentration" refers to the degree to which market activity in the industr y is concentrated among few firms, or dispersed among many firms. In effect, the level of concentration reflects whether an industry looks highly competitive (many producers competing in the market), oligopolistic (a few competitors) or monopolisticFuture of Finishing, page 20 of 65

(only one).

Concentration ratios indicate the degree to which market power is concentrated in a few firms. In Table 1 below, U.S. Census data is used to show concentration among the top 4, top 8, top 20 and top 50 job shop firms. Economists use the "Herfinda hl

- Hirschmann Index" to measure overall concentration, with a higher HHI index meaning a more concentrated industry. Job shop

finishers’ HHI for 1992 was 38. Ninety

- seven percent of all manufacturing sectors in 1992 had HHI's higher than this figure. Pu t simply, the finishing industry is among the least concentrated of all manufacturing industries in the United States.

Table 1



### Concentration in the Job Shop Electroplating Industry

Year % of Revenues Accounted for By the

-- Herfindahl

Herschmann

Index 4 Largest

Companies 8 Largest

Companies 20 Largest

Companies 50 Largest

Companies

1992 10 14 21 30 38

1997 5 8 15 25 16

While data for 2002 will not be available until next year, a look at what occurred during the

1990s

– the 5 years from 1992 to 1997

– shows that the finishing industry became even less

concentrated . The degree to which the industry is so highly competitiv e would be remarkable to those unfamiliar with the history of the industry. Most U.S. manufacturing industries have become more, not less concentrated over time.

During the late 1990s and prior to the 2000

- 01 U.S. manufacturing recession, several major

e fforts were made to roll up individual plating firms into larger companies in order to achieve economies of scale and integrate what could be considered niche process specialties into a single firm with the potential for servicing much larger and expanding global markets. This was

– and continues to happen to some degree

– in virtually every other manufacturing industry, including others which, like surface finishing, are both highly dispersed and relatively less profitable, including commercial printing, metal stampings, specialized tool and die making, sheet metal fabrication, and others. Of these, commercial printing, concrete block and ready

- mix concrete have shown signs of concentrating significantly over time.

Since the period 1992

- 1997 and particul arly since the period of 2001

- 2002, anecdotal evidence suggests that the industry may be experiencing a modest trend toward greater concentration, as falling profitability and related factors

– including the “race to the bottom” pricing behavior

described above

– means failed companies’ accounts are being serviced by fewer, surviving firms. However, since even some of the largest companies have also exited the industry, the HH index may remain low for the industry as market power remains highly dispersed. There areFuture of Finishing, page 21 of 65

fewer competitors now than in the past, but larger firms are not necessarily dominating the market at the expense of their smaller peers.

Our review of quantitative as well as qualitative measures of profitability, revenue and employment poi nts to historically significant pressures on the surface finishing industry. These trends have significant implications for the job shops’ ability to bear additional “structural” or operating costs in such areas as raw materials and energy, employee benef its and new regulations.

These issues are discussed below in more detail, focusing specifically on key U.S. and global regulatory trends the industry is encountering. The fact that the finishing industry continues to be so highly non

- concentrated prese nts major hurdles for the small firm facing rising regulatory, energy, raw materials, health insurance and other costs. In this emerging environment, many finishing firms may have even less leverage to pass on new costs to customers in the form of

market

- wide price increases.



### Trend a nalysis

Finishers have responded to pricing and foreign competitive pressures in a range of ways. Most are not entirely surprising in the manufacturing context:

 cost reductions (reducing workforce, expanding temporary hires)

 quality improvements (minimizing defects and waste with lean manufacturing approaches);

 automation and technology to achieve productivity increases by minimizing labor (if capital is available);

 eliminate permanently or temporarily shut down unprofitable p rocesses;

 shift to new processes (partly driven by environmental pressures) depending on the customer base, such as non

- electrolytic coatings and non

- hexavalent chromium replacement technologies for certain applications.

The industry is responding in othe r ways as well. Some reports show finishers forming formal corporate alliances locally with other finishers to increase leverage in purchasing from suppliers and reduce the costs of process chemicals and other products and services from outside vendors. Still other firms are employing relatively higher risk strategies to remain competitive and expand into rapidly growing markets. Responses include:

 partnering with foreign

- based companies in Asia, India, Mexico or Europe to produce and

sell into those ma rkets;

 locating new operations in lower

- price locales, such as Mexico, that are relatively accessible geographically;

 focusing strategy on finishing for products and components that are more logistically difficult or costly to source globally;

 building new capabilities beyond just surface finishing that offer much higher value to the

customer.Future of Finishing, page 22 of 65

Most if not all these responses appear to be allowing a declining universe of successful finishers to compete more effectively in the global marketplace. Reports fr om finishing firms indicate a more widely reported phenomenon is helping their businesses

– not all global customers have had success in sourcing to foreign, lower

- cost labor markets to get the “China Price.” Complaints about quality, reliability, intelle ctual property theft, and other factors have led many finishers to regain a foothold recently with customers and markets that appeared to be leaving for good just a few short years ago.Future of Finishing, page 23 of 65



## II . Regulatory Trends

Most of the basic environmental laws that appl y to the surface finishing industry were enacted between 1970 and 1980. During that decade, the Environmental Protection Agency (EPA) was established, and key laws were written to regulate:

 air emissions (Clean Air Act 1970)

 water emissions (Clean Water Act, 1977), and

 solid and hazardous waste disposal (Resource Conservation and Recovery Act, 1980) Based on those laws, the EPA developed and promulgated a set of detailed regulations that had a significant impact on virtually every industry sector in the U .S.

In the years since, EPA has focused on writing additional specific regulations, fine tuning the rules to account for shifts in priorities and for advances in technology. In many cases, the rules rapidly achieved results that were obvious to anyone

– rivers no longer caught fire, lakes became clean enough for swimming again, and visibility improved . But beyond a certain point, it appeared that further tightening of the limits sometimes produced diminishing returns, or could

even make matters worse. F or example, the hazardous waste disposal rules , as written, were found to promote disposal and inhibit recycling , wasting valuable resources and energy. Other rules were found to have unintended consequences. R ules that forced facilities to install terti ary pollution control equipment to reduce emissions at one point in the system had the potential to create problems elsewhere

– the toxic and greenhouse gas emissions associated with the generation of electricity needed to operate the additional control eq uipment could offset any improvement that the equipment could provide

.

Notwithstanding these inherent limitations, t he U.S. has largely maintained this basic regulatory strategy of focusing on manufacturing processes, limiting effluents at the “end of the pipe.” But other countries, most notably the European Union (EU), have been gradually evolving a very different approach.

The European framework is based on two fundamental principles:

 Life

- cycle thinking. Every material selection decision, every product design decision, and every manufacturing process, sets in motion a train of consequences. These consequences each have a set of impacts on humans and on the environment. All of these impacts matter, and must be taken into account.

 Producer respo nsibility. The original producer of the material, designer of the product,

or manufacturer is ultimately responsible for the entire chain of consequences. It takes a more “whole system” viewpoint than the U.S. model . As a growing and increasingly integra ted global economy exerts more pronounced effects on a finite planet, and as we begin to appreciate the interconnectedness of ecological systems

, the European approach may ultimately represent the future of environmental regulation in all nations, includin g the U.S.

At present, EU regulations exert a primarily indirect effect on finishing firms located in the U.S. Products destined for export to the European market may require new materials or technologies to comply with European requirements. For examp le, the EU has placed restrictions on products containing cadmium and hexavalent chromium , both commonly used in finishing processes. As more and more materials become affected (especially by the REACH framework that imposesFuture of Finishing, page 24 of 65

significant burdens on virtual ly all materials , existing as well as new, commonly used in manufactured products), U.S. firms’ customers that export to Europe will begin demanding

alternative coating s . Since customers are not likely to produce different versions of their products for t he EU and U.S. markets, finishers may have to phase out processes they have used

for decades to retain even a share of the U.S. domestic market.

International regulations are not the only changes that will affect U.S. finishers in the coming

years. Two d evelopments on the domestic front will also require their attention. The first is an increased level of concern for the threat posed by the malevolent use of chemicals. Users of any potentially dangerous chemicals are likely to be required to comply with new homeland security regulations. The second is an increased level of public awareness of the use and release of chemicals by individual facilities. As advanced information tools are being developed and deployed on the Internet, it is becoming easier f or anyone to find out about the emissions profile of facilities in their community , and how their emissions are changing over time . Manufacturers in all sectors can expect to be operating under much greater public scrutiny in the years ahead.

In this sec tion of the report, we will review existing U.S. environmental regulations, describe the emerging international trends, and attempt to project how these current trends are likely to
coalesce into the future framework within which U.S. finishing firms will be operating in the coming decades

. 

### Overview of existing U.S. regulations

Air p ollution c ontrol

– the Clean Air Act

The Clean Air Act (CAA) is the comprehensive Federal law that regulates air emissions from

area, st ationary, and mobile sources. The CAA and its amendments are designed to “protect and enhance the nation's air resources so as to promote the public health and welfare and the productive capacity of the population.” The CAA consists of six sections, known as Titles,

which direct EPA to establ ish National Ambient Air Quality Standards (NAAQS), and for EPA and states to implement, maintain, and enforce these standards through a variety of mechanisms. It includes programs to address smog, acid rain, stratospheric ozone protection, and air toxics

. Most of the sections applicable to metal facilities are found in Titles I and V.

Note that while the federal law establishes the basic standards, it is generally up to state and local governments to manage and enforce many of its requirements.

CAA Title I Criteria pollutants

. Pursuant to Title I of the CAA, EPA has established national ambient air quality standards (NAAQSs) to limit levels of “criteria pollutants,” including:

 carbon monoxide

 lead

 nitrogen dioxide

 particulate matter

 ozone

 sulfur dioxideFuture of Finishing, page 25 of 65

Geographic areas that meet NAAQSs for a given pollutant are designated as "attainment

areas" ; those that do not meet NAAQSs are designated as "nonattainment areas" . EPA provides an on

- line resource called the Green Book that lists the status of each area of the U.S. for each pollutant.

Under Section 110 and other provisions of the CAA, each state must develop a State Implementation Plan (SIP) to:

 identify sources of air pollution, and

 determine what reductions are required to meet federal air quality standards

Revised NAAQSs for particulates and ozone became effective in 2004. This may significantly affect facilities that are large sources of particulates (soot) and of volatile organic compound s or nitrogen oxides (which contribute to ozone formation), particularly those in nonattainment areas.

New sources

. Title I also authorizes EPA to establish New Source Performance Standards (NSPS). These are nationally uniform emission standards for new and modified stationary sources that fall within particular industrial categories. The standards are based on the pollution control technology available to that category of industrial source (see 40 CFR Part 60 ).

Hazardous Air Pollutants

. Also under Title I, EPA establishes and enforces National Emission Standards for Hazardous Air Pollutants (NESHAPs). These are nationally uniform standards oriented toward controlling materials that appear on a specific list. Such materials are collectively known as hazardous air pollutants (HAPs).

Section 112(c) of the CAA directs EPA to develop a list of source categories that emit any of 188 HAPs, and to develop regulations for these categories of sources. To date, EPA has listed 185 source categories, and has developed a schedule for establishing emission standards. The emission standards are being developed for both new and existing sources.

NESHAPs are based on so

- called “maximum achievable control technology” (MACT). The MACT for a particular source category is defined as the control technology achieving the "maximum degree of reduction" in the emission of the HAPs when co st and other factors are

taken into account . Other designations (such as "BACT", or best available control technology, and "LAER" or lowest achievable emissions reduction) are used to specify technologies satisfying other criteria, like the maximum reduct ion without regard to cost. The distinctions can get complicated. The important point here is that cost is factored into MACT determinations. The regulations don't specify which technology to use, but they do require that whatever technology is used mus t achieve at least as much of an emissions reduction as the MACT can provide.

CAA Title V Title V of the Federal Clean Air Act Amendments of 1990 (CAA) required development of permit programs which would require major sources of air emissions throughout t he U.S. to obtain an operating permit. These operating permits are often referred to as "Title V Permits," or "Part 70 permits" since EPA issued rules for State Title V Programs under 40 CFR, Part 70.Future of Finishing, page 26 of 65

In general, a Part 70 permit is required of those fa cilities with the Potential To Emit (PTE) of 100 TPY or more of any criteria pollutant (NOx, CO, SO 2 , Ozone, VOCs, PM 10 , and Lead), or 10 TPY or more of any one Hazardous Air Pollutant (HAP), or 25 TPY or more of any combination

of HAPs. Certain other sou rces, i.e., any affected source subject to the Acid Rain Rules, and any solid waste incinerator subject to Section 129(e) of the CAA, are required to obtain a Part 70 permit regardless of their PTE. In addition, sources subject to a New Source Performance Standard (NSPS) or a National Emissions Standard for a Hazardous Air Pollutant (NESHAP), may be specifically required by the NSPS or NESHAP to obtain a Part 70 permit.

