Recovery for central Europe's coatings

07 November 1994 00:00  [Source: ICB]

Falling economic output, the recession in the West and lost Comecon trade have taken their toll on central Europe's coatings sector but with the arrival of modern equipment and know-how the industry is adjusting to market forces and analysts are predicting 3-4%/year growth until 2000.

THE SURFACE coatings market in central Europe (Poland, Hungary, plus the Czech and Slovak republics) represents about 3.5-5.0% of the region's chemical industry activity. The market has suffered significant declines since the beginning of the economic transformation, resulting in a coatings market contraction of about 40% between 1989-92.

The principal reasons for this negative growth are the loss of Comecon trade, countries' sharp drop in economic output and the effects of the recession in the major industrialised nations (resulting in delays in investments).

Despite these difficulties, the central European coatings industry is gradually developing a new profile to adjust to a market-driven economic environment. Important tools needed for this vital adjustment are:

• modern formulation technology
• adequate raw materials
• modern and versatile facilities
• marketing know-how and customer orientation.

The central European countries used to have significant coatings exports to the former USSR, Yugoslavia and East Germany. Since 1989, this demand has disappeared and production is geared towards satisfying the home market.

Poland is the most dynamic market in the region, followed by Hungary and the Czech Republics. The Slovak market is the smallest showing the least growth prospects. Demand today is split Poland 54%. Hungary 20%, Czech Republic 19%, and Slovak Republic 7%.

The principal segments recognised in this regional coatings market are:

• building industry (including DIY)
• transport (OEM and repair of passenger cars and industrial vehicles)
• metalworking (machinery, appliances, railway stock)
• woodworking (including furniture)
• other applications (plastic finishes, concrete coatings, corrosion protection).

Market segmentation is likely to expand and become more differentiated as coatings demand develops during the 1990s. At present, demand is influenced by building renovation activities, infrastructure and industrial (automotive OEM and metalworking) applications development and by car refinishing.

Signs of recovery emerged in 1993 in specific market sectors such as the building and automotive industries and the consumer goods field, which has influenced coatings demand and corresponding technological developments.

During the 1990s, Chem Research^* forecasts the coatings industry in central Europe will experience 3-4%/year compounded growth, which should be more modest through to the mid-1990s than in the second half of the decade.

This development will be supported by increased consumer spending, infrastructure development, increased industrial output, and access to state-of-the-art know-how, equipment and raw materials.

During the second half of the 1980s, toward the end of the planned economic regime, the size of the coatings market in central Europe was reported to be about 700 000 tonne/year, with net exports of approximately 40 000 tonne/year.

Conventional systems, consisting of liquid coatings, namely low solids solvent-borne systems, oleoresinous products, and water-borne coatings (both organic and inorganic types) are forecast to experience a dynamic substitution process during the 1990s.

During the period, while demand for conventional products is expected to grow 2%/year at most, modern technologies are forecast to average double digit average annual growth.

Product substitution will be driven by specific coating performance requirements from the industry and consumers.

The substitution products consist of medium and high solids solvent-borne coatings, powder coatings, radiation curing systems and synthetic emulsions.

During 1985-89, coatings production in central Europe was reported to average more than 700 000 tonne/year, with the level of exports exceeding 10% of production. During the same period, central European countries were importing in the range of 30 000 to 40 000 tonne/year. In 1993, the region's production level reached 360 000 tonne of coatings with imports and exports of about 70 000 and 10 000-15 000 tonne, respectively.

The central European coatings industry is still dominated by non-privatised organisations, which consist for the most part of large companies employing several hundred people and production in the range of 10 000-45 000 tonne/year.

At the same time, smaller and entrepreneurial companies are beginning to play a more significant part.

This dynamic group is developing at a rapid pace and gaining market share at the expense of the large organisations. The group consists of smaller companies, which are for the most part undergoing restructuring, and new company startups, which represents a new trend.

Analysis of central European coatings supply shows that large companies, of which there are around 12, are responsible for 65% of supply, smaller companies, about 50, account for 18%, and imports take the balance of 17%.

Privatisation and foreign participation in central European countries are evolving gradually. To date. Hungary has attracted the largest portion of foreign participation in the coatings market.

The combination of both economic reform and the world recession have created a difficult transition period for the coatings industry in central Europe in the early 1990s.

However, the region's emerging economic recovery together with specific growth prospects should offer attractive opportunities for the coating industry from the mid-1990s onward.

^* Chem Research is a Frankfurt-based consultancy. Tel: 49 (0)69747830.

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