Sean Milmo , European Correspondent09.21.15
The European coatings sector is expected to benefit in the second half of this year from a gradual strengthening of the European Union’s economies, particularly in Western Europe.
However optimism about the industry’s short-term future has been dented by worries about the impact on Europe of the economic slowdown in China and problems in some key emerging markets, particularly in Russia and neighboring states on the EU periphery.
These difficulties could weaken the need for industrial coatings among exporting customers, such as manufacturers of automobiles and machinery.
But the renewed economic vigor in the EU should be resilient enough to withstand setbacks in export markets since it is driven primarily by higher consumer demand boosted by higher wages and falling unemployment.
GDP in the EU’s 28 member states will rise by 1.8 percent this year, according to the latest economic forecast of the European Commission, the EU’s Brussels-based executive. This would be the EU’s highest annual growth rate for five years and would bring the Union’s output back to the levels prior to the 2008 financial crisis.
The Commission expects that there is sufficient momentum behind the current increase in private consumption for the growth rate to rise to two percent next year.
In recent years growth in coatings sales in the EU have tended to be closely aligned to rises in GDP, especially in those countries which have been performing relatively well economically.
In Germany, the economic powerhouse of Europe, GDP is predicted to expand by 1.9 percent this year and two percent in 2016, compared with average growth of less than 1 percent over the last two years.
Of the other major EU economies, the UK has one of the fastest growth rates with GDP expected to expand by 2.6 percent this year. In Spain, which was in recession until last year, GDP growth is expected to reach 2.8 percent, mainly pushed by domestic demand.
Output of chemicals, including coatings and other specialty chemicals, rose by only 0.2 percent in the first half of this year, according to the European Chemical Industry Council (Cefic), Brussels, in its Chemical Trends Report issued in August. But it is nonetheless sticking to its forecast earlier in the year of an overall 1.5 percent rise in production this year, in the expectation of a stronger rise in demand in the second half,
The Cefic report shows production of paints, varnishes, coatings and inks shrinking by 1.5 percent in the first quarter of 2015 but in the second quarter it bounced back with marginal growth.
There was a 4.7-percent surge in June in the output of specialty chemicals, according to Cefic. This big rise in output of chemicals, a large proportion of which go into the coatings sector, could be reflected in a higher production of coatings in the next few months.
A large proportion of this increased production could consist of decorative paints. Demand for architectural coatings has been bolstered by a revival across much of Europe in the region’s construction sector, which has been in the doldrums for the last several years.
After plunging to a low of a six-percent decrease three years ago, construction output in Europe will rise by 1.9 percent this year and then average around 2.5 percent annually over the next two years, according to a mid-2015 forecast by Euroconstruct, a Vienna-based business research group.
Residential construction will rise by two percent annually across Europe through to 2017, while in Eastern Europe, outside Russia and its neighbors, it will average over four percent, said Euroconstruct.
Revenues from residential construction in Germany are expected to go up by three percent this year, according to the country’s two main construction industry associations.
“Much of the impetus has been coming from new residential buildings,” explained Michael Bross, spokesperson for the German coating industry association (VdL). “Decorative paint sales gain the most when there is also an increase in home renovations. One third of decorative sales come from new construction, while the rest comes from renovation expenditure.”
In the UK work on new housing has returned to levels similar to those before the 2008 crisis but expenditure on repairs and maintenance has remained flat or even declined. While work on private new housing increased by 3.9 percent in the second quarter of this year, repair and maintenance went down by 1.2 percent.
“Growth in new construction output in the second quarter helped boost decorative trade paint sales to a new high,” said a spokesman for the British Coatings Federation (BCF). “But the hard pressed retail paint sector continued to struggle. For the trade paints market, sales (volume) increased by four percent in the quarter and is now up by 5.5 percent so far this year.”
A prolonged slump in the housing sector seems to be ending in Spain with a sudden spurt in new housing builds in early 2015 and the likelihood that by the end of the year housing starts will exceed housing completions for the first time since 2007. However, although the number of excess homes on the Spanish market has fallen by around 40 percent in the last five years, there are still around 400,000 unsold properties on the Spanish market.
In addition to the reinvigorated construction market, automobiles is another sector which has been boosted by the rise in consumer expenditure. In the first half of the year automobile sales soared by 8.2 percent with 28 out of the biggest brands on the European market increasing sales, 10 in double-digit figures, according to data from the European Automobile Manufacturers’ Association (ACEA).
In Germany, Europe’s largest car market and producer, revenue in the first half reached a level almost 50 percent higher than five years ago, bringing sales levels back to the pre-2008 levels.
BASF Coatings, predominantly a producer of automotive coatings with a large proportion of sales its domestic German market and in the rest of Europe, reported a nine percent sales increase in the first half of the year.
With the global economy possibly about to go through a turbulent period, the European coatings sector will be highly dependant consumer-centred demand in its home market in the short term.
For some larger players this reliance is too risky so they are protecting themselves with low-cost strategies based on streamlined production and logistics.
At Tikkurila of Finland, which is grappling with sharp downturn in consumer sales in recession-hit Russia, one of its main market, Errki Jaervinen, president and chief executive, says the company has to find “new, more effective and more flexible operating methods as well as implementing strict cost management.”
AkzoNobel, where sales dropped one percent in the first half of this year in its main decorative paints market of Europe, Middle East and Africa (EMEA), has been applying what it calls a new operating model in the EMEA decorative area. This results in fewer management layers, reduced production costs with centralised plants, restructuring of marketing and sales and outsourcing of some administrative activities.
The European coatings market is mature but still fickle. Even a period of more robust growth might not last long.
However optimism about the industry’s short-term future has been dented by worries about the impact on Europe of the economic slowdown in China and problems in some key emerging markets, particularly in Russia and neighboring states on the EU periphery.
These difficulties could weaken the need for industrial coatings among exporting customers, such as manufacturers of automobiles and machinery.
But the renewed economic vigor in the EU should be resilient enough to withstand setbacks in export markets since it is driven primarily by higher consumer demand boosted by higher wages and falling unemployment.
GDP in the EU’s 28 member states will rise by 1.8 percent this year, according to the latest economic forecast of the European Commission, the EU’s Brussels-based executive. This would be the EU’s highest annual growth rate for five years and would bring the Union’s output back to the levels prior to the 2008 financial crisis.
The Commission expects that there is sufficient momentum behind the current increase in private consumption for the growth rate to rise to two percent next year.
In recent years growth in coatings sales in the EU have tended to be closely aligned to rises in GDP, especially in those countries which have been performing relatively well economically.
In Germany, the economic powerhouse of Europe, GDP is predicted to expand by 1.9 percent this year and two percent in 2016, compared with average growth of less than 1 percent over the last two years.
Of the other major EU economies, the UK has one of the fastest growth rates with GDP expected to expand by 2.6 percent this year. In Spain, which was in recession until last year, GDP growth is expected to reach 2.8 percent, mainly pushed by domestic demand.
Output of chemicals, including coatings and other specialty chemicals, rose by only 0.2 percent in the first half of this year, according to the European Chemical Industry Council (Cefic), Brussels, in its Chemical Trends Report issued in August. But it is nonetheless sticking to its forecast earlier in the year of an overall 1.5 percent rise in production this year, in the expectation of a stronger rise in demand in the second half,
The Cefic report shows production of paints, varnishes, coatings and inks shrinking by 1.5 percent in the first quarter of 2015 but in the second quarter it bounced back with marginal growth.
There was a 4.7-percent surge in June in the output of specialty chemicals, according to Cefic. This big rise in output of chemicals, a large proportion of which go into the coatings sector, could be reflected in a higher production of coatings in the next few months.
A large proportion of this increased production could consist of decorative paints. Demand for architectural coatings has been bolstered by a revival across much of Europe in the region’s construction sector, which has been in the doldrums for the last several years.
After plunging to a low of a six-percent decrease three years ago, construction output in Europe will rise by 1.9 percent this year and then average around 2.5 percent annually over the next two years, according to a mid-2015 forecast by Euroconstruct, a Vienna-based business research group.
Residential construction will rise by two percent annually across Europe through to 2017, while in Eastern Europe, outside Russia and its neighbors, it will average over four percent, said Euroconstruct.
Revenues from residential construction in Germany are expected to go up by three percent this year, according to the country’s two main construction industry associations.
“Much of the impetus has been coming from new residential buildings,” explained Michael Bross, spokesperson for the German coating industry association (VdL). “Decorative paint sales gain the most when there is also an increase in home renovations. One third of decorative sales come from new construction, while the rest comes from renovation expenditure.”
In the UK work on new housing has returned to levels similar to those before the 2008 crisis but expenditure on repairs and maintenance has remained flat or even declined. While work on private new housing increased by 3.9 percent in the second quarter of this year, repair and maintenance went down by 1.2 percent.
“Growth in new construction output in the second quarter helped boost decorative trade paint sales to a new high,” said a spokesman for the British Coatings Federation (BCF). “But the hard pressed retail paint sector continued to struggle. For the trade paints market, sales (volume) increased by four percent in the quarter and is now up by 5.5 percent so far this year.”
A prolonged slump in the housing sector seems to be ending in Spain with a sudden spurt in new housing builds in early 2015 and the likelihood that by the end of the year housing starts will exceed housing completions for the first time since 2007. However, although the number of excess homes on the Spanish market has fallen by around 40 percent in the last five years, there are still around 400,000 unsold properties on the Spanish market.
In addition to the reinvigorated construction market, automobiles is another sector which has been boosted by the rise in consumer expenditure. In the first half of the year automobile sales soared by 8.2 percent with 28 out of the biggest brands on the European market increasing sales, 10 in double-digit figures, according to data from the European Automobile Manufacturers’ Association (ACEA).
In Germany, Europe’s largest car market and producer, revenue in the first half reached a level almost 50 percent higher than five years ago, bringing sales levels back to the pre-2008 levels.
BASF Coatings, predominantly a producer of automotive coatings with a large proportion of sales its domestic German market and in the rest of Europe, reported a nine percent sales increase in the first half of the year.
With the global economy possibly about to go through a turbulent period, the European coatings sector will be highly dependant consumer-centred demand in its home market in the short term.
For some larger players this reliance is too risky so they are protecting themselves with low-cost strategies based on streamlined production and logistics.
At Tikkurila of Finland, which is grappling with sharp downturn in consumer sales in recession-hit Russia, one of its main market, Errki Jaervinen, president and chief executive, says the company has to find “new, more effective and more flexible operating methods as well as implementing strict cost management.”
AkzoNobel, where sales dropped one percent in the first half of this year in its main decorative paints market of Europe, Middle East and Africa (EMEA), has been applying what it calls a new operating model in the EMEA decorative area. This results in fewer management layers, reduced production costs with centralised plants, restructuring of marketing and sales and outsourcing of some administrative activities.
The European coatings market is mature but still fickle. Even a period of more robust growth might not last long.