The following is a list of the NESHAPs most applicabl e to metal finishing facilities. The referenced web pages contain links to the original rules and any amendments.

Cleaning/Degreasing

 National Emissions Standards for Cleaning with Halogenated Solvents . (Dec. 2, 1994).

 National Emission Standards for Aerospace Manufacturing and Rework Facilities

. (Sept. 1, 1995)

.

Electroplati ng/Anodizing

 National Emission Standards for Chromium Emissions From Hard and Decorative Chromium Electroplating and Chromium Anodizing Tanks

. (January 1995)

Surface Coating/Painting

 Standards of Performance for Surface Coating of Metal Furniture

. (4 May 23, 2003 )

 Standards of Performance for Automobile and Light

- Duty Truck Surf ace Coating Operations

. ( April 26, 2004)

 Standards of Performance for Metal Coil Surface Coating

. ( June 10, 2002 )

 Standards of Performance for Industrial Surface Coating: Surface Coating of Plastic Parts

for Business Machines

. ( April 26, 2004)

.

 Miscellaneous Metal Parts and Products Surface Coating . (January 2, 2004)

Air Pollution Permits Most metal finishing facilities are required to obtain an air pollution permit and to file for a new permit every five years or sooner. The requirement may be based on federal or state regulations, or both. Also, many regional and local governments have their own requirements.

Federal and state requirements apply to the following types of operations:

 Facilities covered by the chromium and/or halogenated solvent “MACT” standard s,

 Facilities with operations such as painting in addition to other metal finishing operations

,

 Facilities that use volatile materials such as degreasing solven ts,

 Facilities that use plating chemicals with air toxics,

 Facilities with a boiler or furnace that use #2 fuel oil,

 Facilities located in a non

- attainment zone for air quality, and

 Facilities or operations that generate or contribute emissions of one or more of six

criteria pollutants:

o Lead

o Particulate matter ( PM 10 ),Future of Finishing, page 27 of 65

o Sulfur dioxide ( SO 2 , released from burning #2 fuel oil),

o N itrogen dioxide ( NOX ),

o Carbon monoxide , and

o Ozone, ( ground level smog ).

Different types of air permits apply, based upon the pounds of emission and the type of air pollutant emissions from your facility or operations. Again the pounds of emissions are

calculated from the MTE and PTE m entioned earlier.

The General Operating Permit is required for most small or medium

- sized industries that have emissions below certain thresholds or because they are covered by a specific Federal requirement.

A Major Source Air Operation Permit is also c alled a Title V Permit and is required for companies that have large or very large air emissions from their facilities. The Synthetic Minor Air Operation Permit is for sources that may have large potential emissions, but can take restrictions to stay below major source levels. It may also be referred to as a FESOP or Federally Enforceable State Operating Permit.

Generally, air

- operating permits are good for 5 years , unless there are significant changes that require either a new permit or a permit modificat ion. The date of expiration for the original permit, however, remains the same if the permit is just revised.

If a facility is a new source of air emissions, installing new equipment, or making configuration or process changes that may have an effect on a ir emissions, they must get a construction permit

. For example, if a facility is :

 Installing a new tank line

,

 Changing or installing a new coating application systems

,

 Installing a new cleaning system

,

 Installing a new paint booth

,

 Installing control devic es , or

 Proceeding with other process additions or changes that affect air emissions

.

Construction permits are generally good for 18 months , but vary due to state regulations.

CAA

- Related State Regulations In addition to federal air requirements, metal finishing facilities may be subject to a variety of state air regulations, including requirements to submit source registrations, obtain permits, report types and quantities of air emissions, and/or use particular emission control technologies.

Because ai r regulations are particularly complex and rapidly changing, a metal finisher should seek advice from their state agency or private counsel to determine which federal and state air emission regulations may apply. Local points of contact can be attained by using the NMFRC’s

Air Pollution Resource Locator

.

Future CAA RegulationsFuture of Finishing, page 28 of 65

Under the Clean Air Act, EPA must promulgate standards to control the emissions of hazardous air pollutants (HAPs ) for plating and polishing operations. As part of its effort to develop the new rule, in 2006 EPA sent out an information request questionnaire to hundreds of metal finishing facilities and collected information about air emissions and finishing operatio ns to identify generally available control technology (GACT) that may be needed to control emissions for the plating and polishing source category. The surface finishing industry ( www.nasf.org ) has been working closely wi th EPA to clarify the information collected in the surveys and provide additional information on finishing processes and operations.

Based on the Agency’s statutory authority and a series of technical and policy discussions with industry, EPA is focused primarily on emissions of:

 cadmium,

 chromium,

 cyanide,

 lead,

 manganese, and

 nickel.

EPA is also considering possible control options that could include wetting agents to lower surface tension, management and housekeeping practices, covers for inacti ve tanks, filters for polishing and thermal spray operations, as well as possible ventilation, mist eliminators and

scrubbers.

EPA is expected to propose the new air emissions rule in 2007 and issue the final rule in 2008.

Wastewater p ollution c ontrol

– the Clean Water Act (CWA)

The primary objective of the Clean Water Act (CWA) is to restore and maintain the chemical, physical, and biological integrity of the nation's surface waters. Pollutants regulated under the CWA include "priority" pollutants, inclu ding various toxic pollutants; "conventional" pollutants, such as biochemical oxygen demand (BOD), total suspended solids (TSS), fecal coliform, oil and grease, and pH; and "non

- conventional" pollutants, including any pollutant not identified as

either con ventional or priority.

The CWA regulates both direct dischargers and indirect discharges . The National Pollutant Discharge Elimination System (NPDES) program (CWA §402) controls direct discharges into navigable waters. Direct discharges or "point source" discharges are from sources such as pipes and sewers. NPDES permits, issued by either EPA or an authorized State ( EPA has presently authorized forty

- six States to administer the NPDES program ), contain industry

- specific, technology

- based and/or water quality

- based limits, and establish pollutant monitoring and reporting requirements. A facility that intends to discharge into the nation's waters must obtain a permit prior to initiating its disc harge. A permit applicant must provide quantitative analytical data identifying the types of pollutants present in the facility's effluent. The permit will then set forth the conditions and effluent limitations under which a facility may make a discharge.

A NPDES permit may also include discharge limits based on Federal or State water quality criteria or standards that were designed to protect designated uses of surface waters, such asFuture of Finishing, page 29 of 65

supporting aquatic life or recreation. These standards, unlike the technological standards, generally do not take into account technological feasibility or costs. Water quality criteria and standards vary from State to State, and site to site, depending on the use c lassification of the receiving body of water. Most States follow EPA guidelines that propose aquatic life and human health criteria for many of the priority pollutants.

Another type of discharge that is regulated by the CWA is one that goes to a publicly

- owned treatment works ( POTWs ). The national pretreatment program (CWA 307(b)) controls the indirect discharge of pollutants to POTWs by "industrial users." Facilities regulated under 307(b)

mus t meet certain pretreatment standards. The goal of the pretreatment program is to:

1. protect municipal wastewater treatment plants from damage that may occur when hazardous, toxic, or other wastes are discharged into a sewer system and

2. protect the quality of sludge generated by these plants.

Discharges to a POTW are regulated primarily by the POTW itself, rather than the State or EPA.

EPA has developed technology

- based standards for industrial users of POTWs. Different standards apply to existing and new sources within each category. "

Categorical" pretreatment standards applicable to an industry on a nationwide basis are developed by EPA. In addition, another kind of pretreatment standard, "local limits," are developed by the POTW in order to assist the POTW in achieving the effluent limitations in its NPDES permit.

Reg ardless of whether a State is authorized to implement either the NPDES or the pretreatment program, if it develops its own program, it may enforce requirements more stringent than Federal

standards.

Electroplating Categorical Standards (40 CFR 413)

Electr oplating Categorical Standards (40 CFR 413) are applicable to wastewater from these six specific operations:

 Electroplating

 Electroless Plating

 Anodizing

 Coatings

 Chemical Etching and Milling

 Printed Circuit Board Manufacturing

Most facilities that were initially covered by the Electropl ating Categorical Standards (1984 compliance date for most facilities) were subsequently covered by the Metal Finishing Categorical Standards (1986 compliance date for most faci lities). Excluded from the Metal Finishing rules are all existing indirect discharging job shops electroplaters and independent printed circuit board manufacturers. For these two groups of facilities, the Electroplating Standards still apply.Future of Finishing, page 30 of 65

The electroplating pretreatment standards for existing dischargers (Part 413) include an

alternative mass

- based standard for printed wiring board manufacturing facilities. The standard is expressed in units of milligrams per square meter of boards processed per operation. An operation is any "electroplating" step (e.g., electroless copper plating, copper sulphate plating) that is followed by a rinsing step. These standards can only be used based upon prior agreement between a metal finishing facility and the regulatory authority.

One purpose of the mass

- based standards is to encourage the implementation of pollution prevention. For example, a facility that has a concentration

- based copper limitation has less regulatory compliance incentive to install a drag

- out tank and counterflow rinse than a facility

with a mass

- based limitation. That is because a facility with a concentration limit has to treat the

wastewater to the same low concentrati on level regardless of the incoming flow rate and concentration. Alternatively, the facility with the mass

- based standard may reduce the wastewater flow and mass of copper entering the treatment system and not have to achieve as

low of and effluent concent ration.

For most affected facilities, the Electroplating Standards are administered by a local or state

wastewater agency.

Metal Finishing Categorical Standards (40 CFR 433) The Metal Finishing Category covers wastewater from 46 unit operations : the six operations covered by the Electroplating Categorical standards, plus an additional 40 operations. If any of the six electroplating operations are present, then the Metal Finish ing standards apply to wastewater from any of the 46 listed metal finishing operations. Also, all direct discharge electroplating and metal finishing facilities are covered by the Metal Finishing Categorical Standards (i.e., the Electroplating Standards apply only to indirect dischargers ).

Excluded from the Metal Finishing rules are all existing in direct discharging job shops electroplaters and independent printed circuit board manufacturers. For these two groups of facilities, the Electroplating Standards still apply.

F or most affected facilities, the Metal Finishing Standards are administered by a local or state

wastewater agency.

General Pretreatment Regulations (40 CFR 403) The General Pretreatment Regulations affect all metal finishing and electroplating manufacturi ng facilities that discharge process wastewater to a POTW

.

 All facilities must comply with the Prohibited Discharge rules (40 CFR 403.5)

.

 Certain provisions affect only facilities that are regulated by Categorical Pretreatment

Standards

.

 Certain provisions apply to industrial users that are not regulated by Categorical Standards. For these provisions to apply, the industrial user must be a significant non

categorical industrial user

.Future of Finishing, page 31 of 65

State and Local Regulations A metal finishing or electroplating facility that discharges process wastewater to a city sewer system (publicly owned treatment works, or POTW) is an indirect discharger and is subject to pretreatment standards. Although pretreatment standards are mostly based on federal laws, discharges to a POTW are regulated primarily by the POTW itself, rather than the State or EPA. In small municipalities, the State or Regional EPA may be the regulating agency (" Control Authority ").

POTW’s must enforce industrial discharge requirements that are at least as stringent as those found in the federal regulations (i.e., 40 CFR 413 and 433 for metal finishers). Many POTW’s have chosen to enforce more stringent standards for one or more parameters. In most cases, the

lo wer limits are based on:

 POTW sludge disposal criteria and/or

 Correspondingly low limits for specific heavy metal pollutants regulated in the NPDES permit of the POTW.

Low POTW limits are increasingly being imposed state agencies as a result of total maximum daily load (TMDL) studies. A TMDL is a technical analysis that determines the maximum loading of a pollutant of concern a water body can receive and still both attain and maintain its water quality standards; and allocates this allowable loading to pollutant sources in the watershed. A TMDL takes a watershed approach in determining the pollutant load that can be allowed in a given lake or stream. By taking a watershed approach, a TMDL considers all potential sources of pollutants, both point (e.g., POTWs) and non

- point sources (e.g., stormwater runoff).

With respect to sludge disposal, POTWs that would like to use land spreading as a disposal option, must meet relatively strict standards for metal s such as cadmium. Since metals concentrate into the POTW sludge as a result of biological treatment, the POTW must regulate the sources of the metals, including industrial discharges.

