In 2018, Orr & Boss estimated that the size of the Asian Pacific coatings market was USD $68.4 billion and 22.7 billion liters. This compares to the global coatings market which Orr & Boss estimated to be USD$151 billion and 42 billion liters. The Asia Pacific coatings market grew by 6.6% in value and 3.4% in volume terms in 2018. The growth rate has slowed down in recent years mainly as a result of the Chinese economy slowing. However, the growth rates are still higher than the global coatings industry average growth rates of 5.4% value and 2.8% volume in 2018. The key drivers of growth are similar to that in other regions of the world and include GDP, construction activity, industrial production and automotive builds.
The key segments of the market are Decorative, General Industrial (GI), Powder, Industrial Maintenance and Protective Coatings (IM & PC), and Wood. These five segments are 80% of the value and 88% of the volume. The pie charts in this article provide the breakdown by segment.
On a country basis, the largest coatings market in Asia is by far the Chinese market. It represents over half of the volume and value of the Asian coatings market. The chart provides a breakdown of the market by country.
The country breakdown has stayed relatively constant over the last few years with the main change being that the Indian, as well as Southeast Asian markets, have started to grow faster than the others and thus have overtaken Japan to become the second and third largest Asian coatings markets. The growth rates of the coatings markets in these countries are generally tied directly to the growth rates of these economies: the Indian economy, as well as the economies of countries like Indonesia and other Southeast Asian countries, are growing at fast rates.
The emerging market countries have coatings markets that are performing quite well. As discussed, the growth rates in the South Asian and Southeast Asian countries like India, Bangladesh and the Philippines has been high. This trend is expected to continue and, in fact, the growth rates are expected to be higher in India and South Asia going forward.
The Chinese economy has slowed down a bit over the last few years but it is still growing faster than the other large economies around the world. GDP grew by 6.6% in 2018. GDP is expected to grow at 5.9% CAGR from 2018-2023 in China. These growth rates are lower than previous GDP growth rates in China. For example, from 2005-2010, the Chinese economy grew at a rate of 11.3% per year. The slowdown is a natural effect of the Chinese economy maturing.
The slowdown in the Chinese economy was particularly prevalent in the manufacturing sector. The Chinese Manufacturing Purchasing Managers Index (PMI) is shown in the graph. A reading below 50 indicates that the manufacturing sector is contracting and above 50 means that it is expanding.
As the graph shows, the Chinese manufacturing sector contracted slightly at the end of 2018. This mirrors what has happened in several important manufacturing sectors in China. For example, automotive production units declined by 4.2% in 2018. This is the first time in over 20 years that the Chinese automotive industry has seen a decline in production.
The Chinese PMI value has since rebounded and the index is now above 50 and is expanding. This mirrors the expectation of the Chinese economy and coatings markets going forward, we expect that the Chinese coatings markets will grow in 2019 at a value rate of above five percent as the pickup and manufacturing and the overall economy continues. Furthermore, it should be said that the Chinese slowdown can be overstated. The overall economy and manufacturing sectors did expand in 2018; just not as much as expected earlier in the year. This created the “bull-whip” effect where manufacturers and construction firms at each step of the process had to readjust their inventory levels. All this led to the Chinese coatings industry expanding at a lower rate than in recent years. In 2018, it is estimated that the Chinese coatings industry grew at a rate of 2.5% in volume terms. Through 2023, we expect that the Chinese coatings market will grow at a CAGR closer to three to five percent in volume terms.
India and South Asia
The second-largest coatings market in Asia is the Indian coatings market. It is estimated to be 12% of the total Asian coatings market. It along with its neighboring South Asian countries like Bangladesh, Myanmar and Pakistan are the fastest-growing Asian markets. The fast growth rate is driven in large part due to a fast expansion of the overall economy. Of the major Asian economies, the Indian economy grew the fastest in 2018 at seven percent. The Indian GDP is expected to grow at an average rate of 7.6% through 2023. Industrial production in India grew at 5.4% in 2018. All this has led to the Indian paint coatings segment growing faster than others in the region. Orr & Boss estimates that the Indian paint coatings segment grew at a rate of eight percent in 2018 and we expect that rate of growth to continue.
