China’s Enormous Coatings & Ink Industry
China is the world’s second largest producer and consumer of coatings, and the fourth for ink production. In 2009 estimates of coatings production across all markets exceeded 6.2 million tons, and ink production reached 450,000 tons. China still has plenty of room for market development. The industry, however, faces many challenges that include stiff competition, tight margins and low levels of R&D investment by historic standards. Herein exists an opportunity for suppliers of coating and ink materials and equipment to improve quality, reduce cost, and enhance service and technical support.
Experts predicted that China’s coatings market in 2009 would be worth USD $105.2 billion in value and reach USD$112.8 billion in 2012 with an annual growth of 2.4 percent. Meanwhile, recent data released by the state statistics bureau show that China has become the second largest coating consumer and producer due to the fact that total national coating production rose to 6.2 million tons in 2009 with an annual growth of 16.2 percent. This figure includes 4.97 million tons of oil paint production.
China is the fourth largest ink producer and accounts for approximately seven percent of total world production. Estimates of total national ink production rose to 420,000 tons in 2009. Entry into the World Trade Organization (WTO), increasing urbanization and the development of the media industry should result in an eight percent and 12 percent annual growth in the publishing and packaging industry respectively. The growth in these sectors will have a powerful effect in driving future demand for ink.
It is estimated that there may be as many as 8,000 paint producers inside China. The largest players in the decorative market are Nippon Paint, ICI Paint, Beijing Red Lion, Hempel Hai Hong, Shunde Huarun, China Paint, Camel Paint, Shanghai Huli, Wuhan Shanghu, Shanghai Zhongnan, Shanghai Sto, Shanghai Shenzhen and Guangzhou Zhujiang Chemical. Overall, PPG, SKK, STO, Supe, Ashley, solid grams, King River, elephants, Shenzhen, Ferris, Three Silver and other works are the top ten brands of architectural coatings sold in China. Although there is no exact measurement of the size of this market it is estimated that in 2009 the market was about 2.2 million metric tons. It is expected that it will grow at a rate in excess of 10 percent over the next five years. Since 2004, the largest segment has been interior water-based coatings. In 2010 that market was estimated to be 800,000 metric tons. The overall improvement of per capita income for the average Chinese individual has allowed more families to become homeowners. Until recent times, the government and banks were highly supportive of individual home ownership. Due to the global economic downturn banks have backed off in their lending which has slowed the housing development compared to just a few years ago.
On the automotive front, U.S. auto sales dropped to their weakest rate since February as most automakers posted sharp declines from a year earlier, when the U.S. cash-for-clunkers program fueled demand for new vehicles. The month of August’s seasonally adjusted annual sales rate of 10.8 million units fell from 11.6 million in July and was well below analysts' forecasts. After August's 21 percent tumble, industry sales are now up just eight percent from 2009 levels, when demand hit a 27-year low. China sold 1.2155 million vehicles in August, up 55.72 percent year-on-year and 15.09 percent over July, according to the latest data released by the China Automotive Technology & Research Center (CATARC) on September 1, 2010. China's auto industry has achieved great progress in the first seven months of 2010, and the industry's fixed-asset investments also maintained rapid growth. In addition, auto exports are still recovering slowly, according to statistics released by the China Association of Automobile Manufacturers on Aug. 9. The association has increased the 2010 auto sales target from 15 million to 16 million units, given China's promising auto market. China is now the leading auto producer in the world surpassing the U.S. in 2009. It is believed that the 2009 China's auto OEM coatings market grew at a rate of 5.1 percent to approximately USD$900 million. With the rapid growth of auto production in China, this market could exceed USD$1 billion by 2012.
China’s market for anti-corrosive coatings (ACC) for marine, container, bridge and oil platform application is showing robust growth in the face of weakened economic activity. Despite a drop in the number of containers and ships being produced—traditionally the biggest ACC customers—other industries such as petrochemicals, transport, construction and power have been buttressed by the Chinese governments stimulus package and are demanding higher volumes and quality. Major multi-national suppliers and several Chinese conglomerates are gearing up for sustained growth rates well in excess of GDP. However, due to uneven growth and high levels of state-ownership at the demand-side, identifying opportunities in the market requires a rigorous understanding of output, sales and consumption issues. Overall, China's paint industry is experiencing a period of rapid growth and ACC will track that growth. An important component of ACC market is also growing. This market includes ship and container manufacture as well as metal bridges, offshore oil platforms and coastal port construction all driven by an expected annual growth rate for 2010 of more than 30 percent. China's maritime anti-corrosion coatings market size could reach 10 billion Yuan (approximately USD$1.5 billion).