Future Wastewater Regulations The electroplating and metal finishing categorical regulations have been in effect for more than 20 years, without any significant changes. In 1995 (and subsequently revised in 2001) EPA proposed Metal Products and Machinery category regulations that would have further regulated approximately 89,000 U.S facilities, including electroplating and metal finishing plants. The MP&M rule would have lowered the allowable metals discharge concentrations significantly. However, when the final rule was signed on February 14, 2003, it scaled back signifi cantly the number of regulated entities from the initial proposal. The revised rule now applies to about 2,400 facilities that generate oily wastewater (only facilities that discharge oil and grease and total suspended solids to rivers and streams), and t herefore is no longer applicable to most electroplating and metal finishing shops.Future of Finishing, page 32 of 65

Given the EPA MP&M decision regarding electroplating and metal finishing facilities, it does not appear that federal wastewater regulations will change in the near future. However, individual facilities may find that local and state agencies tighten discharge limits requirements.

Hazardous w aste

– the Resource Conservation and Recovery Act (RCRA)

The Resource Conservation and Recovery Act or RCRA is the central law that gav e EPA the authority to control hazardous waste from the "cradle

- to

- grave." This includes the generation, transportation, treatment, storage, and disposal of hazardous waste.

Under RCRA, hazardous waste generators are required to register and obtain an EP A identification number, and abide by a strict set of rules regarding waste accumulation, handling, storage, and disposal of hazardous waste. RCRA also has provisions covering employee training, recordkeeping, reporting, and emergency procedures.

RCRA ha zardous waste regulations apply to all metal finishing shops, although the specific rules vary depending on the quantity of hazardous waste generated and to a lesser extent the state in which the facility is located. Conditionally exempt small quantity ge nerators (less than 100 kg per month for most wastes) and small quantity generators ( between 100 kg and 1000 kg per

month for most wastes ) have fewer rules to follow than large quantity generators ( 1000 kg per month for most wastes). State rules closely f ollow the federal regulations, although some differences exist (see below).

For the RCRA hazardous waste rules to be applicable to a particular substance, it must first be identified as a "hazardous waste." Generators must determine whether their generate d material is first, a "waste," second, a "solid waste," and last, a "hazardous waste." There are two methods for making this third determination. The substance may be a "listed" waste, one of hundreds of substances that EPA has placed on a list of hazardo us wastes. Alternatively, the substance may be a "characteristic" hazardous waste, one that through testing exhibits any of the following four hazardous waste characteristics: ignitability, corrosivity, reactivity, or toxicity.

Common listed hazardous was tes generated by metal finishing facilities include:

 F001 through F005

– Specific spent solvents and still bottoms.

 F006

– Wastewater treatment sludge from plating operations.

 F007 through F009

– Spent cyanide based plating, cleaning and stripping solutions and associated tank sludges.

 F019

– Wastewater treatment sludges from aluminum finishing.

In addition to the above listed wastes, metal finishing facilities commonly generate “characteristic” hazardous wastes, including spent solutions that are hazardous due to corrosivity (e.g., cleaning solutions) or toxicity (e.g., toxic metal

- bearing solutions).

State Hazardous Waste Rules Although RCRA is a Federal statute, many States implement the RCRA program. Currently, EPA has delegated its authority t o implement various provisions of RCRA to 46 of the 50 States. For a state to be delegated RCRA enforcement authority, which is referred to as "RCRA authorization," EPA must approve the state's hazardous waste management rules. State hazardous waste management rules must be at least as stringent as, and consistent wit h, theFuture of Finishing, page 33 of 65

federal RCRA rules in order for the state to receive RCRA authorization. Many states have added hazardous waste management rules that go beyond the federal standards. State hazardous waste rules have been complied by NCMS (see HWRL ).

Future Hazardous Waste Regulations Federal and state hazardous wastes regulations will probably not change significantly in the near future for metal finishers since there are no major hazardous waste regul atory efforts underway that will affect finishers. However, some fine tuning of the rules is taking place that may make it easier to recover waste products than treat/dispose of them. For example, in 2000, EPA passed a rule that allows metal finishing fa cilities to accumulate F006 waste on

- site for a longer than normal time period, if the waste is shipped to a recovery facility. This change on the Federal level (sates are not required to adopt this change) is intended to promote recycling by facilities

t hat otherwise could not accumulate a sufficient quantity of sludge for economical recycling.

Another change that may have a broader impact involves a proposed rule to modify the

definition of solid waste (by definition, a material must be a “solid waste” to meet the definition of a hazardous waste) . The proposed rule provides exclusions for:

 materials that are generated and reclaimed under the control of the generator;

 materials that are generated and transferred to another person or company for reclamat ion under specific conditions; and

 materials that EPA deems non

- waste through a case

- by

- case petition process.

The proposal also defines legitimate recycling to ensure that only legitimate recycling activity benefits from the streamlined requirements, not treatment or disposal under the guise of recycling.

The proposed new definition of solid waste could facilitate more recyc ling of F006 wastes

. Under the proposed new definition, sludge that is reclaimed for metals recovery would not be

considered "discar ded", and would not, therefore, be subject to hazardous waste regulations (provided that plating shops and reclamation facilities meet a set of conditions regarding the management and recycling of the sludge).

Toxic c hemical r eporting

– EPCRA

Many coating facilities are subject to one or more provisions of the Emergency Planning and Community Right

- to

- Know Act (EPCRA) . The purpose of this law is to require industry to provide information about the type, amount, and location of chemicals they keep on

- site and to report information about releases of toxic chemicals from their facility. Local planners and response personnel use this information to respond to chemical emergencies and this information is available to the public.

Chemical Reporting (EPCRA Section 311) OSHA's Hazard Communication Standard (HCS) requires facilities to procure or prepare material safety data sheets (MSDSs) for the hazardous chemicals found at the faci lity 29 CFR

Section 1910.1200 . The MSDS contains important health and safety information. Any facility that is required by OSHA to prepare or have available an MSDS for a hazardous chemical is subject to EPCRA Sections 311 and 312 if the chemical is present on site at any one time in

excess of threshold levels. There is no list of hazardous chemicals subject to reporting. The keyFuture of Finishing, page 34 of 65

to determining whether or not a chemical is considered hazardous is if it meets OSHA's

definition of a hazardous chemical in 29 CFR 1910.1200(c).

Section 311 requires facilities that must prepare (or acquire) material safety data sheets (MSDS) under Occupational Safety and Health Administration (OSHA) regulations to submit either copies of their MSDSs or a list of MSDSs chemicals to their:

 Local Em ergency Planning Committee (LEPC)

 State Emergency Response Commission (SERC), and

 Local fire department with jurisdiction over the facility

If the facility owner or operator chooses to submit a list of MSDS chemicals, the list must

include the chemical or common name of each substance and must identify the applicable hazard categories . These hazard categories are:

 Immediate (acute) health hazard

 Delayed (chronic) health hazard

 Fire h azard

 Sudden release of pressure hazard

 Reactive hazard

If a list is submitted, the facility must submit a copy of the MSDSs for any chemical on the list upon the request of the LEPC or SERC. Also EPA has established threshold quantities for

hazardous c hemicals below which no facility must report. The current thresholds for Section 311

are:

 For extremely hazardous substances: 500 pounds or the threshold planning quantity,

whichever is lower.

 For all other hazardous chemicals: 10,000 pounds

The initial submission of the MSDSs or a list of MSDSs chemicals was due on October 17, 1987. Facilities newly covered by the OSHA regulations must submit MSDSs or a list of MSDSs chemicals within three months after they become covered.

A MSDS or a revised list must be provided when new hazardous chemicals become present at a facility in quantities at or above the established threshold levels after the deadline. A revised MSDS must be provided to update the original MSDS if significant new information is

discovered a bout the hazardous chemical.

Chemical Reporting (EPCRA Section 312) EPCRA Section 312 requires submission of an annual report providing information on hazardous

chemicals on

- site to the SERC, LEPC, and local fire department. This report is due every March 1 and covers the previous calendar year. EPA created two types of inventory forms for facilities to use to fulfill this requirement:Future of Finishing, page 35 of 65

 Tier I

-- requires facilities to report general information on the amount and location of

hazardous chemicals.

 Tier II

-- requires more detailed information on each hazardous chemical.

Facilities use the Tier II form to report chemical

- specific information

-- the name, chemical abstract service number (CAS), physical and health hazards, inventory amounts, and storage

conditi ons and locations (40 CFR Section 370.25). Facilities may submit a Tier II in lieu of a

Tier I.

While federal regulations only require the submission of a Tier I form, EPA encourages, and some states require, the use of the Tier II form. States may also h ave lower thresholds that trigger Tier reporting. States may impose fees for processing Tier forms or even have their own forms that facilities must use to fulfill Section 312 requirements.

The specific threshold quantities established by EPA for Section 312 for hazardous chemicals

, below which no facility must report, are:

 extremely hazardous substances: 500 pounds or the threshold planning quantity, which is

lower.

 all other hazardous chemicals: 10,000 pounds.

The information submitted by facilities under Sections 311 and 312 must be made available to the public by LEPCs and SERCs during normal working hours.

Toxic Chemical Reporting: EPCRA Section 313 The purpose of the EPCRA Section 313 reporting requirement is to inform the public and government officials about routine releases of toxic chemicals to the environment. It will als o assist in research and the development of regulations, guidelines, and standards.

Reports are sent to EPA and designated state agencies. EPA established and maintains a national toxic chemical inventory (TRI). The public is able to access this database using the Internet and

other means.

Under TRI rules, applicable facilities are required to submit a “Form R” for specified chemicals. The form must be submitted to EPA and designated state officials annually by July 1, covering the preceding calendar ye ar.

Facilities are subject to Section 313 reporting if it meets all three of the following criteria:

 Manufacturing is conducted (SIC codes 20 through 39)

 10 or more full

- time employees,

 Facility uses toxic chemicals in amounts greater than "threshold" quantities (specified amounts of toxic chemicals used during the calendar year that trigger reporting requirements)Future of Finishing, page 36 of 65

There are over 500 chemicals and chemical categories on the Section 313 chemical list

. Chemi cals commonly reported by metal finishing facilities include: cadmium, chromium, lead, and cyanide.

Toxic Chemical Reporting State Requirements Most states closely follow the Federal reporting requirements for EPCRA sections 311, 312, and

313. Some states have additional reporting requirements. NCMS has complied and maintains

state TRI rules on the Toxic Release Inventory State Resource Locator

. The Toxic Substances Control Act (TSCA)

Overview

The Toxic Substance Control Act (TSCA) of 1976 was enacted to provide information about all chemicals and to control the production of new chemicals that might present an unreasonable risk of injury to health or the environment. TSCA authorizes EPA to require testin g of chemical substances, both old and new, that enter the environment. TSCA also provides authority to regulate the manufacturing, processing, and use of chemicals. Because TSCA gives EPA such broad powers, the law covers virtually all manufactured and na tural chemicals.

EPA maintains and publishes the TSCA Inventory (more than 75,000 substances), which includes a list of chemicals manufactured, imported, or processed for commercial purposes in the

U.S.

TSCA differs from other federal laws in that the Act requires testing and reporting of chemicals with unknown toxic or dangerous characteristics before the chemical reaches the consumer marketplace.

TSCA has two regulatory features:

 Acquisition of informat ion by EPA to identify and evaluate potential hazards from chemical substances. This is done by requiring manufacturers to:

o Submit a Premanufacture Notice (PMN) before producing or importing a new

chemical substance.

o Follow "significant new use rules" (SNU R) before manufacturing chemical substances that may increase human or environmental exposure.

o File various reports and studies with EPA on production, health, and safety issues

related to chemical substances.

 Regulation of the production, use, distributio n, and disposal of toxic substances when a significant risk is posed to human health and the environment (e.g., PCBs, asbestos, lead paint, and hexavalent chromium used in water conditioning are all regulated under TSCA).

Key TSCA Provisions for Metal Finishers TSCA standards may apply at any point during a chemical’s life cycle. Under Section 5 , EPA has established an inventory of chemical substances. If a chemical is not already on the inventory, and has not been excluded by TSCA, a premanufacture notice (PMN) must be submitted to EPA prior to manufacture or import. The PMN must identify the chemical andFuture of Finishing, page 37 of 65

provide available information on health and environmental effects. If available data are not

sufficient to evaluate the chemical's effects, EPA can impose restrictions pending the development of information on its health and environmental effects. EPA can also restrict significant new uses of chemicals based upon factors such as the projected volume and use of the

chemical.

Under TSCA section 5(a)(2), after a chemical substance is placed on the TSCA Inventory, additional information for the chemical may be discovered that could affect human health or the environment that was not anticipated at the time the substance was initially placed in the Inventory or during PMN review. If EPA determines that a certain use of a chemical listed in the Inventory would constitute a "significant new use" that increases human or environmental exposure, EPA may issue a SNUR

. A SNUR applies to any company (including small or large entities) who intends to engage in any activity described in the rule as a ‘‘significant new use.’’ Before promulgating a SNUR EPA requests comments and performs due diligence to determine

which ac tivities are existing.

A SNUR requires that anyone who wants to manufacture or process the chemical substance for a use that EPA has determined to be a "significant new use" must give 90 days' prior notice (significant new use notice, SNUN) to EPA. EPA t hen has the opportunity to evaluate the intended use, and, if necessary, to prohibit or limit that activity. Section 5(a)(2) of TSCA states that EPA’s determination that a use of a chemical substance is a significant new use must be

made after considerati on of all relevant factors including:

 The projected volume of manufacturing and processing of a chemical substance.

 The extent to which the use changes the type or form of exposure of humans or the

environment to a chemical substance.

 The extent to which t he use increases the magnitude and duration of exposure of human beings or the environment to a chemical substance.

 The reasonably anticipated manner and methods of manufacturing, processing, distribution in commerce, and disposal of a chemical substance. TSCA section 5(a)(2) authorizes EPA to consider any other relevant factors in addition to the factors

en umerated in the bulleted items.

EPA’s experience to date is that, in response to the promulgation of over 1,000 SNURs (see 40

CFR 721 , the Agency receives on average only 10 SNUNs per year.

TSCA section 5(a)(2) also authorizes EPA to consider any other relevant factors in addition to

the factors enumerated in the bulleted items. In effect, a SNUR can turn an existing chemical into a "new" chemical under TSCA and it can apply to processors as well as manufacturers and importers.

Under TSCA Section 6, EPA has broad authority to issue rules regulating a chemical substance

or mixture if "there is a reasonable basis to conclude" that its manufacture, distribution in commerce, use, or disposal "presents or will present an unreasonable risk of injury to health or the environment." Under Section 6, the EPA Administrator may take a variety of actions to control or mitigate the risk posed by a chemical, including prohibiting the manufacture, import, processing, or distribution of a chemical substance. Chemicals regulated under Section 6 includeFuture of Finishing, page 38 of 65

PCBs , chlorofluorocarbons (prohibiting their use as aerosol propellants), asbestos

, lead

- based paint , certain substances in metalworking fluids , and hexavalent chromium in cooling tower

chemicals

.

Future TSCA Regulations At present, TSCA has only a peripheral impact on metal fi nishers potentially affecting facility infrastructure (e.g., PCB transformers, asbestos insulation, and use of hexavalent chromium in cooling towers) and machining operations. However, TSCA may have a broader and more significant bearing in the future , es pecially if EPA’s future regulatory strategy takes advantage of the broad powers it has under TSCA and follows the chemical/product strategy being implemented in Europe. Discussed below are some examples.

Significant New Use Rule ( SNUR ) . In 2007 EPA pro mulgated a SNUR for elemental mercury used in certain automobile light control systems (e.g., interior trunk and hood lights) (see Federal Regi ster: October 5, 2007 Volume 72, Number 193 ). The rule requires those who intend to use mercury in the manufacture of these switches to notify EPA, who then has the opportunity to evaluate the intended use, and, if necessary, to prohibit or limit that act ivity. This regulation was promulgated despite the fact that U.S. and foreign automakers phased out the use of mercury switches by 2003. EPA’s rationale for promulgating the rule was that mercury use in switches

could be reinitiated in the future.

It se ems feasible that a similar approach could be taken by EPA that would affect the use of certain coating materials currently used by metal finishers. For example, EPA could promulgate a rule that would limit the use of hexavalent chromium or nickel coating s if they met the significant new use definition; for example, if new or increased hazards were discovered.

Perfluoroalkyl Sulfonates Fume/Mist Suppressants . A significant new use rule (SNUR) was promulgated by EPA to cover the chemical substance identif ied as chromate(3

- ), bis[7

- [(aminohydroxyphenyl)azo]

- 3

- [[5

- (aminosulfonyl)

- 2

- hydroxyphenyl]azo]

- 4

- hydroxy

- 2

- naphthalene

- sulfonato (3

- )]

- , trisodium (9CI) (PMN P

- 95

– 1576;CAS No. 118716

– 62

– 4) ( 40

CFR 721.9582 ). That rule was amended in October 2007 to include certain additional perfluoroalkyl sulfonate (PFAS) chemicals , including those used in fume/mist suppressants used by the pla ting industry ( Federal Register, Vol. 72, No. 194, October 9, 2007 ). In the amendment, EPA specifically excluded fume/mist suppressants from t he significant new use rule. However,

EPA also stated that they are concerned about potential releases this specific chemical use and

“ will continue to work with state agencies and industry to identify best management practices for minimizing the release of this PFAS surfactant. ”

Nanomaterials

. Under TSCA substances are considered “existing” by virtue of their listing on the Inventory. Historically, existing chemicals are less likely to be investigated and regulated

under TSCA than new chemicals. For e ngineered nanoscale materials, there is debate as to whether these are existing or new materials. Traditionally, EPA has not defined a substance as “new” under TSCA if its molecular structure is the same as a chemical already on the TSCA Inventory. Some h ave argued, however, that EPA does have the flexibility to regulate as “new” nanoscale versions of materials already on the Inventory. The policy argument in favor of regulating nanomaterials as “new” chemicals under TSCA is that these nanoscale versions o fFuture of Finishing, page 39 of 65

existing chemicals are different from their conventional counterparts, present different health and safety concerns, and should be subjected to the same level of EPA control as “new” chemical

substances.

In 2007 EPA issued a draft document, TSCA Inven tory Status of Nanoscale Substances

— General Approach

, and a draft concept paper summarizing a voluntary Nanoscale Materials Stewardship Program for chemicals regulated under the Toxic Substances Control Act (TSCA). Under the proposed stewardship program, participants would be asked to voluntarily submit

inf ormation to EPA to provide a firmer scientific foundation for future policy decisions on regulating nanotechnology applications.

The proposed Stewardship Program would establish two levels of participation: basic and in

depth. Under the “basic” program organizations would report “all known or reasonably

ascertainable information” about the nanomaterial. Under the “in

- depth” program, participants would also provide a broad scope of physical, chemical, hazard, production and other

information detailed in the concept paper. The “in

- depth” program would also entail the development of a long

- term plan for data collection and submittal to provide a firmer scientific foundation for future policy decisions on regulating nanotechnology applications.



### Internationa l trends

For over a decade, the European Union has been the driving force in environmental regulation, carrying the rest of the world (not always willingly) along its path. That trend seems likely to

continue.

Prior to 2007, t he following EU directives t ended to have the greatest effect on U.S. finishing

firms:

 End of Life Vehicles (ELV, Directive 2000/53/EC )

 Restriction of the Use of certain Hazardous Substances in Electrical and Electronic Equipment (RoHS

, Directive 2002/95/EC )

 Waste Electrical and Elec tronic Equipment (WEEE

, Directive 2002/96/EC ) (In the EU regulatory system, directives are pieces of legislation that set goals, but leave it to the individual “member states” (countries that are members of the EU) to work out the details. They

do not ta ke effect until the individual countries have passed their own laws. Regulations do not require any further action by the individual countries to take effect.) Each of these directives has been implemented by individual EU countries, with relatively mino r variations. They have primarily affected firms with customers in the automotive and the electronics sectors.

Although these directives have introduced new restrictions, they have not been game changers. Their goals are primarily to restrict the use of certain materials that are assumed to pose particular problems, and their effect has been to stimulate the development of alternative materials to satisfy their respective functional requirements. In the case of ELV, the targeted

materials are lead, mercury, cadmium, and hexavalent chromium. There is nothing fundamentally new about regulatory pressure discouraging the use of these metals . The existing directives have made more of a difference in degree than in kind.Future of Finishing, page 40 of 65

However, a new developmen t, called “REACH” ( Regulation on Registration, Evaluation,

Authorization and Restriction of Chemicals ), may create a much more momentous alteration of the regulatory landscape. In contrast to the directives, it is a regulation, and will be instituted as

w ritten throughout the EU (though enforcement will be up to the individual countries).

REACH is different from any previous piece of environmental legislation

– just how different is perhaps not even appreciated yet by most Europeans. It will have consequences that that finishing firms have n ever before encountered. For example:

 Previous regulations have targeted specific materials for restriction or elimination. REACH could conceivably apply to an y material , depending on the results of types of toxicity testing not even developed yet (or of political agendas not yet formulated).

 Overseas regulations have typically affected U.S. finishing firms through changing specifications from customers doing business in overseas markets. In the c ase of REACH, pressure may come not just from customers, but from anywhere in the supply

chain , including upstream chemical suppliers

.

 Until now, finishing firms were responsible for ensuring that their coatings perform according to their customers’ specif ications, but determining whether those specifications were appropriate for the product’s intended use remained the responsibility of the

customer. Under REACH , a finishing firm might (under some circumstances) be expected to know how their customer, and their customer’s customer (etc.), intends to use the products they coat, and might be held responsible if the ultimate user, no matter how far down the chain, no matter how “creative” their use , were not advised of potential

hazards associated with the coa ting if used for that purpose

. We are entering new territory here.

REACH works essentially as follows:

 REACH applies to virtually any man

- made substance ( with a few exceptions covering mostly substances regulated under other EU laws, like, pesticides, r adioisotopes, etc. )

 Anyone who produces one of those substances in the EU, or who imports the substance into the EU, in quantities over one metric ton, is responsible for registering the substance with the European Chemicals Agency in Helsinki, Finland.

 Th ese companies must prepare Safety Data Sheets for downstream users all the way down the supply chain. The Safety Data Sheets must tell the downstream users how to handle the material safely for each intended use of the material. Do not confuse these

SDSs with the familiar Material Safety Data Sheets (MSDSs) required under U.S. regulations. The use

- specificity requirement ensures that REACH

- compliant SDSs will be MSDSs on steroids. In some cases (dangerous substances used in quantities over ten

metric to ns), manufacturers or importers will have to prepare detailed “exposure

scenarios”.

It should be noted that REACH applies to materials, not “articles” (finished goods that incorporate the materials, but that would not be expected to release the materials under normal conditions of use). Won’t that let surface finishers off the hook in most cases? Don’t bet on it. True, U.S. finishing firms that do not have facilities in Europe are not likely to have to deal with European regulatory authorities. But any of their customers that sell their coated products in theFuture of Finishing, page 41 of 65

EU, or any of their suppliers that produce materials in the EU, or that get their materials supplies from the EU, are going to be turning to the U.S. firms for information.

Another potential conse quence of REACH will be considerably more disruptive than complying with information requests from suppliers and customers. It is possible that some materials that have been in common use for decades or centuries might become unavailable

. S uppliers doing business in the EU, or in other areas of the globe that adopt EU

- style regulations, might decide that it is not worth their while to continue to supply the material if it means complying with the

more burdensome regulatory and liabilities burdens imposed by the new framework. This could happen at any point along the supply chain.

How can finishing firms prepare for this new style of environmental regulation? At the very least, i t would be prudent to research t he vulnerability of common materials used in finishing to this kind of disruption. A thorough job would require looking at the entire life

- cycle of materials, and would probably be beyond the resources of any single metal finishing firm . B ut
the finishin g sector has demonstrated that it can pool significant resources to deal with regulatory developments (as in the case of the “MP&M” water quality regulations proposed and later largely abandoned by the USEPA several years ago). A similar effort to prepare for the new international regulatory framework might be undertaken by the finishing industry collaboratively, acting through a trade organization. The benefits might be even more positive. In the case of MP&M, a concerted effort by the plating industry defeat ed an ill

- conceived regulatory initiative

, but then w ound up with nothing further to show for the effort but a return to the status quo . In responding to REACH , the industry could create a strong position, based on sound science, to deal with a comi ng regulatory framework that is itself much better informed than its politically

- driven predecessor. This point of view is developed further in the following

section.



### The future

Two regulatory topics bear watching that have not been of particular concern to finishing firms before now, but that may become increasingly important in the future. Both may provide opportunities as well as burdens for finishing firms.

Global warming. The political climate that has so far insulated the U.S. economy from the

eff ects of new burdens on greenhouse gas emissions will probably shift fundamentally over the next few years. While the prospect of the U.S. federal government imposing restrictions on carbon dioxide emissions from fossil fuel combustion seemed remote only a few years ago, such measures now seem inevitable. For most manufacturers, these developments will not involve new emissions limits on manufacturing processes, though large boilers may fall under new efficiency standards. The immediate effect s of greenho use gas regulation on U.S. finishing firms

are likely to be indirect , increasing the relative cost of energy and possibly slowing economic growth overall.

But global warming concerns may have a more subtle role to play in shaping the outlook for the surface finishing sector. When regulating typical toxic emissions, it’s generally safe to assume that “less is better”, at least from the point of view of protecting health and environment. The question then becomes “how much less?” At what point does the benefit derived from lowerFuture of Finishing, page 42 of 65

emissions further stop making sense when weighed against the cost? But regulating greenhouse gases involves a more complicated set of criteria. It is no longer a matter of requiring individual manufacturers to install control equipment on isolated processes. Effective greenhouse gas regulation involves international treaties, sweeping changes in fundamental practices, and huge capital investments over decades.