Like India, the Bangladesh and Myanmar economy are growing fast. The Bangladesh economy is expected to grow at rates above seven percent as well through 2023 and the Myanmar economy is growing at rates between 6.5% and seven percent through 2023. These economies and coatings markets are relatively small in the big picture but they may provide some opportunities for growth. The estimated growth rate of the Bangladesh paint and coatings market is 10% per year.
Japan and South Korea
Japan and South Korea are significant coatings markets in Asia with large manufacturing bases in automotive, chemicals, appliance and electronic items and thus are important coatings markets. Given the more mature nature of these economies, they tend to be more stable and act more like the North American and Western European coatings markets. The Japanese coatings market used to be the second-largest coatings market in Asia but due to slow economic growth, its domestic market is receding in importance. It is now a smaller market than the Indian market and the Southeast Asian markets. Despite the fact that the Japanese domestic market is receding in importance, many of the top Asian coatings companies are headquartered in Japan including Nippon Paint, Kansai Paint, SK Kaken and Chugoku.
The expectation is that in 2019, the Japanese domestic coatings market will grow at a one percent volume rate. Automotive and shipbuilding will remain sluggish but there will be some growth in construction due to the building associated with the 2020 Tokyo Olympics and the related tourism infrastructure that is required.
Many of the Southeast Asian coatings markets like Indonesia and the Philippines are experiencing strong growth. In both of these countries, the growth in the coatings market is expected to grow in the five to eight percent range per year through 2023. Both countries have strong decorative markets. Given the large number of islands in both countries, they have large marine coatings markets as well. The overall economic growth rate in both countries is expected to remain strong.
Beyond the macroeconomic factors that would impact the coatings industry and there are several trends occurring in the market that are specifically impacting the Asian coatings industry. These include:
• Consolidation: The Asian and Chinese coatings industry is less consolidated than the other regions of the world. For example, the top 10 Asian coatings companies have sales of $17.7 billion. By comparison, the top 10 North American companies have sales $45 billion and the top 10 European companies have sales of $25 billion. This is despite the fact that the Asian coatings market is more than twice the size of the North American market and more than 1.5 times the size of the European market. An example of this consolidation trend is Nippon Paint’s recent agreement to acquire the Australian company Dulux.
• Raw Material Prices: The increase in raw material prices has started to level off in 2019 but still it continues to put pressure on margins of paint manufacturers. This is impacting the smaller and medium-sized companies the most and may be one of the pressures leading the consolidation trend discussed.
• Environment/Sustainability Issues: Increased emphasis on environmentally friendly coatings continues. New regulations continue to take effect. For example, in China, a new tax or tariff will be placed on paints for every gram of VOC. In the past, the tax was only on paint that did not meet the minimum solids contents.
• Building Trends: Overall changes to building methods have an impact on the coatings market as well. For example, more “walls” are made in a factory by integrated wall system and the paint is applied during one of the steps of the process. This type of building method is being used for exterior isolation panels and is even gaining popularity for interior walls. This building method improves the efficiency of the building process and results in less pollution of the job site.
The Asian coatings market is the largest global coatings market. It has also been growing at rates above the global coatings industry average for a number of years due to the above-average economic performance of numerous countries in the region. China is by far the largest coatings market in Asia and is the largest in the world. Its coatings market growth rate has declined in the last year but is still expected to show above-average growth in 2019 and beyond. Of the large global markets, India is expected to be the fastest-growing market globally. Its coatings market is expected to grow at above seven percent rates moving forward. Many of the other coatings markets are also expected to grow at very high rates in the coming years including Bangladesh, Myanmar, the Philippines and Indonesia.
Acquisitions are starting to gain steam in Asia. There is still plenty of room for additional consolidation and we expect that we are at the beginning of a wave of acquisitions and consolidations in China and Asia. Finally, environmental regulations will play an increasingly important role in the Asian coatings market. This is already occurring in the Chinese market.