After a sharp downturn following the 2008 financial crisis, growth in coatings demand in the Gulf region of the Middle East is now surging forward again.
This recovery was symbolized in late November by the announcement that Dubai, which was dubbed the construction capital of the world during the boom years of the mid-2000s, will be the site of the World Expo trade convention of 2020. The emirate, which is part of the United Arab Emirates (UAE), aims to spend $8.4 billion on the six-month event with a huge exhibition center, new hotels and expanded transport infrastructure.
Two years later nearby Qatar will be hosting the World Cup, on which it has already started work on the building of 12 new or extended soccer stadia at a total cost of over $100 billion.
The construction upturn in the Gulf has triggered new expansion plans in the area among not only European but also Asian coatings producers, many of whom bundle Europe, the Middle East and Africa into a single entity in their marketing strategies.
Some of them did well in the region in the years prior to 2008 when coatings sales in its oil and gas rich countries increased rapidly, particularly in a burgeoning construction sector.
However during the new period of fast growth, international coatings companies will be confronted with changing market conditions. Construction will continue to be the cornerstone of the market. But overall it will be a much broader coatings sector. It will be serving a more diversified Gulf economy less dependent on oil and gas revenues by having a lot more capacity for downstream manufacturing.
Over the last 20 years the Middle East Gulf, which comprises mainly the Arab states of Saudi Arabia, Kuwait, Bahrain, Qatar, Oman and the United Arab Emirates (UAE) but also Iran, has shifted from being predominantly an oil and gas producer to also being manufacturers of petrochemicals and base chemicals as well as energy-intensive products such as steel and aluminium.
Now they want to use these commodity chemicals and metals, which are currently mainly exported, as raw materials for the manufacturing of added-value products like consumer goods, automobiles, household appliances and electronic equipment.
These downstream products would be sold not only in the domestic market of The Gulf Co-operation Council (GCC), a free trade area, comprising the six Arab Gulf states, which has a population close to 50 million. They could also be exported to the whole Middle East and North Africa (MENA) region with a population of 400 million.
The size of the potential export market could rise to more than one billion with the addition of parts of east Africa and central and southern Asia.
With a prospective regional market of such a huge size, international coating companies would have to consider establishing local production capacity.
The vision of being a large manufacturing hub will also prompt the creation of a large indigenous coatings sector in the Gulf. In Saudi Arabia, which accounts for approximately 60 percent of the GCC’s population and more than 40 percent of its GDP, a $517 million plant with an annual capacity of 340,000 metric tons a year of butanol is being built to provide raw materials for the large scale production of coatings in the country.
Even now after 40 years of virtually continuous growth in construction in the Arab Gulf of homes, offices, transportation networks and utilities, the major suppliers of coatings are foreign-owned.
They will, initially at least, benefit the most from a new phase of buoyancy in the Gulf’s construction sector whose annual growth dropped by two-thirds in 2008-2011 to around 5 percent, according to figures from Qatar National Bank (QNB). But the growth rate has since almost doubled and looks likely soon to return to its pre-recession levels.
In the falls of 2012 and 2013 the market for large infrastructure projects in Oman, Qatar, Saudi Arabia and the UAE rose by an average 27 percent, Conrad Keijzer, executive committee member responsible for performance coatings at AkzoNobel, told a press conference in Oman in October.
While the big rise in construction activity will generate high demand for decorative paints, sales of performance coatings, like anti-corrosion and intumescent fire protection products, will grow faster, the company predicts.
While the numbers of residential, commercial and infrastructure projects will increase, there will be continued rise in oil, gas, refinery and petrochemical chemical schemes. In 2012-2020 capacity for petrochemicals and other chemicals in the Arab Gulf will rise by 50 percent, according to the Gulf Petrochemicals & Chemicals Association (GPCA)
However for many coatings companies the biggest interest will be in the region’s long-term plans for new downstream manufacturing operations, particularly in Saudi Arabia.
The region’s largest country, which urgently needs to generate jobs for its predominantly young population, plans to make 600,000 cars a year by 2025 with locally produced components and materials for the domestic and export markets.
Saudi Arabia also aims to establish a local household appliance industry with an annual capacity for one million refrigerators, 800,000 washing machines, 250,000 dishwashers, 100,000 gas cookers and 1.5 million air-conditioning units.
The country is also planning to build at cost of $400-500 billion up to six new ‘economic’ cities to provide an infrastructure for a range of downstream manufacturing clusters.
AkzoNobel has among the leading international coating companies been one of the most active in responding to the new prospects in the Gulf region, where it has had a marketing presence for nearly 40 years. “We continue to look for effective ways to unlock its potential,” said Keijzer.
The company acquired in October a 50 percent share in Sadolin Paints of Oman to help the business expand its range of decorative paints, wood coatings and fire protection and powder coatings. AkzoNobel has also set up a marketing outlet in Qatar to take advantage of projects like the World Cup and the country’s large natural gas sector.
BASF Coatings has been enlarging its Gulf business in car refinishing coatings through its R-M brand. With its strategy of providing complete solutions for car makers in OEM and refinish coatings, the company is well positioned to gain a presence in Saudi Arabia’s fledgling automotive manufacturing segment.
Saudi Arabia and Jaquar Land Rover, part of the Tata Group of India, reached a deal late last year to set up a $1.2 billion car assembly plant in Saudi Arabia. BASF already has close ties with Tata, through its operations in the UK.
BASF is already involved in the coil coating market in the Middle East through an alliance with the Turkish producer Coat Coil. Turkey aims to be a major exporter of coil coated and other metal products to the Gulf.
However, the Arab Gulf already has a relatively large coil coating sector able to take advantage of GCC import duties. One dilemma facing international coatings producers in the years ahead is how much they will need to have a local production presence to benefit fully from a fast growing regional market.