Asian Economic Outlook:
The outlook for the Asian economies remains stable. Most economists are predicting Asian GDP growth to be in the 5.0 to 5.5% range in 2016 and 2017. This is somewhat lower than the GDP growth seen in 2013 and 2014, where Asian GDP growth averaged 5.7%. However, it is still significantly better than growth in all other regions of the world; the global GDP growth rate in 2016 is expected to be in the 3.0 to 3.5% range in 2017. The somewhat slower Asian GDP growth rate is a result of China’s GDP growth rate lowering from nearly 8% in 2013 to less than 7% in 2015 with some forecast predicting that it will be close to 6% in 2017.
Growth in Asia will be driven by domestic demand and not necessarily export growth. As the Asian economies have evolved over the last few years, they have gradually been shifting from an export economy to a domestic demand economy. The shift is gradual but it does have implications for coatings companies. Companies operating and selling coatings in the region, now need to be more cognizant of local demand and tastes. Coatings need to be developed for Asian consumers. This is different than producing paints that are being applied on products that will be sold around the world. In this last case, the ultimate consumer is located in the country where the product has been exported. The Asian economies are continuing to become domestic focused and thus products will need to be tailored more and more to the domestic Asian consumer.
Asian Coatings Market
Asia has become the largest coatings market in the world. Orr & Boss estimates the Asian coatings market to be $68 billion which makes it nearly 45% of the global coatings market.
The growth rate of coatings in Asia Pacific is driven by several factors. As previously discussed GDP is certainly a key driver of growth. Another driver of coatings growth is per capita coatings consumption. Despite significant growth in the Asian coatings market over the years, Asia’s overall per capita coatings consumption still lags significantly behind the North American and European markets. Asia’s per capita coatings demand is 32% that of the North American market. This would indicate that there is still room for significant growth in the Asian market.
Another interesting feature of the Asian Coatings market is that the average selling price remains quite low compared to the other major regional coatings markets. The graphic below gives the average selling price by major coatings market. Asia Pacific’s average selling price is $3.13 per liter (USD). This compares to the NAFTA average selling price of $4.61 per liter. Thus, Asia Pacific’s coatings average selling price is 32.1% lower. As the Asian economies continue to expand, we expect that the average selling price would continue to increase.
Forecasted Growth Rates
The forecast 2016-2020 growth rates are expected to be 5.7%/year based on volume and nearly 6.7%/year based on value. That growth is down a bit from previous years. For example from 2008 to 2015, the average Asian growth rate was 8.4% in terms of volume and 9.5% in terms of value. However, the growth rate is still significantly faster than the other regions of the world.
The overall outlook for the Asian coatings market remains strong although growth will not be as strong as it has been. GDP growth will be slightly lower than historical values. The slightly lower GDP growth figures are driven by slightly lower GDP growth in China: the other regions of Asia will have stable economic growth. Despite the slightly lower growth rates, the economic forecast for Asia remains very strong compared to the rest of the world.
In addition to the overall economic growth rate, the per capita coatings consumption and the average selling price in these markets are low compared to the rest of the world. These two metrics would indicate that the Asian coatings markets still have legs for future growth. Thus we would expect the Asian coatings markets to continue to be the fastest growing geographic coatings market. We forecast the rate of growth to be 5.7% per year in terms of volume and 6.7% per year in terms of value from 2016 to 2020.