With stakes that high, it becomes critical to evaluate the effects of proposed changes using much sharper tools than are typically applied today. At this point, a generally accepted, comprehensive framework for assessing the environmental impacts of various alternatives does not yet exis t.
The closest framework available at present goes by the name of “life

- cycle assessment.” It was originally devised to provide a common basis for comparing alternative products. It will take some development before it can be applied to large scale syst ems, projected into the future. But

it’s a start.

It turns out that when life

- cycle considerations are applied to greenhouse gas mitigation, finishing firms have an opportunity to position their industry as an environmentally responsible alternative, as explained in the next section.

“Life

- cycle” methods. The second major regulatory development that is likely to occur over the next few years is the increasing application of life

- cycle methods to the for mulation of regulatory policy.

The best way to m ake the case that environmental regulations should be based on life

- cycle thinking is to try to argue the contrary. Imagine a regulatory system where each point of emission is considered in isolation. Producers are required to keep the rate of pollutant emission at each point below an arbitrary level. In a complex production system, this may require that more pollutants are generated from more individual sources than would be the case if the whole system were regulated on an integrated basis. For exampl e, suppose a finishing firm wanted to install a plating line that would make it possible to refurbish and reuse complex parts that were currently being scrapped. The process could be carried out profitably, except for the cost of installing and operating the required control equipment. The firm could demonstrate that the reduction in emissions resulting from not having to manufacture new parts far outweighs the emissions that would result from less stringent control of the plating line. Under our imagina ry regulatory system, this argument would carry zero weight.

Does our imaginary system seem uncomfortably familiar? Of course, no rational society would adopt a system under which application of individual rules would work at cross

- purposes to the

overal l goal. So why are we stuck with this legacy of irrationality ?

The heart of the problem is that the current system is based on a “sin

- and

- redemption” model of environmental pollution. Stay under your limit, and you are innocent

– y ou have done society no unacceptable harm. Cross the threshold, by no matter how small an increment, and you are guilty, a wrongdoer, and must be punished, typically by a fine, public humiliation, or worse.

Reason tells us that the threshold is arbitrary. There are degree s of impact and complex tradeoffs associated with every design decision and manufacturing process. “Life

- cycle assessment” isFuture of Finishing, page 43 of 65

simply another name for keeping track of the impacts. Wouldn’t a compensation

- based system, balancing impacts against benefits and adjusting for the inequities, make more sense than a system based on arbitrary limits and penalties for exceeding them?

The problem is that the impact accounting system is still in development. There is currently no broad consensus on how to keep the books. And even as a consensus eventually materializes, it will not work smoothly into the current system. L ife

- cycle calculations are necessarily approximate. A penalty

- based regulatory system needs sharp lines.

We probably needed to go through the si n

- and

- redemption phase. The framework of the current environmental regulatory system was largely established in the 1970s and 1980s. Setting it up was a politically contentious process , with powerful forces resisting government interference in what had p reviously been considered private decisions

. Academic concerns for sustainability would not have counted for much, given the politics and level of awareness then prevailing. The only countervailing force that could have moved the country to adopt (for th e first time in history) laws specifically guaranteeing protection for the environment was an emotionally involved collection of citizens representing a significant fraction of the electorate.

Most people (for better or worse) do not become passionate adv ocates through appeals to reason. But people do respond to stories. One could observe the fact that the ever

- increasing scale of industrial activity was gradually approaching the threshold where its environmental impacts were beginning to exceed the abil ity of natural forces to absorb and dissipate the effects. But that doesn’t make much of a story. It takes an old

- fashioned rip

- roaring drama, with good guys, bad

guys, vulnerable maidens, and the forces of right battling the demons of darkness, to get p eople involved (and to sell papers or attract viewers).

The classic environmental story had all the elements. The factory owner was the perfect villain, driven by pure greed to despoil the surroundings. The reporter could assume the hero’s mantle

for ex posing the story, and the viewer could inherit it by carrying on the battle. Throughout the 70s and 80s, the story kept coming back. The stories were often triggered by real problems

– Love Canal, Three Mile Island, Bhopal

, but the narrative always seeme d to fall into the familiar

pattern. The manufacturer, motivated by greed, or by negligence born of greed, made irresponsible choices, with tragic consequences. The remedy generally involved punishment, to deter such behavior in the future, and stricter laws.

The sin

- and

- redemption model has proved to be a powerful motivating force. Something deep in the human nurturing impulse generates a strong protective reaction when our dependents are threatened by poisoning. Environmentalism probably had to becom e a gut issue to reach its present degree of political leverage. But the model has had other consequences.

First, note that it is self

- perpetuating. The designated villains of the narrative, the grasping industrialists (who may in many situations be small business owners), have every incentive to deny, stonewall, cover up, and generally act the part. When an emissions problem is discovered

, the appropriate response , in the sin

- and

- redemption paradigm, is not primarily to solve it and correct the situation that led to it, but to expose the transgression and pillory the perpetrator

. As

a result , the individuals in the best position to fix the prob lem seek instead to distance themselvesFuture of Finishing, page 44 of 65

from it. This confirms their villainous nature in the eyes of the public, though it often serves to make the problem worse.

Another, even more insidious aspect of the sin

- and

- redemption model is that it provides a perverse incentive for public interest groups whose ostensible purpose is to eliminate the sin. The public is much more inclined to contribute to an organization whose mission is defeating the forces of evil than to one that is seeking optimal solutions f or complex problems. It is virtually inevitable that demonization becomes standard operating procedure. (Worse yet, the same dynamic can occur at government agencies, where political support for a greater share of the budget can be as strong an influence as the demands of fund

- raising. Theoretically, the activities of government agencies are subject to more internal constraints than the activities of private

groups

– the phenomenon of prosecutors turning into persecutors tends to be more prevalent in

age ncies dealing with money or national security than with environmental matters

– but the drive

to persecute sometimes infects environmental agencies as well. And the stakes when government acts are correspondingly higher than is generally the case with the private sector.)

The tendency to put manufacturing firms in the cross

- hairs is not just a problem for the firms. Perhaps most notably, i t impedes progress toward real solutions because it chokes the free flow

of information. But beyond that, it deflect s attention from root cause s

. Accountability is not causality. Even when the manufacturer has indeed cut corners, and is legally responsible for the consequences, closer examination will typically uncover a whole chain of people and firms who

benefit fro m the manufacturer’s choices, from suppliers and distributors through ultimate consumers. They have declined to pay the cost of environmental responsibility. For the most part, they can justly claim ignorance

– lower retail price does not automatically s ignal less responsible production. The only way to address that claim would be to provide the relevant information. In the ideal world, every purchaser of the article, from wholesaler to consumer, will be told: here is what the article will cost you, an d here are

 the impacts that went into producing it

 the impacts that will occur throughout its normal service life

 the impacts associated with discarding or recycling the product That information can be used in any of a number of ways

– as a matter to be le ft up to the purchaser to use as desired, or as the basis for policy decisions such as taxes or deposits.

I n any case, a system that actively discourages the conditions under which such information can be collected is clearly undesirable. At some point, the sin

- and

- redemption model of environmental responsibility becomes a self

- defeating paradigm.

In the long run, it is in everyone’s best interests to move beyond the sin

- and

- redemption model to a more mature approach. Industrial product ion inevitably involves environmental impacts. While it will generally be advantageous to minimize the impacts, some damage is unavoidable. Consequently, compensating measures will always be required to ensure that the natural

infrastructure can function sustainably. Rather than playing the blame game, the guardians of the commons, public and private, will do more good by devoting their efforts to ensuring that the responsibility for providing for that compensation is shared equitably all along the chain

.Future of Finishing, page 45 of 65

Two major developments are needed to enable the shared responsibility model to supplant sin

and

- redemption. The first is technical. What is now called “life

- cycle assessment” (and may ultimately be called simply “full cost accounting”) is currently a craft industry in its own right, practiced by specialists with proprietary databases and opaque methods. As the demand for impact information grows, this temporary phase will pass into a situation in which impact information will appear on a material’s spec sheet, along with density and other mundane parameters. Creating a life

- cycle assessment will be as routine as compiling a bill of materials. Most of the information and methodology needed to support th i s capability is already in place now (2008), a nd needs only to be brought together in publicly accessible form. By 2015, it may be commonplace.

The other, less predictable impediment is the need to muster the will to change old habits. As indicated above, both regulatory agencies and public interes ts groups have a short

- term incentive

to stick with the sin

- and

- redemption model

. For them, e volving beyond the old model will involve developing an appeal to supporters that is based on reason rather than emotion, but that

still remains effective in gene rating budget allocations or contributions

.

In any event, as environmental impact information becomes more reliable and available, it will eventually become the basis for regulations. That could very well mean some changes in emphasis. Some materials th at have been under the gun in the old system, typically because of acute toxicity effects from uncontrolled emissions, may turn out to be less of a problem than

others whose effects are more subtle or indirect. But in the absence of more detailed

informat ion, it is hard to guess which way the chips will fall in specific cases. The best advice for finishing firms would be to keep as vigilant an eye on technical developments in impact analysis as they have learned to do on regulatory developments.Future of Finishing, page 46 of 65



## III . Te chnology Trends

This section of the report looks at potential future technology changes that could affect the metal finishing industry. The information presented here is based on a survey of nine industry experts that was conducted in 2006. The survey as ked the experts to use their crystal balls to predict which technology changes will have the greatest impact on metal finishing within time frames of 5, 10 and 20 years. A set of nine potential technology changes were presented in the survey and the exper ts were permitted to add additional technology changes that they felt were important, although none did. The nine technology changes can be categorized as either optimization of existing technology or implementation of new technology:

Optimi zing Existing Technology

 Optimize conventional wet processes to achieve near zero discharge and risk

-- I mprov e the efficiency and performance of conventional surface finishing processes to reduce chemical usage, worker exposure risk and waste generation, while maintai ning or improving surface finish quality, processing speed and capacity.

 Improve process monitoring and control systems

– A utomat e surface finish ing process lines

. F or manual process lines

, deploy state

- of

- the

- art software to enhance information access and process verification.

 Pursu e sustainable manufacturing

– Use processes and systems that are non

- polluting, energy conserving, natural resource conserving, economically efficient, and safe for workers, the community, and consumers.

 Improve e nergy efficiency

-- U se more energy efficient equipment and/or modif y manufacturing processes to increase efficiency and reduce energy consumption.

Developing and Implementing New Technology

 Change to “g reener” process chemistries

– C hang e to alternat iv e “green” chemistries that can meet surface finishing process requirements while reducing or eliminating the use and generation of hazardous substances.

 Change from “wet” processes to “dry” processes

-- C ha ng e from conventional surface finishing immersion chemistry solutions to alternat iv e metal deposition technologies (e.g. HVOF or PVD)

 Change substrate material s from finished metals to non

- metals

-- C hang e materials and manufacturing processes from metal finishing to non

- metals, such as composites or plastics.

 Develop n ew metal alloys that reduce surface finishing requirements

-- Use new metal alloys that provide sufficient corrosion resistance and reduce o r eliminate the need for metal finishing using toxic chemical processes (e.g. new stainless steel alloy that can replace steel coated with cadmium).

 Develop nanotechnology

-- U s e nanocrystalline metal coating processes or using

nanomaterial

- enhanced metal or non

- metal substrates.

The remainder of this section presents the survey results and a short capsule for each technology change, including examples.Future of Finishing, page 47 of 65



### Technology s urvey r

esults

The following discussion highlights results from the expert survey. To obtai n a copy of the survey form and/or a complete set of survey results, contact Paul Chalmer at NCMS, paulc@ncms.org or (734) 995

- 4911.

Figure 1 summarizes the experts’ opinions of how each of the nine technology changes i s likely to impact manufacturing in 5, 10 and 20 years (based on a scale of 1 to 5, where one is not very likely and five is most likely). Overall, the results suggest that optimization of existing technologies will have a greater impact than new technolo gies, both near

- term and long

- term. All four optimization items scored high with the experts (average score for the four optimization changes was 3.8 for five years, 4.4 for ten years and 4.7 for 20 years). The highest scoring new technology change was a switch to green chemistries (score of 4.1 to 4.6 over the 20 year span). At the low end of the technology changes are transitioning from wet to dry processes and the development/implementation of nanotechnology. Both of these changes are expected to hav e very little impact during the next five years, followed by moderate increases in impact for the 10 and 20 year periods.

Figure 1.

Figure 2 summarizes the experts’ opinions of how likely companies are to invest in each of the nine technology changes i n 5, 10 and 20 years. These results closely follow the impact trends shown in Figure 1; the optimization changes are more likely investments than new technology, with the exception of green chemistries.

