Climate of confidence

28 October 2002 00:00  [Source: ACN]

China's paints and coatings industry may be fragmented, but it has growth potential

There are currently 2500 paints and coatings manufacturers in China, 50-60 of which are foreign-funded, producing a total capacity of more than 1.5m tonne/year. Alan Tyler finds out what growth prospects lie ahead for this recently-reformed Chinese industry

China is already by far the largest market for paints and coatings in Asia - at 2.5m tonne/year - and as the country develops further and begins to spruce itself up for Beijing's hosting of the Olympics in 2008, demand could well grow even faster.

According to consultant Frost & Sullivan, the Chinese paints and coatings market will post an annual growth of 7%/year to 2005.

The market segments are architectural coatings (27.5%), powder coatings (4.9%), liquid OEM original equipment manufacturer coatings (55.4%) and special-purpose coatings (12.2%).

Frost & Sullivan says there are about 2500 players in the Chinese paints and coatings market. These participants are mainly state-owned enterprises, foreign-funded enterprises, and township and village enterprises. Most of the products do not have a focus in terms of application, and are characterised by a wide product portfolios.

There are about 50-60 foreign-funded enterprises in China's coatings industry with a combined capacity of 600 000 tonne/year.

These enterprises focus on special applications such as auto coatings, traffic marking paints, marine coatings, container coatings and products with high value-addition. Most of the township and village enterprises are either small or medium-sized, and have a total capacity of 900 000 tonne/year.

Because of the 2500 domestic producers, China's paints and coatings market is extremely fragmented.

According to Alex Chan, division manager, pigments, at Clariant (China) Ltd, the fastest growth sector in China's coatings industry is architectural coatings. For Clariant, this is centred around the key industrial areas of Shanghai and Guangdong province and is growing at about 15%/year as domestic and joint-venture companies set up offices and production plants in these key areas.

The growth in the industrial paints sector is slower at 7%, but there are areas within that sector which are growing more strongly, such as coatings for toys, he adds.

Most of the joint-venture paints and coatings businesses were set up in China to serve the huge domestic market, but increasingly paint producers are looking to regional export markets as their cost structures in China make them very competitive.

Domestic producers are also looking overseas to new markets and as their levels of quality have improved the bigger producers -Êsuch as Baihe in Hangzhou and Longkou Taihang Pigment Co in Shandong - are growing their export businesses.

Longkou is one of the largest specialised organic pigment manufactures in China producing 2800 tonne with sales of over Rmb1bn (US$125m), about 50% of which is sold overseas.

Within China, the cost structures of local and joint venture manufacturers are becoming more balanced as new environmental regulations bring firms into line.

The most important of these concern the processing of waste water.

When western paints and coatings companies established joint-venture facilities in China, they used the same environmental standards as they would have in a plant in, say, Germany or the US. Often, local firms have not bothered with such details.

Now local and provincial authorities - which for a long time have had environmental regulations on their books - are becoming increasingly strict on implementation.

This is particularly the case in the processing of waste water streams. 'Local pigment manufacturers now have to process their wastewater and this is increasing their costs of production by 10-15%, bringing them more into line with joint ventures with foreign partners,' says Clariant's Chan.

Other regulations are targeting the amount of volatile organic compounds (VOCs) allowed in paints and coatings. China imposed a restriction on aromatics content in paints and coatings with effect from 1 July.

The restriction imposed by China's State Administration of Quality Supervision, Inspection and Quarantine, stipulates that aromatics content in all paints and coating materials should not exceed 500 parts/million and covers aromatics such as benzene, ethylbenzene, dimethylbenzene, toluene and mixed xylenes.

Use of other chemicals such as formaldehyde, and toxic substances such as mercury, cadmium and arsenic will also be limited.

The new rule was introduced because of growing concerns over the impact of these chemicals on public health.

'China has matured in terms of its regulations over the past year,' says Howard Qiu, director, Synasia Inc of Shanghai, which supplies intermediates to the speciality chemicals sector.

'Previously, many local companies thought they could avoid local regulations by forming strong relationships with individual inspectors and others in positions of authority. But now, local governments are cracking down on areas of abuse,' Qiu adds.

However, one analyst says that the net benefits of proposed cuts in volatile organic compounds (VOCs) from paints are likely to be lower than the government thinks. This matches the view of the European Solvents Industry Group, which recently analysed the impact of VOC restrictions imposed by the European Commission.

But what surely cannot be in doubtis that China has tremendous demand growth prospects, offering huge opportunities for domestic and overseas companies who get their strategies right.

Chinese joint ventures with foreign partners carry out major expansions

Clariant of Switzerland is a major player in China. Its most recent investment is Clariant Pigments (Tianjin)’s plant for the production of organic pigments, a joint venture between Clariant and Tianjin No8 Chemical and Dyestuff Factory, which belongs to the Bohai Chemical Industry Group Corp. The joint venture, which was set up five years ago, has been regularly expanded.

Another of the big western investors in China’s paints and coatings sector is Akzo Nobel, which earlier this year opened a 25 000 tonne/year monochloroacetic acid (MCA) plant in Taixing, Jiangsu province, and plans to invest further in a coatings resins facility in Suzhou. The coatings unit, to be located in the Suzhou New District near Shanghai, is scheduled to come onstream in 2004. It will produce alkyds, amino and acrylic resins.

The MCA plant is in the Taixing Economic Develop-ment Area, on the northern bank of the Yangtze River, about 200 km northwest of Shanghai.

Akzo Nobel is also investing in a new plant. The facility will be installed at its joint-venture operation – Akzo Nobel Chang Cheng Coatings (Beijing) – and will manufacture Akzo Nobel’s Resicoat range of speciality fusion bonded epoxy powders for anti-corrosion protection of steel pipes for the oil and gas industry.

Another major player in China is ICI through its ICI Swire Paints (China) Ltd joint venture with Hong Kong-based conglomerate Swire Pacific. The joint venture has a paint production facility in the Guangzhou Economic and Technological Development Zone. It manufactures a wide range of solvent-borne and water-borne paints. The two firms have also formed ICI Swire Paints (Shanghai) which produces water-based paints in the Songjiang Industrial Zone, to the west of Shanghai, and has a production capacity of 35m litres/year.

Ciba Specialty Chemicals has become a major player in Chinese coatings. Its Qingdao Chemicals and Pigments venture produces classical organic azo pigments for the inks industry with an annual capacity of 2000 tonne.

The Swiss major’s Xiangtan Chemicals and Pigments Co Ltd focuses on the production of Dimethyl-quinacridone range of pigments, which is the sole high-performance pigment available for the fast growing high-quality ink market.

Shanghai Ciba Gao-Qiao Chemical Co Ltd is the major production site of Ciba’s Additives Divisions in China, producing polyolefins stabilisers and other high value-added chemical products to various industries, including coatings.

Also moving into the Chinese coatings market in a big way is Eastman Chemical, which, with Sinopec Qilu Petrochemical Co, has formed a joint venture to produce Texanol ester alcohol and TXIB plasticiser in China.

The worldscale oxo derivatives plant will be built at Sinopec Qilu’s existing site in Zibo, Shandong province. Construction of the US$30m facility is expected to begin in 2003 and should be completed by end-2004. The plant will be named Qilu Eastman Specialty Chemicals, Ltd.

Eastman also has a 50-50 joint venture with Yangzi Petrochemical Industrial Corp to manufacture Eastotac hydrocarbon tackifying resin for adhesives.

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly