Tim Wright01.12.06
Growth in interior decorative coatings markets depends on several factors, including GDP growth, the construction market, housing loans/grants, changes in consumer habits and a plethora of other factors.
According to Akzo Nobel's Peter de Groot, marketing director, Decorative Coatings International, "Every country tells a different story. In China, for example, there has been another excellent year of growth, while at the same time the German market is shrinking. Overall, however, we have seen a growing decorative coatings market worldwide in 2005 compared to 2004. In 2006 we don't anticipate any great changes in growth rates. Perhaps China will cool off a little and Germany might see a slight recovery. We can also anticipate emerging markets, particularly in Eastern Europe, growing at faster rates in 2006 compared to 2005."
In fact, on the Eastern European front Akzo Nobel just recently expanded its coatings activities there, making a push to become one of the leading suppliers to the Ukrainian decorative paint market after acquiring a 51% controlling share in the coatings activities of Khimrezerv. Headquartered in Kiev, Khimrezerv's paint business manufactures and sells waterborne and solventborne decorative coatings. Additional expansions and investments for Akzo Nobel include a new operation in southern China, as well as a new factory in Vietnam.
In Russia, growth in both the production and consumption of decorative coatings continued in 2005, according to Gennady Gordeev, PR director of Empils, which is the largest coatings manufacturer in the territory of the former Soviet Union, producing a volume of 83,000 tons in 2005 while operating out of two manufacturing plants in Rostov-on-Don, Russia and Odessa, Ukraine. He said that the total production volume of decorative coatings in Russia increased 5.6%, growing from 395,000 tons in 2004 to 417,000 tons in 2005.
Going into further detail about the decorative coatings market in Russia, Gordeev said that it's healthy growth rates within the mid-range and premium grade decorative coatings segment is being fueled in part by increasing competition among global manufacturers setting up shop in Russia, or buying Russian manufacturers. On the other side of the fence, he said competition in the economy products sector is strong between local and regional manufacturers. "They have the advantage of being closer to regional consumers and operate small, unofficial plants, which we call 'garage plants.' They produce low-quality coatings and sell them at an extremely low price," he said. "The production volume of such plants is 500-1,000 tons per year and they produce about 20% of Russian coatings. There are more than 500 coatings manufacturers in Russia, while just ten, which Empils is among, produce 50% of the total coatings volume."
Gordeev also said that while alkyd-based paints represent the main share of decorative coatings produced in Russia, water-based coatings are gaining favor. "In 2003 water dispersion coatings accounted for 30% of all decorative coatings volume compared to 31% in 2004 and 33% in 2005," he said. "In 2006, we expect a further three percent growth in the water dispersion segment. Empils plans to increase its share in this sector from eight percent to 11%, expanding total tonnage from 9,500 to 17,000 tons."
According to Jotun, the Scandinavian interior and exterior paint market increased ten percent in both volume and value in 2005 while the Spanish market for decorative coatings did not increase in 2005 compared to 2004. "The Spanish market is predicted to increase by three percent in volume for 2006 and then one to two percent in the following years," said Venkat Krishnan, regional marketing department, Jotun UAE. "Also in the Spanish market, we've seen more big multinational companies that are buying small to medium local companies, thereby reducing the number of manufactures."
Yvon Savaria, director of marketing, Sico, reported that at the end of September the Canadian decorative paint and coatings market was down 4.5%. "Considering the stain and varnish segment was up one percent, largely influenced by exterior stain, we conclude that this is directly linked to the slow down in new home construction and house resales reported since the beginning of the year," she said. "These figures remain quite strong when compared to a few years ago, but show a decrease compared to 2004 which was a particularly good year. However, home renovation remains very strong and compensate for the slow down."
Meanwhile in the U.S., the interior decorative coatings market, which represents approximately one-third of the overall coatings market, is valued at approximately $5.6 billion based on 550 million gallons, according to Scott Detiveaux, a senior consultant at Orr and Boss. "While the year over year growth rate from 2004 to 2005 was not as strong as the previous year, 2005 was a record year for the U.S. interior decorative coatings market," he said. "Similar growth, in the two to three percent range, is expected for 2006."
Over the past decade, interior decorative coatings in the U.S. have grown at a faster rate than exterior decorative coatings, Detiveaux added. "On a volume basis, exterior coatings have grown at a compound rate of around 2.5% annually compared to over four percent annually for interior decorative coatings," he said. "Part of this disparity in growth rates is due to declining exterior paintable surface."
According to Akzo Nobel's Peter de Groot, marketing director, Decorative Coatings International, "Every country tells a different story. In China, for example, there has been another excellent year of growth, while at the same time the German market is shrinking. Overall, however, we have seen a growing decorative coatings market worldwide in 2005 compared to 2004. In 2006 we don't anticipate any great changes in growth rates. Perhaps China will cool off a little and Germany might see a slight recovery. We can also anticipate emerging markets, particularly in Eastern Europe, growing at faster rates in 2006 compared to 2005."
In fact, on the Eastern European front Akzo Nobel just recently expanded its coatings activities there, making a push to become one of the leading suppliers to the Ukrainian decorative paint market after acquiring a 51% controlling share in the coatings activities of Khimrezerv. Headquartered in Kiev, Khimrezerv's paint business manufactures and sells waterborne and solventborne decorative coatings. Additional expansions and investments for Akzo Nobel include a new operation in southern China, as well as a new factory in Vietnam.
In Russia, growth in both the production and consumption of decorative coatings continued in 2005, according to Gennady Gordeev, PR director of Empils, which is the largest coatings manufacturer in the territory of the former Soviet Union, producing a volume of 83,000 tons in 2005 while operating out of two manufacturing plants in Rostov-on-Don, Russia and Odessa, Ukraine. He said that the total production volume of decorative coatings in Russia increased 5.6%, growing from 395,000 tons in 2004 to 417,000 tons in 2005.
Going into further detail about the decorative coatings market in Russia, Gordeev said that it's healthy growth rates within the mid-range and premium grade decorative coatings segment is being fueled in part by increasing competition among global manufacturers setting up shop in Russia, or buying Russian manufacturers. On the other side of the fence, he said competition in the economy products sector is strong between local and regional manufacturers. "They have the advantage of being closer to regional consumers and operate small, unofficial plants, which we call 'garage plants.' They produce low-quality coatings and sell them at an extremely low price," he said. "The production volume of such plants is 500-1,000 tons per year and they produce about 20% of Russian coatings. There are more than 500 coatings manufacturers in Russia, while just ten, which Empils is among, produce 50% of the total coatings volume."
Gordeev also said that while alkyd-based paints represent the main share of decorative coatings produced in Russia, water-based coatings are gaining favor. "In 2003 water dispersion coatings accounted for 30% of all decorative coatings volume compared to 31% in 2004 and 33% in 2005," he said. "In 2006, we expect a further three percent growth in the water dispersion segment. Empils plans to increase its share in this sector from eight percent to 11%, expanding total tonnage from 9,500 to 17,000 tons."
According to Jotun, the Scandinavian interior and exterior paint market increased ten percent in both volume and value in 2005 while the Spanish market for decorative coatings did not increase in 2005 compared to 2004. "The Spanish market is predicted to increase by three percent in volume for 2006 and then one to two percent in the following years," said Venkat Krishnan, regional marketing department, Jotun UAE. "Also in the Spanish market, we've seen more big multinational companies that are buying small to medium local companies, thereby reducing the number of manufactures."
Yvon Savaria, director of marketing, Sico, reported that at the end of September the Canadian decorative paint and coatings market was down 4.5%. "Considering the stain and varnish segment was up one percent, largely influenced by exterior stain, we conclude that this is directly linked to the slow down in new home construction and house resales reported since the beginning of the year," she said. "These figures remain quite strong when compared to a few years ago, but show a decrease compared to 2004 which was a particularly good year. However, home renovation remains very strong and compensate for the slow down."
Meanwhile in the U.S., the interior decorative coatings market, which represents approximately one-third of the overall coatings market, is valued at approximately $5.6 billion based on 550 million gallons, according to Scott Detiveaux, a senior consultant at Orr and Boss. "While the year over year growth rate from 2004 to 2005 was not as strong as the previous year, 2005 was a record year for the U.S. interior decorative coatings market," he said. "Similar growth, in the two to three percent range, is expected for 2006."
Over the past decade, interior decorative coatings in the U.S. have grown at a faster rate than exterior decorative coatings, Detiveaux added. "On a volume basis, exterior coatings have grown at a compound rate of around 2.5% annually compared to over four percent annually for interior decorative coatings," he said. "Part of this disparity in growth rates is due to declining exterior paintable surface."
Market Drivers
Interior paints for walls are generally designed more for aesthetic appeal, as opposed to protection. As such, color plays a vital role in the interior decorative coatings market. "Providing color solutions, a special feel, a unique ambiance and moving also into the area of fashion, travels and dreams are important for interior decoration," said Akzo Nobel's de Groot. "Therefore, for interior coatings, these are the main elements we focus on. Obviously protection is provided for as well but that is more important for exterior facade coatings and wood care."
Also discussing the importance of color was Karen Warman, marketing manager, Resene. "Color is a key driver of interior repaints, with homeowners often repainting because they are tired of the existing color rather than the paint requiring a repaint due to wearout of the coating," she said. "Interior coatings are trending towards lower sheen, more washable finishes than ever before. With products such as Resene SpaceCote Low Sheen, consumers are able use low sheen waterborne enamel in wet areas and on trim and joinery in place of traditional higher gloss enamels."
de Groot said, "In emerging markets we see increased tinted colors being offered and a trend towards a more sophisticated appetite for colors and quality." In many countires this is due in part to the expansion of large DIY stores, which on the one hand is dependent upon changes in cosnumer DIY behaviour, and on the other hand feeds and promotes consumer DIY behaviour. "In many countries we see a move towards increased decision making by the home owner who is becoming less reliant on the professional and more brand conscious."
In the South of Europe Jotun's Krishnan said that the use of color is increasing overall compared to white.
The new home construction market also plays a vital role in determine the health of the market. "The new home construction markets are starting to slow down in line with predictions," said Warman. "This tends to free up contractors for other work such as residential repaints. In the past few years many homeowners have found it very difficult to get trustworthy contractors to complete their painting projects so we expect to see a rebound in the number of residential repaints undertaken by professional painters as they are freed from the new projects."
Philip Hain, product marketing manager, Dunn-Edwards, said in terms of new home construction, sales and resales, reports are mixed. "Sales still grow, but not at the same pace we saw six months ago," he said. "Because housing prices remain high in major cities, new home construction in outlying areas that are more affordable continues
Going into further detail, Hain said, "As housing prices remain high, people tend to remodel rather than relocate so they fix up their present home if buying a new one is not a practical option. Even people who move into a newly built home will typically repaint within a year."
Also discussing the importance of color was Karen Warman, marketing manager, Resene. "Color is a key driver of interior repaints, with homeowners often repainting because they are tired of the existing color rather than the paint requiring a repaint due to wearout of the coating," she said. "Interior coatings are trending towards lower sheen, more washable finishes than ever before. With products such as Resene SpaceCote Low Sheen, consumers are able use low sheen waterborne enamel in wet areas and on trim and joinery in place of traditional higher gloss enamels."
de Groot said, "In emerging markets we see increased tinted colors being offered and a trend towards a more sophisticated appetite for colors and quality." In many countires this is due in part to the expansion of large DIY stores, which on the one hand is dependent upon changes in cosnumer DIY behaviour, and on the other hand feeds and promotes consumer DIY behaviour. "In many countries we see a move towards increased decision making by the home owner who is becoming less reliant on the professional and more brand conscious."
In the South of Europe Jotun's Krishnan said that the use of color is increasing overall compared to white.
The new home construction market also plays a vital role in determine the health of the market. "The new home construction markets are starting to slow down in line with predictions," said Warman. "This tends to free up contractors for other work such as residential repaints. In the past few years many homeowners have found it very difficult to get trustworthy contractors to complete their painting projects so we expect to see a rebound in the number of residential repaints undertaken by professional painters as they are freed from the new projects."
Philip Hain, product marketing manager, Dunn-Edwards, said in terms of new home construction, sales and resales, reports are mixed. "Sales still grow, but not at the same pace we saw six months ago," he said. "Because housing prices remain high in major cities, new home construction in outlying areas that are more affordable continues
Going into further detail, Hain said, "As housing prices remain high, people tend to remodel rather than relocate so they fix up their present home if buying a new one is not a practical option. Even people who move into a newly built home will typically repaint within a year."
Rising Costs & Regulations
Everyone has been affected by the raise of raw material costs. In addition, as energy and fuel prices have increased, so too have transport costs. The bottom line is that all major paint manufacturers have had to respond with price increases for the beginning of the year.
Addressing this issue was Resene's Warman. "Most of the key raw materials that we use in New Zealand come from offshore markets, so with the various natural disasters, wharf strikes and the like occurring around the world, we have had rising costs and at times difficulty assessing materials in a timely manner," she said. "Fuel in particular has been especially expensive this year, which has led to many of our raw material suppliers increasing their prices, in turn increasing the prices we must charge the market."
Russia is another expample of a market affected by such issues. "A common problem in the Russian coatings market is connected with profitability lowering," said Empil' Gordeev. "Raw materials, energy and transportation cost increases have affected us. For example, in Russia in 2005, the price of electric power rose 33% while raw material prices rose 14-25%. However, the market didn't allow for us to increase the price of our products more than ten percent. Empils solved this problem through production loss reduction as well as seeking alternative raw material suppliers."
The most immediate challenge facing the market, according to Jotun's Krishnan, is the adaptation of all products to meet VOC regulations. "This can force changes in consumer habits who will start to use waterborne products instead of solvent-based," he said. "In Spain we have just launched a unique one-coat paint called Majestic Unicapa, which is the first product with hiding power suitable for our multicolor tinting system."
In Canada too, concerns about environmental issues have forced new regulations on VOCs developed by TerraChoice, manager of the Eco-Logo program, as well as the Canadian government. "Manufacturers will have to reformulate most products to meet these new criteria," said Sico's Savaria. "This will result in a major R&D efforts as well as a complete inventory management to ensure proper stock turnover in order to enable the new compliant products into the market. The initial deadline for production is January 2008 and liquidation of old inventory in the distribution networks for 2011."
To meet these demands, Sico recently launched Ecosource, a zero VOC paint line. "We are seeing more demand emerging from the contract side of the business for zero VOC products," said Sico's Dominique Pepin. "As architects working on LEEDS projects demanded paints with zero VOCs, our American competitors had products to offer, but they were not adaptable to Canadian winters. Sico was able to develop a VOC paint that resists freezing more effectively."
"Environmental regulations are indeed one of the main factors that influence the product development program of decorative coatings. This is not only manifested in making sure that products on the market fulfills the local environmental policies, but also to precede anticipated legislation in order to get a competitive advantage. The vast majority of product development projects have this environmental dimension. In many cases it is the primary target, if not it is at least a stringent boundary condition defining what chemistry that can be utilized in the product development work."
Addressing this issue was Resene's Warman. "Most of the key raw materials that we use in New Zealand come from offshore markets, so with the various natural disasters, wharf strikes and the like occurring around the world, we have had rising costs and at times difficulty assessing materials in a timely manner," she said. "Fuel in particular has been especially expensive this year, which has led to many of our raw material suppliers increasing their prices, in turn increasing the prices we must charge the market."
Russia is another expample of a market affected by such issues. "A common problem in the Russian coatings market is connected with profitability lowering," said Empil' Gordeev. "Raw materials, energy and transportation cost increases have affected us. For example, in Russia in 2005, the price of electric power rose 33% while raw material prices rose 14-25%. However, the market didn't allow for us to increase the price of our products more than ten percent. Empils solved this problem through production loss reduction as well as seeking alternative raw material suppliers."
The most immediate challenge facing the market, according to Jotun's Krishnan, is the adaptation of all products to meet VOC regulations. "This can force changes in consumer habits who will start to use waterborne products instead of solvent-based," he said. "In Spain we have just launched a unique one-coat paint called Majestic Unicapa, which is the first product with hiding power suitable for our multicolor tinting system."
In Canada too, concerns about environmental issues have forced new regulations on VOCs developed by TerraChoice, manager of the Eco-Logo program, as well as the Canadian government. "Manufacturers will have to reformulate most products to meet these new criteria," said Sico's Savaria. "This will result in a major R&D efforts as well as a complete inventory management to ensure proper stock turnover in order to enable the new compliant products into the market. The initial deadline for production is January 2008 and liquidation of old inventory in the distribution networks for 2011."
To meet these demands, Sico recently launched Ecosource, a zero VOC paint line. "We are seeing more demand emerging from the contract side of the business for zero VOC products," said Sico's Dominique Pepin. "As architects working on LEEDS projects demanded paints with zero VOCs, our American competitors had products to offer, but they were not adaptable to Canadian winters. Sico was able to develop a VOC paint that resists freezing more effectively."
"Environmental regulations are indeed one of the main factors that influence the product development program of decorative coatings. This is not only manifested in making sure that products on the market fulfills the local environmental policies, but also to precede anticipated legislation in order to get a competitive advantage. The vast majority of product development projects have this environmental dimension. In many cases it is the primary target, if not it is at least a stringent boundary condition defining what chemistry that can be utilized in the product development work."