Figure 2.Future of Finishing, page 48 of 65

Figure 3 summarizes survey results, where the experts were asked which “drivers” (regulatory, technology and economic) would most significantly catalyze each of the nine technology changes. The results show that the experts expect regulatory drivers to be most significant with

respect to changes to green chemistries and optimizing wet processes to achieve near zero discharge, and with moderate to zero impact on the other changes. Technology drivers are expected to be most significant with development of dry processes, new metal alloys and nanotechnology. Economic drivers are expected to be most significant with the four process optimization changes.Future of Finishing, page 49 of 6 5

Figure 3.



### Optimizing e

xisting technology

The following are brief capsules explaining each of the nine technology changes listed in the

s urvey. A “status report” on each technology is provided along with specific examples.

Optimize conventional wet processes to achieve near zero discharge and risk

Some firms are adopting a long

- term strategy in dealing with stricter environmental regulatio ns and future liability concerns. They are modifying conventional surface finishing processes by:

 converting to “greener” processes that use less toxic process chemicals

 converting to “dry” processes

 even switching to new coating materials or substrates to avoid toxic materials entirely
However, even after years of development, no viable substitutes have yet become available for many applications. W e anticipate th at conventional surface finishing processes will still be in

use at thousands of surface fin ishing facilities through 2020 and beyond.

Since pressures to reduce impact and liability will continue, if not increase, for the foreseeable future, prudent firms that expect to be using conventional processes are working toward optimizing them. Two p opular trends include:

 Approaching zero exposure

– isolating employees from contact with materials or effluents in process operations , thus approach ing zero risk conditions

 Approaching zero discharge

-- maximizing material utilization and recovery, thus minimizing the impact on the environment from wastewater, air emissions, and concentrated waste streams (spent process solutions and treatment sludges and solids)Future of Finishing, page 50 of 65

The techniques firms employ to achieve near zero exposure and discharge from wet processes

d epend on the specific process and production situation, but can involve:

 Enclosing process lines (a common practice in the printed wiring board and semiconductor industries)

 Reducing and recovering dragout

 Using process solution and rinse purification and recycle technologies

 Using racking and fixturing off

- line to reduce operator exposure and using configurations that optimize process efficiency and yield and minimize waste

 Using process automation and control systems to optimize material usage and yield

 Modeling processes for optimization

Examples of processes using metals with environmental health and safety (EH&S) concerns that can approach near zero discharge include:

 Chromium Plating

 Chromic Anodizing

 Nickel Plating

 Electroless Nickel Plating

 Cadmiu m Plating

 Lead Plating

 Tin

- Lead Plating

Hundreds of surface finishing facilities have already implemented process optimization projects

that have result ed in near zero discharge . The improvements have typically yield ed cost savings

, since the optimized p rocesses exhibit better performance, along with lower material usage and

reduced waste generation

. In addition, a small fraction of existing surface finishing facilities have enclosed, automated process lines with ventilation and air emissions control sys tems that provide near zero exposure risk. Industries like printed wiring board manufacture provide examples where such systems have been successfully implemented.

Trend Analysis

. There is a substantial opportunity across surface finishing manufacturing installations to optimize processes towards zero discharge and zero exposure risk. Hundreds of facilities have done so, but thousands more have not. The main barrier seems to be lack of recognition of the substantial opportunity for real economic benefits. In some cases, facilities

that want to achieve reduced discharge and exposure focus on developing new replacement technology, but miss the opportunity to optimize the existing processes that they may continue operating for years to come. The m ost cost

- effective time to implement process optimization is when new or renovated process are being designed and installed.

A number of forces can drive the trend of process optimization towards zero discharge and risk:

 EH&S regulations

 Corporate EH&S goals

 Improved diffusion of technical information and industry education programsFuture of Finishing, page 51 of 65

 Continuous process improvement programs like Six Sigma and Lean \ Kaizen that can identify the opportunities for improvement and provide justification for implementing changes

Improve process monitoring and control systems

Although systems for automating surface finishing process lines are commercially available and have been proven in a range of applications, more than 90% of surface finishing process lines are manually controlled. Process control systems provide significa nt enhancement of manual process lines with capabilities for more consistent processing and improved process tracking, documentation, and decision support.

Commercial software and hardware systems for process monitoring and control will provide the

tech nology for surface finishing manufacturers to improve process performance and profitability. Some of the major monitoring and control changes that will result in significant process improvements for surface finishing manufacturers will include:

 Manual pr ocess lines will be automated

 Software systems will be installed with process localized PC or PDA devices for manual process lines to prompt operators with load

- specific process steps and to track and merge operator/load data with process tank sensor data

 Software systems will be installed for lab analyses for scheduling, automatic

calculations, statistical tacking and logic

- based communication/output controls or actions based on analytical results or trends

 Production software will be used to track produc t quality and defects, correlate to production and target process improvements

 Company

- instituted continuous

- process improvement programs, like Six Sigma and Lean/Kaizen, will be used to identify and implement specific process monitoring and

control need s and cost

- effective process improvements.

Automation of manual process lines allows for consistent processing based on load specific recipes by maintaining process step and transfer times, and integrating rectifier ramping and control, tank temperature c ontrol, and even auto

- dosing of chemical additives. Operators can interface with the automated systems through local panel displays. Unlimited numbers of processes and part numbers are stored for retrieval when ready to run. The automation software

can automatically track and report process tank specific and load specific conditions. The process data linked to load

- steps provides essential process data and integrated trend plots for process troubleshooting and for process improvement. The data tracking and report ing capabilities significantly enhance the ability to manage , control, and improve process lines

. Automation software can be available with a simulation mode that allows running process loads through selected process sequences and times showing any potential bottlenecks or processing conflicts. This functionality can be used for evaluation of workload scheduling or during process design to assure good workflow

On manual process lines, process monitoring and control can be enhanced by retrofit ting with

localized PDA or PC system s connected via wireless transmission to a base station computerFuture of Finishing, page 52 of 65

and software package. Typical systems provide capabilities to prompt operators with load

specific process steps while tracking step times for specific loa ds and then merging load steps with tank/time specific data (e.g.

– pH, temp, conductivity, level, etc)

. This generates a process data set similar to an automated system, using operator input instead of the automatically

tracked hoist/load information. Th e PDA or local PC

- prompted process steps provide assurance

that load

- specific processing steps are followed (enhanc ing process consistency and

documentation ).

Lab analysis software is available that can provide support for statistical process control. Of f

the

- shelf software pre

- customized for surface finishing processes can provide:

 scheduling and tracking of sampling and analysis events,

 automatically calculated results from raw data measurements,

 statistics and trend charts,

 event logs and reports,

 required corrective actions are flagged and tracked, and

 solution adjustment/addslips are generated, tracked, and documented.

Automating actions based on data results and/or statistical trends by defining condition

- specific rules is a powerful process i mprovement capability. For manual process lines, lab software packages provide this functionality based on lab analytical results and statistical trends. For automated process lines, this process monitoring and control support functionality can be provid ed based on process operating parameters, and/or load specific parameters in addition to lab analytical results and statistical trends. Example actions that can be initiated include:

 pop

- up messages,

 sending email notifications,

 automatically performing and reporting supplemental calculations,

 retrieving and sending situation

- specific response procedures/documentation, and

 sending signals to process alarms/controllers.

Actions can be initiated when results indicate that an op erating parameter limit has been

exceeded . Alternatively, actions can be triggered proactively, based on rules that use statistical

trends . In the latter case, even if the results are within control limits, the system will provide

alerts warning the opera tor to anticipate problematic conditions if the data are consistently trending up or down toward control limits

, or are with a set percentage of control limits. The ability to set up rules that initiate automatic actions that are automatically triggered b y data results and statistical trends adds powerful process monitoring and control capability to manual or automated surface finishing processes.

Company

- instituted continuous process improvement programs, like Six Sigma and Lean/Kaizen, involve creating process improvement teams and providing them with systematic methodologies to identify inefficiencies and areas for improvement. Teams are encouraged to

f ocus on sequential process steps and compare how these are performed with how they should

be performe d to maximize process consistency, efficiency, and quality . Their insights may then

be used to recognize monitoring and control needs and other specific process improvements, and

to develop programs for implement ing them

. Such i mprovements might include process automation, software systems to support process monitoring and control, and focused processFuture of Finishing, page 53 of 65

changes to facilitate improved monitoring and control. Examples of typical process improvement programs include:

 Six Sigma directs manufacturers toward improvements in efforts to achieve statistically low target levels of defects. The Six Sigma methodology for process improvements follows a systematic process of define, measure, analyze, improve, control (DMAIC) that depends on getting good process dat a and using statistical and visual/graphical tools to analyze data and see, define and quantify process improvements.

 Lean methodologies lead to mapping and improving product value streams and flow of information, and to reducing the “seven deadly wastes” (overproduction, waiting, conveyance, processing, inventory, motion, and correction). Kaizen (continuous improvement of an entire value stream or an individual process to create more value with less waste) events are typically week long structured lean ev ents to systematically look at specific processes using lean tools and methodologies and to define improvements and implementation approaches to realize process improvements.

Trend Analysis

. There is significant opportunity in the surface finishing indu stry to improve process monitoring and control, achieving potentially significant process improvements and cost savings. There are several forces at work in the industry driving facilities towards improving process monitoring and control:

 National Aerospa ce and Defense Contractors Accreditation Program ( Nadcap) requirements for the aerospace supply chain place stringent process monitoring, control, and documentation requirements on manufacturers. Aerospace prime manufacturers are now implementing a Nadcap Users Compliance and Audit Program (NUCAP) that is similar to Nadcap. The automotive industry is also looking at adopting a program like Nadcap. The lab statistical software and manual process line monitoring and control software are perfect tools for m eeting Nadcap requirements. Automating process lines can put systems in place to automatically satisfy Nadcap requirements.

 Continuous process improvement programs like Six Sigma and Lean/Kaizen can identify the need for improved process monitoring and co ntrol systems and provide justification and means for moving forward with implementation. The DoD and many large corporations are adopting Six Sigma and/or Lean/Kaizen programs and in some cases these programs are becoming recommended or required for lowe r

- tier suppliers to adopt.

 In recent years a powerful and highly useful suite of software products have been developed that significantly enhance surface finishing process monitoring and control at relatively low cost and/or relatively strong return on inv estment. Mass marketing of these products will expose thousands of surface finishing facilities to the benefits of improved process monitoring and control.

For many manufacturers, achieving the level of process improvement that is possible through implem enting process monitoring and control systems may be critical to staying in business

.Future of Finishing, page 54 of 65

Pursu e sustainable manufacturing

Sustainability addresses meeting present needs of resource consumption/production without compromising future generations, with respect to resource availability and the viability of environmental/ecological systems. Sustainable manufacturing involves production using processes and systems that are non

- polluting, energy conserving, natural resource conserving, economically efficient, and s afe for workers, the community, and consumers. Overall sustainability addresses both production and consumption, seeking ways to modify both to allow sustainability goals to be met. Sustainability necessitates a systematic approach to look at the life cy cle of a product.

In the past few years, sustainability has been adopted in surface finishing manufacturing in the government and private sectors as a theme for industry and environmental conferences, as a goal for new construction projects, and in some c ases, more broadly adopted into corporate or government entity overall goals. Sustainability has been mostly pursued with a narrow focus on production and facility improvements that move towards sustainability (e.g. green chemistry improvements, energy an d water conservation, improved chemical utilization and purification/solution life extension). The full scope of sustainability is a much broader pursuit extending beyond the manufacturing facility boundary to acknowledge responsibility for minimizing eff

ects throughout the product life cycle including up the supply chain (are materials from renewable sources?) and down the product distribution chain (can the product be recycled after use?). Sustainability implies that consumption and production are syste matically coordinated such that resources and the environment are preserved for future generations. For some companies this will involve decisions to change production to produce more sustainable products, following a strategy that consumers will embrace the more sustainable products, resulting in good business and improved sustainability.

Example sustainability criteria that can be used to quantitatively rank level of sustainability for products and to help select between different product and production options:

 Percentage of products designed to be easily reused or recycled

 Percentage of suppliers receiving safety training per year

 Energy input for raw materials and packaging

 Expected annual energy use of product during normal use

 Tons of greenhouse ga ses generated transporting product to users

 Percent of water from local resources used relative to the local recharge rate

 Percent of total energy used that is from nonrenewable resources

 Percent of total energy used from renewable resources harvested sust ainably

 Percent of raw materials that are from nonrenewable resources

 Maintaining ISO 14001 certification and compliance

One aspect of sustainable manufacturing is making the manufacturing facility itself more sustainable. The US Green Building Council h as developed a Leadership in Energy and Environmental Design (LEED  ) system with a specific rating system totaling 69 possible points

for an overall LEED  score for new or renovated facilities. The LEED  scoring system is a good quantitative measure of facility sustainability. The primary scoring categories are listedFuture of Finishing, page 55 of 65

below with points available in each category and some of the specific criteria listed for each

category:

 Sustainable Sites (14 points

– brownfield or urban redevelopment, reduced site disturbance, stormwater management, landscape and exterior design to reduce heat islands, light pollution reduction)

 Water Efficiency (5 points

– water efficient landscaping, innovative wastewater technologie s, water use reduction)

 Energy & Atmosphere (17 points

– fundamental building systems commissioning, minimum energy performance, CFC reduction in HVAC and refrigeration equipment, air quality protection, optimizing energy performance, renewable energy, add itional commissioning, reducing ozone depletion, measurement & verification of energy and water use reduction, green power)

 Materials & Resources (13 points

– storage and collection of recyclables, hazardous materials and waste management, building reuse, construction waste reuse/recycling, resource reuse, recycled content, local/regional materials, rapidly renewable materials, certified wood)

 Indoor Environmental Quality (15 points

– minimum indoor air quality performance,

environmental tobacco smoke contr ol, acoustics and noise control, carbon dioxide monitoring, increase ventilation effectiveness, construction indoor air quality management plan, low

- emitting materials, indoor chemical and pollutant source control, controllability of thermal, ventilation a nd lighting systems, thermal comfort, daylight and views)

 Innovation & Design Process (5 points

– innovation in design, LEED  accredited professional, integrated landscape management, deconstruction, advanced resource efficiency):

Scoring ranges that res ult in LEED  certification and advanced LEED  ratings are:

 LEED  Certified (26

- 32 points)

 LEED  Silver Rated (33

- 38 points)

 LEED  Gold Rated (39

- 51 points)

 LEED  Platinum Rated (52

- 69 points)

Ford Motor Companies’ brownfield renovation of its Dearborn, Michigan manufacturing facility

was awarded the nation’s first LEED  Gold rated building under the LEED  certification criteria. The US Department of Defense has mandated that all military construction (MILCON) starting in 2007, including industrial man ufacturing facilities, shall be LEED  certifiable.

Trend Analysis

. The s ustainability theme will continue to spread throughout surface finishing manufacturers. Specific process improvement measures to improve sustainability will be identified and imple mented as awareness increases that sustainability can be improved and cost paybacks can often be realized. Awareness of the LEED  program will increase and companies will increasingly decide to target LEED  certification or an advanced LEED  rating (Silve r, Gold, or Platinum) for new or renovated facilities. LEED  is a very tangible, prescriptive, andFuture of Finishing, page 56 of 65

quantifiable program for sustainability and the certification or advanced ratings are milestone achievements companies can use for positive image marketing and demonstration of corporate sustainability achievement.

The End

- of

- Life Vehicles (ELV) Directive (2000/53/EC) was passed into European law in October 2000, and applies to cars, vans, and certain three

- wheeled vehicles. ELV significantly

limits or elim inates the quantities of toxic materials that can be used in vehicle manufacturing (e.g.

– hexavalent chromium, cadmium, lead and mercury), requires substantial increases in reuse/recovery/recyclability of vehicle materials, and places strict standards on disposal or treatment facilities for ELV. The ELV directive is an example of far

- reaching regulation that is forcing automotive manufacturers towards more sustainable products.

Eventually, coaters will begin to pursue broader sustainability goals, as t he tools and procedures for perform ing life

- cycle analyses of products slowly develop

, and as awareness of what is required to achieve sustainability disseminate s throughout the surface finishing industry. Regulatory restrictions like the ELV directive mi ght motivate a small number of manufacturers to take the opportunity to pursue sustainability goals. Instead of simply complying, they will

look for new or modified products and processing technologies that are both more sustainable and that provide a co mpetitive advantage . Such advantages include the ability to gain a market share by positioning the product as more sustainable than the alternatives, and to provide a chance to jump ahead of the competition in transitioning to new or modified products.

Improve energy efficiency

Improving energy efficiency is a major technology trend in all manufacturing industries, including surface finishing. In recent years there have been significant increases in process equipment energy efficiency and in process des ign and management for reducing energy usage.

Some examples of improving energy efficiency in the surface finishing industry include:

 Efficient ventilation system design

– for example, push

- pull ventilation can achieve required industrial ventilation leve ls at lower air flow rates than pull

- pull systems. Ventilation systems can be designed using variable frequency drives that allow ramping ventilation rates up or down with changing process conditions and requirements. Building ventilation design should be coordinated with process ventilation to achieve overall efficient systems

 Enclosed process lines

– reduce ventilation requirements.

 Tank cover systems

– reduce evaporation and heat loss

 High efficiency chillers, boilers, fluid heaters, blower motors, and pumps

– are available and can provide significant energy savings.

 Insulation

-- reduce s energy losses for elevated or reduced temperature process fluids

 Equipment layout and piping design for efficient operations and energy conservation

–

can minimize pum ping requirements by utilizing gravity flow and piping design for low friction losses and can minimize equipment energy consumption by utilizing good

workflow.

 Conforming electrodes and good masking

– can enhance process rate and efficiency and minimize energy consumed for rework and extra processing to meet specifications.Future of Finishing, page 57 of 65

 Well controlled process solution chemistry and contaminants

– can reduce processing time and reduce additional processing and rew ork that consume additional energy.

 Well executed process procedures using automated systems or closely monitored and controlled manual systems

– can enhance process consistency, documentation, and overall performance.

 Building a utomation s ystems and high efficiency heating, cooling, ventilation, and lighting systems

-- reduce energy loads for production areas and general facility areas.

 Energy m anagement s ystems

– better energy use monitoring and control logic for

situation

- specific energy demand can optim ize energy use when needed and result in overall energy savings.

 Waste h eat/ e nergy r ecovery s ystems (air, steam, etc.)

-- energy recovery systems provide a dual benefit in reducing potential thermal pollution and gaining energy reductions in proportion t o the recovered energy.

 Cogeneration

– can recover waste heat and enhance overall energy efficiency for process and facility heating and cooling systems.

Trend Analysis

. Improved energy efficiency will remain a strong trend in surface finishing due

to h igh and potentially increasing energy costs and EH&S goals to reduce pollution and conserve

resources.



### Developing and i

mplementing n ew t

echnology

Change to “greener” process chemistries

Green Chemistry is the design of chemical products and processes that reduce or eliminate the use and generation of hazardous substances.

A recent example of a new “green” surface finishing chemistry is the U.S. Navy’s trivalent chromium conversion coating bath that replaces hexavalent chromate solutions. Hexavalent

chroma tes have been restricted or banned in the automotive industry, are a target for elimination across the U.S. Department of Defense (DoD), and are a concern with many other industries due to carcinogenicity of hexavalent chromium. The Navy first tested a ra nge of existing replacement chemistry products that all failed their replacement criteria. The Navy then developed a trivalent chromium

- based post treatment (TCP) chemistry and process that performed successfully through extensive testing. The TCP showe d excellent corrosion protection, coating durability, and paint and adhesive bonding for use on aluminum and on anodic aluminum coatings, with testing and demonstrated performance indicating good potential for use on cadmium, zinc and zinc alloys.

Other non

- chrome “green” replacements have been developed for replacement of hexavalent chromates. These chemistries have shown success in some applications and a lack of performance in others. For example, one of the non

- chrome products tested alongside TCP showed acceptable performance in painted systems, but did not perform well in unpainted applications.

Other green chemistry developments in surface finishing over the past 30 years include:Future of Finishing, page 58 of 65

 Replacements for cyanide plating chemistries

 Replacements for c admium plating chemistries

 Replacements for conventional water treatment chemicals that produce less toxic sludge (e.g. eliminating use of sulfide precipitants) and/or lower volumes of wastewater treatment sludge

 Trivalent chrome decorative plating chemis tries

 Cobalt

- free, trichrome passivates

 Organically stabilized electroless nickel (non

- lead, cadmium, bismuth and antimony)

The development of alternate “green” chemistries is typically a multi

- year endeavor by chemical companies and it requires a significant R&D investment. Even after successful development and demonstration of alternative “green” chemistry, potential users are typically hesitant to switch without completing their own testing, thereby dragging out substitution even further. The

p rocedures employed by users often have an impact on the success rate of using new solutions. In many cases, companies switched to green chemistries but did not systematically or holistically implement the new process, and ultimately reverted back to their old process. Therefore, proper implementation of a process change requires strategic planning and transitioning, not just the chemistry, but also the applicable infrastructure, operations and maintenance procedures, and

process support systems.

Trend An alysis. The green chemistry/proces s trend is expected to phase out most toxic chemical use as regulatory pressures and corporate environmental, green and sustainability goals provide strong motivation to find and transition to greener chemistries. Some r ecalcient applications of toxic processes will likely continue in the future due to specifications and technical limitations, although these will be reduced over time as research continues.

One major influence on the green chemistry trend is the anticipat ed targeting of additional metals for reduction/elimination (e.g., nickel and cobalt are on an EPA list). Adding metals to the list for elimination will impact numerous existing finishing processes and will likely spur additional R&D to develop replacemen ts. Ironically, some of the “second tier” targets such as nickel were at one time considered a replacement technology themselves (e.g., replacing hexavalent hard chrome with electroless nickel). If that trend continues, a sequence of substitutions over m any years can be expected.

Change from “wet” process es to “dry” processes
Transitioning from the traditional “wet” surface finishing processes to “dry” processes has been a trend in recent years in order to reduce operator exposure, air emissions, chemical handling, and waste generation.

An example of a “dry” process is high

- velocity oxygen fuel (HVOF) thermal spray, which is displacing traditional hard chrome plating. This technology has been studied extensively, demonstrated/validated, and put into use b y the Department of Defense and aerospace industry for aircraft manufacturing and maintenance activities. The HVOF process typically uses an

oxygen

- fuel mixture consisting of propylene, propane, or hydrogen . HVOF guns use different methods to achieve hig h velocity spraying , but generally, f uel gases are mixed in the HVOFFuture of Finishing, page 59 of 65

nozzle and the thoroughly mixed gases are ejected from the nozzle and ignited externally. HVOF is a supersonic process which delivers well over 7,000 fps of velocity.

With HVOF, the combu stion temperature is 5,000 to 6,000  F, depending on the fuel mixture. Masked parts are fixtured and set in place for the HVOF gun to move around by robotic control. Processing is done in a HVOF booth or room enclosure due to the excessive noise generated by the process. The operator controls the HVOF processing from outside the HVOF enclosure, while looking through a window.

HVOF has demonstrated bond strengths of 12,000 psi and relatively high density coatings. Processing time for HVOF coating a singl e part is less than for hard chrome plating (typically one to two hours compared to 4

- 8 hours). However, the equipment is much more expensive to purchase and operate for moderate to high levels of production. Performance testing has shown

that in some ca ses HVOF coatings are equal to or superior to conventional hard chrome plating in wear, fatigue, impact resistance, and corrosion resistance. A limitation of HVOF is that it is a

“line

- of

- sight” coating technology and therefore is generally not applicable to coating “inside diameters”. Also, HVOF is not a totally “dry” technology as deposited metals must be stripped from fixtures in wet process solutions and some of the HVOF coatings are very difficult to

remove.

Another proven dry coating process is phys ical vapor deposition (PVD). PVD involves vaporization from coating material stock (evaporation, sputtering, arc vaporization, and chemical vapors and gases), transfer from the vapor phase to the substrate (line

- of

- sight, molecular flow, plasma

- induced va por ionization), and deposition and film growth on the substrate. PVD coatings can be harder and more corrosion

- resistant than electroplated coatings and can be extremely durable. Examples of PVD applications include:

 Delta Faucet was the first company to use PVD technology to create patented anti

- tarnish decorative faucet finishes. Delta Faucet guarantees these PVD finishes for life to never tarnish, corrode or discolor.

 Ion Vapor Deposition (IVD) Aluminum

– The IVD process is a variation of PVD using low vacuum plasma

- induced vapor ionization of aluminum. The IVD

- aluminum process has proven effective for replacing cadmium in aerospace applications and has been used in several military and commercial aircraft systems, missiles, and helicopters. IVD

alu minum has been tested to outperform cadmium in actual service tests and acidic salt fog, does not induce hydrogen embrittlement or solid metal embrittlement, and helps relieve problems with dissimilar metals and galvanic corrosion.

Trend Analysis. Signifi cant momentum has built in the aerospace industry to use HVOF to replace hard chrome plating. The joint U.S. and Canadian Hard Chrome Alternatives Team (HCAT) has worked extensively to evaluate and promote HVOF as a replacement for hard chrome plating. T he HCAT team is made up of DoD repair depots, manufacturers, laboratories, airlines, equipment suppli ers, and representatives of groups who must approve any chrome

alt ernatives for DoD repair depots . Its primary customers are the repair depots, who use har d chrome in overhauling Army, Navy, and Air Force aircraft and helicopters . As a result someFuture of Finishing, page 60 of 65

substitution has occurred within DoD. However, for most applications, hard chrome plating remains as the primary wear

- resistance coating for steel parts.

