China Coil Coatings Industry Under Pricing Pressure from Upstream Market

It is estimated that the coil coatings output in 2014 is around 540 thousand tons in China, growing by around 8-11 percent over 2013. But the fierce competition from upstream coated metal market, mainly coated steel, is putting more pressure to the coil coatings producers in China. Currently the coil coatings market is led by several domestic companies such as Shanghai Zhenhua, and Wuhan Twin Tiger and several foreign companies such as Nippon Paint, Valspar, Becker, AkzoNobel and PPG. The domestic coil coatings producers normally have a closer customer relationship with local major coated steel manufacturers. For example, the partnership between Shanghai Zhenhua and Baosteel and the partnership between Wuhan Twin Tiger and Wugang have been formed for many years. 

Shrinking real estate industry led to coil coatings market structure change 

The structure of China’s coil coatings market did not change much compared with 10 years ago, with real estate still holding the largest share, followed by automotive and electrical appliances. Although no institute has reported a precise number of how big each segment is now, one thing for sure is that the market structure has been changing followed the structure change of the Chinese economy. The sales of China’s real estate market fell by 7.6 percent in 2014, comparied with a growth rate of 17.3 percent in 2013. With the quick shrinking of the real estate market, the market share of coated steel used for the manufacturing of electric appliance and automotive will grow. On the contrary, the market share of coated steel used for China’s real estate industry will decrease accordingly.

Among all the electrical appliance products, washing machine, refrigerator and air conditioning consume the most steel. In 2014, the output of washing machine decreased by 3.34 percent and refrigerator decreased by 0.8 percent. But China air conditioning’s output increased by 11.5 percent. Because washing machine and refrigerator consumed more steel per unit, the total steel usage of electronic appliances has only small increase in 2014. Following the salary increase of Chinese customers and the change of Chinese life style, the electrical appliance structure has been changing rapidly: the reduction of one basic electric appliance segment means the increase of another new product segment. In addition, the export of electric appliance increased by 5.2 percent to 58.1 billion U.S. dollars.

So the coil coatings companies who take advantage of this market trend will continue growing in China, but not so easy as before. They need to put more efforts developing new technologies to meet the fast changing customer demand. Nippon Paint is leading the market for the coal coatings used for coated steel used for electrical appliances in China. This company developed several unique coil coatings technologies which enables its coatings to be used on plasma color TV, microwave oven machine and elevator. Besides, fostering a strategic relationship with steel processing producers becomes another way for some coil coatings producers to increase their market share under fierce competition. For example, Nippon Paint has forged strategic partnership with Sinosteel Shanghai and Magang Holding Co., Ltd. To reduce production cost and increase competitiveness in the market, Haier chose to forge strategic alliance with downstream raw material companies. At the end of September, 2015, Hebei steel agreed to acquire 70 percent share of Haier Specialty Steel, a coated steel manufacturer who sells 80 percent of its products to Haier.

More pricing pressure comes from upstream customers

But the profitability of China’s coil coatings market has been under enormous pressure because of overcapacity in the coated steel market, especially in the coated steel segment. The coated steel’s capacity in China has been surpassed its demand in recent years, leading to fierce price war in China domestic market as well as in related export markets. Lacking of a leading brand image in the international market, the Chinese coated steel products are mainly exported to Southeast Asian markets, Brazil, Ukraine and Turkey. Besides, frequent anti-dumping policies applied by some foreign countries also worsened the situation of China’s coated steel market from time to time.

It is reported that the utilization rate of the production lines of China coated steel is only around 50 percent. The problem of overcapacity is even worse in Boxing County, which owns 80 percent of the coated steel capacity of Shandong province and over 30 percent of the total coated steel capacity of China. Boxing County alone consumes 200 thousand coil coatings a year. But the concentration of coated steel production in one place has not driven industry escalation in Boxing County but led to one negative phenomenon: the price war. The fierce competition in pricing made some local companies in Boxing County to choose the low cost strategy by sacrificing product quality, namely selling coated steel with thinner steel sheet or thinner coatings film to their customers. So the image of Boxing coated steel is tarnished and even the sales of some companies who insist on selling quality products are affected.

New technologies and quality push coil coatings companies grow continuously!

China coil coatings producers are mainly located in Shanghai, Jiangsu, Guangdong and Shandong. The leading companies have been working hard to tackle environment pressure from stricter regulations, and develop new products to meet new customer demands. To achieve economy of scale, both Zhenhua and Twin Tiger have expanded their production capacity recently.

Shanghai Zhenhua has been growing its market share from Baosteel to other steel producers by developing high quality and new coil coatings products to meet customer demand. To take advantage of the new environmental trend, Zhejiang Tiannu Coatings also introduced water based coil coatings into the market. Although the price pressure from upstream market is high still, high quality and new technologies will help both foreign and domestic coil coatings producers continuously grow in China.