The Coronavirus(COVID-19) pandemic has thrown the world into disorder after entering March in 2020.

Apparently, the virus has been underestimated when it caused the entire economy to pause in China in late January and the entire month of February.

It is so contagious that the global economy will be dragged into recession and the coatings industry cannot avoid collateral damage linked with quick downstream demand shrinkage.

The Chinese government showed great leadership and management capability in dealing with the virus and succeeded in minimizing the virus’s impact on China quickly, but the Chinese economy in the mid-term still faces serious challenges because of the very possibly weak demand from Europe and America.

Demand for coatings, especially industrial coatings varieties which are highly linked with automotive, wood furniture, electronic devices and electric appliances will be negatively impacted. 

Real estate property market still the key to support bottom line

According to the report released by CRIC, for the first two months of 2020, new housing sales value has decreased by 35.9 percent over the same period of 2019. But following the containment of COVID-19 in March, sales of new housing have been recovering quickly and it is estimated that the real estate market will resume their growth in the second quarter.

Land purchase area has reduced by 29.3 percent over last year. And it is predicted that the total land purchasing area will rise after reaching the bottom, but highly unlikely to recover on a largevscale.

As architectural coatings are around 50 percent of total coatings consumption, the real estate property market is a critical sector for us to see where the coatings industry’s bottom line is.

With the basic demand for housing still existing, the architectural coatings industry is unlikely to have big fluctuation if we put the whole year into evaluation unless COVID-19’s interruption to the world economy is longer than was estimated.  

Infrastructure might be last saving straw for construction materials including coatings

According to the survey carried out by China National Coatings Industry Association, most major coatings companies have resumed production in March.

But they still face several major challenges, from slow goods transportation and soft demand from downstream markets to a shortage of cash flow.

In addition, infrastructure construction projects have not been started after the spring festival due to concern for the contagious risks among construction workers who normally live together in dormitories.

Another problem is the lack of workers since workers want to avoid risks as well by staying in their hometowns longer before getting back to find a job.

Because of soft demand from downstream markets, some coatings companies have lowered their selling price by five to 10 percent.

However, it is foreseeable that the government will stimulate the economy by investing heavily in infrastructure projects especially subways and highways.

As a result, opportunities for waterproof coatings and exterior architecture coatings will be very attractive in the near future.

But the coatings market still has high expectations for infrastructure construction projects to offset the soft demand from consuming market sectors, but it is unlikely the whole coatings market will grow just by just relying on one single industrial sector. It is inevitable for the coatings market to slow down in 2020.

China’s total export value for the first two months decreased by 15.9 percent. On the contrary, import value only shrank by 2.4 percent.

But the contracts for the first two months were mainly signed before the pandemic happened.

The pandemic’s consequences on trade will be reflected in April. As the COVID-19 pandemic has spread to America and Europe, the demand for automotive, electronic appliances and wood furniture will all shrink.

Big Three American car manufacturers have all stopped production or planned to produce medical equipment, and their downstream markets including OEM coatings, powder coatings for wheels and coatings for interior parts, will all be impacted. 

In the first two months of 2020, the export volume of home furniture and their parts reduced by 22.8 percent compared with the same period of 2019.

Although e-commerce for home furniture developed fast in recent years, most sales for home furniture still depend on offline sales channels. As shown in different sectors, demand is shrinking, and trade consists of around one-third of domestic GDP.

Unless the pandemic is quickly controlled in developed countries, many companies that depend on cross border trade will be in trouble.

Reflected in the coatings industry, plastic coatings and inks and metal coatings, as well as wood coatings, will be affected most.

Infrastructure projects will increase some demand for coatings. It is highly possible the government will as well.

Other options also include loosening control of the real estate property sector and encouraging the consumption of electric appliances in the coming summer.

According to the statistics from the China Association of Automobile Manufacturers, total output and sales volume of automobiles decreased by 79.8 percent and 79.1 percent in February over the same month of 2019. Total output and sales volume of automobiles decreased by 45.8 percent and 42 percent over the same period of last year. Sales of renewable energy cars also were reduced by 75.2 percent in February over the same month of last year. Six cities have allowed light trucks to enter the downtown area, a policy to promote the purchase of light trucks. The association is calling on the government to provide more subsidies for car consumers.

The Chinese government issued a policy in early March to promote domestic consumption, and more concrete policies might be released if the external environment is getting worse.

But it is not easy to change the situation, and still, coatings companies need to plan ahead, keep cash in pockets and be prudent in making business decisions.