While there is significant momentum toward use of HVOF and similar dry processes, there are some potentially significant barriers to implementation, including:

 Major equipment capital cost for thermal spray, including robotics, noise control systems,

and air emi ssion control systems.

 Requires much higher level of trained employee to operate than hard chrome plating.

 Often requires manufacturer to perform troubleshooting and maintenance.

 Verification/approval process is typically done on a part by part basis and c an be drawn out and expensive.

 Because HVOF and other dry processes are limited to line of sight applications, facilities may need to operate dual processes (e.g., HVOF and hard chrome) in order to meet all production requirements.

 In 2005, The California Air Resources Board has passed an airborne toxic control measure to reduce emissions of hexavalent chromium and nickel from thermal spraying. This regulation, which could be adopted by EPA and/or other states, will likely add significant air emissions co ntrol and/or monitoring costs to thermal spray operations and may therefore be a significant deterrent to implementation of new thermal spray

processes.

The main barrier with PVD technology is high capital cost as new systems typically cost a

minimum of several hundred thousand dollars. PVD systems can operate at very high temperatures and vacuums, requiring special operating considerations. Even with the relatively high capital cost and special operations requirements, PVD technology has show ability t o replace conventional wet processes and provide superior coating performance for certain applications while eliminating environmental, health, and safety (EH&S) issues with wet processes using metals like chromium and cadmium.

Change substrate material s from finished metals to non
- metals

In recent years non

- metals like composites and plastics have replaced finished metals in a number of products. Composites are material systems that are typically non

- metallic and consist

of fibrous reinforcement of either glass (relatively low cost reinforcement), carbon (provides stiffness), Kevlar® (provides impact resistance), or other materials encapsulated in a hardened (or cured) matrix of any one of several hundred resin systems. These materials are character ized by their relative high strength

- to

- weight ratios when compared to more traditional metallic components. The commercial and military aviation/aerospace industries have led the development of advanced composite materials in recent years with the goal t o produce lightweight, high

- strength structural components.

Composites can offer many material property advantages over finished metals:

 stronger and stiffer than metals per unit weight,

 highly corrosion resistant,

 electrically insulating,

 controll ed thermal expansion and energy absorption or transmission properties can be engineered to fit the application,Future of Finishing, page 61 of 65

 excellent durability, and

 can be transparent to or engineered to absorb electromagnetic radiation .

Composites can offer significant manufa cturing advantages with relatively low capital investment in fabrication equipment compared to metals fabrication, and reduced manufacturing and assembly can be achieved by manufacturing composite parts that replace several metal

component parts.

An exa mple of extensive use of composite materials is the military aircraft B

- 2 “Stealth”

bomber. Most of the B

- 2 body is made from composite materials that are specifically designed to absorb radio waves. Highly reflective metal components, including the engi nes, fully retractable landing gear, and bombs are all housed inside the composite body.

Composites have also been used increasingly in commercial aircraft manufacturing. Where composite materials comprised less than 5% of Boeing’s 737 and 747 aircraft, the Boeing 787 will reportedly use approximately 50% composites by structural weight. The Airbus A380 will reportedly use more than 20% composite materials.

Composite blades have been used in aircraft propellers, helicopter rotors, boat propellers, wi nd turbine generators and fans. Other recent composite material applications replacing finished metals include: missiles and spacecraft, automobile components, golf clubs and tennis rackets, bicycles, and jet skis.

Plastics have also been used to replac e metal components in recent years providing benefits like lighter weight, electrically non

- conductive, vibration dampening, and low corrosion. Like composites, plastics can offer some manufacturing benefits over metals like part consolidation into larger manufactured assemblies, ease of manufacturing complex shapes and reduced assembly. There is a wide range of design flexibility for plastics and they are easy to color and decorate. Metals offer advantages in applications where higher strength and stiff ness, thermal and electrical conductivity, and flame retardance are needed.

Amorphous plastics that have been used to replace metal components include: acrylic, acronitrile butadiene styrene (ABS), polystyrene, polyvinyl chloride (PVC), and polycarbona te. Crystalline plastic materials that have been used to replace metal components include: nylon, polypropylene, acteal, polyester, and polyethylene. Processes for plating on plastics have been developed for many years for some applications where bright, polished metallic surfaces are needed (e.g.

– automobile grilles).

On the down side, recycling of composites is likely to pose more challenging problems than is the case for metal alloys.

Trend Analysis

. Since composites are very lightweight compared to metals and have excellent and highly tailorable properties to fit specific applications, there will continue to be new applications developed where composites can provide superior performance and beneficial overall life cycle cost to replace finished metals. One potential application for composites that is being considered is in Navy ships to achieve benefits like weight reduction and reduced magneticFuture of Finishing, page 62 of 65

signatures. Where composites have been used for niche a pplications in the automotive industry, research is ongoing looking into developing methods for higher volume automotive production of composite chassis and body panels. Composites are also expected to continue to grow in use in the aerospace industry. R esearch and development is ongoing for airplane fuselages and wings made from composite materials and manufacturers seem confident that demonstration and certification of the new airplanes with significantly higher portions of composites will be

successful

.

Recently, fireproof composite resins have been developed resulting in panels that can withstand

2000  F for up to 90 minutes; this overcomes a weakness of composites that can burn at relatively low temperatures. Nanotechnology may also impact the tre nd towards composite materials with nanoscale additives and nanoscale structures providing breakthrough material property enhancement.

There is significant potential for plastics to continue to replace metals in a number of applications. Developments in plastics engineering are anticipated to improve material properties, leading to broader use of plastics. One technology development that could boost the use of plastics is the development of plastics that conduct heat by addition of thermally

conductive a dditives like specialty graphite fibers, carbon fibers, and ceramics like aluminum nitride or boron nitride. The production of thermally conductive plastics is currently limited by the relatively high cost of the additives.

Develop n ew metal alloys th at r educe surface finishing requirements

D eveloping new metal alloys that provide sufficient corrosion resistance without the need for surface finishing using toxic chemical processes is a promising technology trend that addresses

the need to eliminate use of certain surface finishing processes while not requiring a major change from existing substrate materials.

The U

. S

. DoD has an ongoing project to demonstrate and validate a newly

- designed

, high

strength stainless steel alloy for use in aircraft landing g ear applications to replace conventional high

- strength, low alloy carbon steels. Preliminary material performance testing demonstrated

th at the new alloy, “Ferrium S53”, can provide the corrosion resistance necessary for landing gear applications without the need for cadmium plating. A number of application

- specific benefits can be derived from the new corrosion resistant stainless steel alloys that lead to overall

reduced life

- cycle costs:

 Eliminate need for use of cadmium plating and all associated tox ic chemical use, worker exposure, and waste disposal issues ;

 Provide a superior performance alloy that will lead to fewer service failures ;

 Decrease component repair frequency ; and

 Reduced turnaround time for repairs

Besides the newly developed alloy, the U

. S

. DoD demonstration project is also demonstrating and validating computer modeling techniques to expedite alloy design and to supplement material property measurements with data from validated computer models.Future of Finishing, page 63 of 65

Development of lower cost extraction met hods for titanium ore could potentially provide less expensive titanium alloys and lead to wider use of titanium.

“Super alloys” based on nickel and cobalt are being investigated in attempts to improve performance in engine hot sections for blades, cases, disks, fasteners, shafts, and vanes. Jet engine efficiencies can be increased at higher operating temperatures, and new alloys can make this possible. Low

- density aluminum

- lithium and aluminum

- magnesium

- scandium alloys are being developed to reduce weig ht and compete with new composites that are being developed to replace aluminum structural components like wings and fuselages.

Trend Analysis

. Developing new metal alloys that meet application

- specific performance requirements with reduced or eliminated need for surface finishing using toxic chemical processes is a specialized material advancement requiring significant research, development, and demonstration/validation testing. The broader use of new metal alloys developed for specific applications are to be determined

.

Nanotechnology shows promise with developing new metal alloys. An ultra

- high strength stainless steel has been developed with nanotechnology. This nano

- stainless steel demonstrates

ultra

- high strength, good formability, and good corro sion resistance. A high modulus of elasticity and ultra

- high strength can yield components that are lighter than those made from

titanium or aluminum. The nano

- stainless steel is already in use in medical equipment and is expected to be used in lightweig ht chassis applications and sports equipment.

Develop nanotechnology

Nanotechnology deals with the creation of materials and devices in the nanometer size scale (typically 1 to 100 nanometers). A nanometer is one thousandth of a micron, one millionth of a millimeter, and one billionth of a meter. Individual atoms and molecules are in the lower range of the nanometer scale or a single decimal fraction of a nanometer.

The creation of nanomaterials through nanotechnology is being researched extensively and shows potential for significant impacts on surface finishing technology. Nanocrystalline finishes can be developed through vapor phase processing, inert gas condensation, mechanical alloying or high

- energy ball milling, chemical synthesis and electrop lating. Nanocrystalline coatings can be extremely dense with low porosity and with highly uniform fine

- grained structure. Some benefits noted for nanocrystalline coatings and nanocrystals:

 Nanocrystalline metals can provide superior magnetic, hardness, optical, and corrosion

resistant properties compared to conventional metal finishes.

 Nanocrystalline metals (nickel, cobalt, palladium, copper, and some alloys of these metals) can produce relatively thin coatings that are more wear

- resistant than

conventi onal electroplated finishes.

 Nanocrystalline metal coatings can reduce weight as thinner deposits can be used to achieve desired performance results.

 Nanocrystalline metals and alloys can have higher ductility and improved resistance to fatigue (due to the absence of microcracking).Future of Finishing, page 64 of 65

 Nanocrystalline metal and alloy plating can yield high current efficiencies, reducing hydrogen embrittlement issues.

 Nanocrystals of various metals are 100 to 300% harder than the same materials in bulk

form.

An example of nanot echnology development in surface finishing is the ongoing research and development of nano

- crystalline cobalt

- phosphorous coatings and deposition processes to provide corrosion and wear resistance in extreme temperature ranges for landing gear and jet engi ne components and to replace conventional hard chrome plating.

Trend Analysis

. Nanotechnology is a broad

- based technology initiative with significant funding. Dozens of u niversities and research organizations have created a broad range of nanotechnology R&D and education programs. Nanotechnology clearly has a strong link to surface finishing and surface finishing applications are and will continue to be an important focus area for nanotechnology development.



### Remarks on technology trends

1. ROI is the con trolling factor. For individual companies or facilities , the estimated return on investment (ROI) is typically the most important factor in deciding whether or not to implement a process improvement or a new technology. An acceptable time to break

- even typically varies from six months to three years, with an average around two years.

2. Greater awareness would increase investment in improvements. Technology already available today provides significant opportunit ies for:

 optimizing conventional wet proce sses

 improving process monitoring and control (including automation)

 improving energy efficiency

 changing to greener process chemistries. Many finishing firms appear to be unaware of the benefits and savings that they could achieve in a short period of time were these technologies to be applied

.

3. Some of the newer developments will take a few years to become established. Nanotechnology, technology change to “dry” processes, and new metal alloys have demonstrated successes, but we expect the level of inv estment and the degree of impact to be relatively low over the next five years. But looking ahead between five and twenty years from now, we anticipat e a significant increase in both investment and impact.

4. Key process improvement technologies will remai n important for several years. We expect a high level of investment over the next five years, moderating somewhat but remaining significant between five and twenty years from now, in the following process improvement technolog ie s:

 Change to “greener” proc ess chemistries

 Improved process monitoring and control (including automation)

 Improved energy efficiencyFuture of Finishing, page 65 of 65

5. Product manufacturers in several sectors will continue moving toward substrate materials that do not need surface finishing. Manufacturers are alrea dy changing substrate

materials from metals that require finishing to non

- metals, particularly with composites in the aerospace industry and plastics in the automotive industry. We expect t his trend to continue at a moderate to high level over the next 20 years.

6. Sustainable manufacturing will become increasingly important. Sustainable manufacturing is expected to have moderate to high relative investment level and industry impact over the next 20 years. Several of the technology trends contribute to mor e sustainable manufacturing: greener process chemistries, optimizing conventional wet processes to achieve near zero discharge and risk, improved process monitoring and control systems and improved energy efficiency. The other technology trends also show promise for increased sustainable manufacturing, including some potential for major improvements. However, each needs to be evaluated from the broad sustainability view to quantify. Sustainable manufacturing is already major commitment for some major co rporations and is becoming an important pursuit for corporate image for some.

7. Points to keep in mind when evaluating improvements and innovations. A comprehensive evaluation of options should includ e consideration of :

 projected costs and benefits associa ted with improving or optimizing existing process
systems

, weighed against the cost of replacement technologies

 appropriate combinations of technology changes

 phased implementation

, so that actual cost savings can be verfied prior to additional

investment