China and India drive Asian coatings growth

16 March 2011 09:30  [Source: ICB]

With double-digit forecasts for 2011 and a strong performance in 2010, the two countries will become key drivers of the global industry

The Asia Pacific paints and coatings market was highly affected during the economic recession in 2008, owing to the fluctuation of raw materials prices and low demand from downstream markets.

Nevertheless, there are several key influences that point to the potential for the paints and coatings industry to grow after 2010. A recent Frost & Sullivan study estimated that the Asia Pacific paints and coatings market for 2010 was approximately $48bn (€34bn), with a market size of 15m tonnes.

Rex Features

Industry players are optimistic of double-digit growth again in 2011. One of the major indicators of growth is the demand from end-use industries such as steel, automotive and furniture manufacturing, and construction.

Moreover, higher domestic demand in emerging Asian countries encourages the growth of domestic or local players. The growing awareness of and demand for green-based chemicals, such as zero volatile organic component (VOC) coatings, is driving the replacement of solvent-based products with water-based products.

More local players are expected to enter the industrial coatings segment, especially given the technology transfer that occurred during collaboration with multinational companies.

The paints and coatings industry depends heavily on the end-use industries it serves. The key industrial sectors monitored are construction, steel, marine, automotive and wooden furniture. Countries such as China, India, Vietnam and Indonesia are identified as high-growth countries where there are more opportunities for the development of the paints and coatings market. However, the specific high-growth segments vary between countries.

For example, China is witnessing high growth in its steel and construction industries, and India is experiencing positive growth in its construction and manufacturing industries. In contrast, Asian countries such as Vietnam and Indonesia are witnessing growth in the decorative, furniture, marine and protective coating industries. As a result, we can expect positive growth from related coating segments such as decorative, industrial wood, marine, automotive and protective coatings.

CHINA MAKES A SPLASH
}Currently, China has the largest demand for paints and coatings in the Asia Pacific region. As China's population continues to grow, more residential and commercial construction is required to meet the needs of its local citizens. Frost & Sullivan estimates that the Chinese paints and coatings market was valued at $29.4bn in 2010. Paint consumption per capita in China is approximately 6.4kg, compared to a global average of 10-13kg per capita. This indicates a high potential for growth from domestic demand.

China's economic development is driven by two major sectors: construction and manufacturing. In 2010, the growth rate for these sectors ranged from 20% to 25%. Decorative coatings and protective coating were expected to exhibit double-digit growth in China in 2010. In addition, China is the largest producer of powder, industrial wood, automotive original equipment manufacture and refinish coatings.

Still higher growth is forecasted for 2011, owing to increasing domestic consumption and investment in infrastructure. Despite its high growth, the Chinese paints and coatings market is considered highly diversified, fragmented and competitive. As such, the decorative coatings market is unusually fragmented, with more than 4,000 manufacturers, the majority comprising unqualified smaller players. These smaller players are highly competitive and offer their products at a much lower price, which poses a significant threat to multinational companies in this region.

INDIA'S MIDDLE CLASS
In India, the growing middle class population and increasing sale of premium paints (mainly in urban areas) is driving the demand for quality products. High foreign investment from multinationals such asDutch group Akzo Nobel and Japan's Kansai has led to the expansion of facilities (due to low operating costs), boosting the industrial sector.

The local government also plays an important role in increasing construction to accommodate the large population. Frost & Sullivan found that India's per capita paint consumption is as low as 1.4kg. This indicates that India also has significant potential in the paints and coatings market.

Over all, the Indian paints and coatings market has increased by approximately 15% since 2009, reaching a market size of $3.8bn in 2010. The market is expected to continue to exhibit double-digit growth from 2011 to 2013. Decorative and industrial coatings accounted for 63% and 10% of the total Indian paints and coatings market, respectively. Industrial coatings are expected to witness a higher growth rate compared to decorative coatings, owing to the increasing number of industrial facilities in India.

IMPACT ON COMMODITY FEEDSTOCKS
The price of titanium dioxide has recently increased by 4% to 6% in Asia. The prices of other raw materials, including resins such as acrylic acid, fluctuate according to crude oil prices. Raw materials that are in limited supply, such as methyl methacrylate, are also subject to price increases as demand grows, increasing the cost pressure faced by most paint manufacturers.

Multinational companies, such as US group DuPont and Germany's BASF, have implemented a vertical integration strategy to overcome the margin squeeze caused by the fluctuation of raw material costs for paint products. These leading companies have a higher degree of bargaining power compared to small or local enterprises.

Also, increasing demand for environmentally friendly paints and coatings has pushed the technological advancement of non-hazardous chemical feedstocks. As a result, the prices of raw materials such as pigments, additives and resins have risen tremendously owing to the growth of R&D investment from raw material suppliers.

Emerging countries such as China, India, Indonesia and Vietnam are likely to provide high growth opportunities for the paints and coatings market in 2011. This is due to the high growth of end-user industries, buoyant econo­mic conditions and stringent regulations that drive the paints and coatings market there.

The paints and coatings market in some countries, such as the Philippines, Thailand, Japan and South Korea, are dominated by local or regional players, such as Pacific Paints, TOA, KCC and Nippon. The remainder is made up of the multinationals such as Akzo Nobel and US group PPG. Increasing penetration of multinational companies helps to boost the growth of the Asia Pacific market, bringing new technologies. Some of the key success factors include product branding, a complete painting solution, innovative products and comprehensive distribution channels.

KEY FACTS

• 10-13kg: Global average paint consumption per capita
• $29.4bn: Size of China's paints and coatings market in 2010
• $3.8bn: Size of India's paints and coatings market in 2010
• 1.4kg: Paint consumption per capita in India
• 6.4kg: Paint consumption per capita in China

 

Li Jiun Choong is a consulting associate at Frost & Sullivan's Asia Pacific Chemicals, Materials & Food Practice. She examines emerging trends. Contact Li Jiun Choong (lijiun.choong@frost.com) or Donna Jeremiah (donna.jeremiah@frost.com)

More information and analysis on the Asia Pacific paints and coatings market

Author: Li Jiun Choong

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