China National Coatings Industry Association’s new report said the coatings output for the first six month of this year is 9.64 million tons, an increase of 4.8 percent compared to 1H of 2018. But the total profit is 9.8 billion yuan, 7.1 percent lower over the same period of 2018. As the largest segment of the whole coatings market, architecture coatings has been controlled by waterborne varieties for a long time. As the market competition deepens, scale of production has become one of the necessary conditions for survival, if not success in China. More small companies will be pushed out of the market in the future. And more capacities will be concentrated into the control of large players.

The market is slowing down

With deepening of government control on the real estate sector and softening of the whole economy, the demand for architecture coatings will slow down their fast growth. Although house renovation and urbanization could offset some of the loss, the architecture coatings companies still need to diversify their businesses even further. Go-to-West is one direction chosen by many large coatings players, and internationalization is another approach adopted by some large domestic companies in recent years. 

With large players expanding their footsteps, these companies will grow their market shares and increase their production volume in the next two to three years, a phenomenon widely seen through media report. But when regional expansion in China is completed, the local architecture coatings market will enter a maturing stage. But until then, these architecture coatings companies show good financial results, led by investment driven activities and their increase of market shares.

Nippon Paint’s sales for 1H is 178 billion yen, 0.9 percent less compared to the same period of 2018. Architectural coatings still grew continuously, but automotive coatings were soft.  Asia Cuanon’s 1H report said its revenue increased by 45.85 percent and profit increased by 83.67 percent. And the company also announced on August 6 that to meet its strategic development plan, Asia Cuanan signed an investment agreement to construct construction materials production bases in Shijiazhuang, Hebei province. The project will include 300,000 tons per year coatings production lines, with a total investment of 1.2 billion yuan.   

Domestic companies count on internationalization to keep growth momentum 

As the local market doesn’t offer fast growth potential in the long term any more, domestic companies eye international market, especially one belt and one road countries, for further development. The recent moves from them are to establish international headquarters in Shanghai. It seems several companies considers more presence in Shanghai and close to international finance resources and customers are key to their international expansion.

SKSHU held its Shanghai center’s opening ceremony on April 28, signifying the beginning of the implementation of its global strategy formally. The so-called second headquarter will help SKSHU attract talents with global perspective, integrate global resources, and forge international brands in the future. Based on media report, SKSHU is ranked No. 2 in B2B engineering architecture coatings market, and No. 6 for B2C decoration coatings market. It is estimated that the architectural coatings output from the coatings companies whose total sales are more than five million yuan is 6.49 million tons. The remaining architecture coatings companies produced 2.33 million tons. In 2018 SKSHU’s architectural coatings capacity was 735 thousand tons per year.

On July 20, Bardese held its Shanghai headquarters’ opening ceremony. The new headquarter will be the second after its Guangdong headquarter, meaning the speedup of internationalization for Bardese group.

Bardese has already put its Jinshan plant into production in 2014. The company plans to develop its Shanghai headquarter as their global technical center as well as global commercial center. Bardese will also construct a 150,000 ton per year high functional water borne coatings project in Shanghai.

High quality emulsion coatings market will continue expanding market share

High quality emulsion coatings, especially high quality interior architecture coatings, will grow market share in remote areas. Low spending power and poor distribution channels restrict the growth of high quality coatings, especially in remote areas. The interior architecture coatings market for the countryside and engineering sector are mainly controlled by low quality varieties, which contains less than 18 percent emulsion and 12 percent titanium dioxide. Matte is the only color in China, and kitchens and toilets normally are decorated by ceramic tiles rather than emulsion coatings. These areas all offer excellent growth potential for architecture coatings in the future. Moving factories close to potential customers is the first step, driven by cost reduction and shortening product delivery path. But public education to increase awareness for what high quality coatings are needs more efforts and takes time. Currently, there is no visible consumption behavior shift yet.

Serving mainly the domestic market, the Chinese architecture coatings industry will still enjoy single digit growth in the future. West China and remote areas, internationalization, quality upgrade, etc. all offer growth potential. The benefit for our consumers is clear too: they will have more access to high quality products, no matter where you are.