The Big Guys Are Already in China
Over the past two decades an increasing number of global players in the coatings market have established base inside China. This is true for raw material producers and formulated coating/ink systems. Some of those who are investing in the future of China are mentioned below.
BASF will invest in a dispersions plant in Daya Bay Petrochemical Industrial Park in Huizhou, China. With an annual capacity of 100,000 tons, the new plant will produce XSB dispersions for the paper industry and acrylic dispersions for industries such as coatings, construction, printing and packaging, and adhesives. The facility will benefit from local availability of raw materials and proximity to key customers who serve Asia’s fastest-growing consumer markets. Production is scheduled to begin in the first quarter of 2012, subject to government approval. The investment is part of BASF’s growth strategy for Asia-Pacific, which has the goal of doubling sales by 2020.
Taking advantage of the phenomenal growth in the automotive arena, PPG has continued to expand its presence in China. In 2008, PPG acquired Bonny Coating-Made Co., Ltd., a private automotive coatings business in Guangzhou. PPG now owns all brands, the customer list, trademarks, technology and working capital of Bonny. The acquisition extends PPG's distribution network and customer base in China. PPG produces automotive coatings in China for customers such as General Motors, Mercedes-Benz, BMW, Dongfeng Peugeot Citroen, Chery and Hainan Mazda.
Valspar recently expanded its global automotive color operations by opening a color technology center in Shunde, China. Establishing a color technology center in this location enables Valspar to offer more service options to its automotive customers in Asia Pacific and Australia.
A new DuPont laboratory and manufacturing facilities in China are accelerating the adoption of coatings with improved environmental performance by Chinese automakers. DuPont's technical center, located in Shanghai, and the manufacturing operations in Changchun allow nearby DuPont scientists to respond to local customers' needs quickly and efficiently. Shanghai General Motors uses advanced DuPont finishes, made in China, on its Cruze model.
AkzoNobel inaugurated a new Powder Coatings Technology Centre in Ningbo, Zhejiang province. This R&D center has a state-of-the-art laboratory and will have an initial team of 20 scientists and technicians organized in centers of expertise for the strategic market sectors. The new facility is located at the existing AkzoNobel powder coatings manufacturing site in Ningbo. All the centers of expertise—automotive, architectural, furniture, domestic appliance, IT and general industrial—and their corresponding marketing teams will be located at the center.
Kansai Paint constructed an automotive coatings plant in Guangzhou, and has created a system to respond to the expanding automobile market in China for the area ranging from Shenyang and Tianjin in the north to the Guangzhou region in the south.
What About the Future?
Not all of the achievements by China have been positive. For instance, China passed the U.S. in 2006 to become the world’s largest emitter of greenhouse gases, which some scientists believe contribute to global warming. But China also has an ambitious program to cut the energy it uses for each unit of economic output by 20 percent by the end of 2010, compared to 2006. To do this, China will have to change a long history of bad industrial practices.
Based on recent trend changes in the market it is likely that China will see an increase in the use of water-based coatings, powder coatings and high solids coatings. A number of emulsion/dispersion producers have manufacturing facilities inside China. In the industrial coatings market there is still a need for high performance, environmentally friendly systems. In the architectural/decorative markets there is a need for systems that are able to qualify as genuine “green label” products and possess low-VOC, high-solids input with superior weathering resistance.
Although an ancient country, China is still evolving into a modern economy and society. Somewhat similar to human development, China has entered into early adulthood but not all parts have progressed at the same speed. China has developed a highly dynamic economy based on strong exports and a thriving domestic market. This has been accomplished in a remarkable short period of time. Investment in infrastructure development has been timely and appropriate. However, even with all this amazing economic success the country is still relatively poor when you compare its per capita income with its neighbors in the Asia Pacific arena or the U.S. and Europe.
China has an authoritarian government that is capable of taking decisive action to stimulate the Chinese economy, build new projects and invest in specific industries. There is no doubt that the Chinese coatings market will continue to grow at rates not seen in the rest of the world in decades. If any participant in the coatings industry supply chain wishes to be a true global player it is imperative that they have a presence in China.
However, it is not easy entering the Chinese coatings market. There are many competitors and the market isn’t well developed. Additionally, concerns about raw material availability, paint quality, paint specifications and routes to market are formidable obstacles. The Chinese coatings market is not for the timid or weak of heart. It will take enormous commitment, resolve and patience to build success. There are no quick wins in the Chinese coatings market. However, the long-term gain from investing in China more than justifies the sacrifice demanded in order to achieve success.