Future Uncertain for Coatings Companies Post-COVID-19

European coatings companies are having to rethink their strategies not only in the short but also the long term because of signs that the COVID-19 pandemic will create new social-economic trends that could radically alter some of the coatings sector’s main customer markets.

‘’The visibility into future is still poor but clear enough now than it was two to three months ago to enable us to plan ahead,’’ said one coating company senior executive.

For many European countries, the fall in their GDPs in the second quarter of this year was bigger than the decline in growth at the time of the 2008 financial crisis.

In Germany, COVID-19 had triggered “the greatest economic downturn” since the foundation of the German Federal Republic around 70 years ago, according to Peter Jansen, president of the Germany Paint & Printing Ink Industry (VdL).

States Enter into Recession

Most states are now in recession after already registering a decrease in growth in the first quarter of 2020.

Among Europe’s major economies the UK suffered a 20 percent drop in GDP in the second quarter, while Spain’s GDP plunged by 22 percent.

GDP in France fell by 14 percent and Italy by 17 percent while Germany suffered the least with a 12 percent drop.

Overall the average fall in GDP among the EU’s 27 member states – now excluding the UK – was 12 percent in the second quarter.

The economies of the vast majority of European countries are starting to grow again in the second half of the year so that most of them are expected to push the annual GDP decline into single digits for 2020, although they may not achieve pre-COVID output levels until late 2021 or 2022.

“(Our) view is that it will be a long, slow recovery,” Tom Bowtell, chief executive, British Coatings Federation (BCF), said in a blog.

Rising Unemployment Across Much of Europe

Almost certainly across much of Europe, there will be steep rises in unemployment despite government efforts to give financial help to struggling companies, including the subsidizing of wages.

Also, COVID-19-induced social and economic changes will start to become embedded in patterns of lifestyles, household expenditure, tastes and attitudes, which will affect demand for coatings in some sectors.

This will particularly be the case in construction, which many companies with decorative and other architectural coatings businesses are hoping will lead economies out of the recession.

The construction market looks likely to be impacted by the permanent effects of the COVID trend for large numbers of people to work from home while office space will have to be both reduced and redesigned for a smaller full-time workforce.

The sector seems to have had a grim second quarter in some countries.

In France, there was a 24 percent drop in construction output while in the UK the fall was more than 30 percent.

However, a closer look at the national statistics shows a sudden revival in construction demand, particularly in the residential segment, in June.

UK construction output grew by a record of 23.5 percent in the month, according to figures from the country’s Office of National Statistics (ONS).

Coatings companies have also been reporting sudden surges in sales of decorative paints and other DIY products after governments eased their lockdown with the lifting of restrictions in May and June on the opening of retail stores.

Tikkurila, the Finish-based decorative and industrial coatings producer whose main markets are Finland, Scandinavia, Russia and Poland, recorded sharp fluctuations in sales during the quarter with a 16 percent drop in April which turned to only a two percent decrease in May to be followed by a sudden 24 percent rise in June.

The company’s revenue in the quarter went up by one percent and operating profit by 45 percent – a performance “driven by exceptionally high sales in the consumer-driven DIY business in all Tikkurila’s core markets toward the end of the quarter,” Chief Executive Elisa Markula said.

The recovery was strongest in Finland and Sweden where there were “extraordinarily high” sales for exterior paints.

The pent-up demand was particularly evident in Russia where most shops were closed until the end of May causing double-digit growth in decorative paints in June, according to Markula.

AkzoNobel, the European market leader in decorative paints, achieved a four percent increase in decorative sales in the second quarter in its Europe, Middle East and Africa (EMEA) region with the help of a sudden rebound in European demand in June.

The EMEA performance contrasted with a 43 percent slump in decorative sales in South America and 29 percent in Asia, the company’s other two regional markets.

London-based Kingfisher plc, owners of one of Europe’s largest cross-border retail and online DIY chains, reported double-digit growth in sales in its stores in all countries in June – with the biggest rise (33 percent) being in France.

Ecommerce sales rose 225 percent during the month after a 202 percent increase in May.

The rise in DIY sales reflects an uplift in the real estate housing market in some countries.

UK house prices rose to their highest year-on-year levels for 2020 in July, helped by a government cut in house sale taxes.

But analysts reckoned the increase in house sales was also triggered by people wanting post-COVID-19 residences suitable for permanent working at home.

However, coatings companies are expecting surging demand in residential and other construction segments will start to level out in the next few months.

Instead, the main feature will be a recovery in industrial coatings.

“In the second half of this year we expect a continued recovery of the industrial sectors,” said Christoph Maier, VdL’s head of economic and financial affairs.  “A renewed increase in demand for industrial coatings, coupled with a better export performance in major industries, will in all probability be countered by a weaker trend in the architectural coatings market.’’

A key factor in Germany behind the softer demand for DIY products will be fewer short-time workers, with government wage subsidies ensuring their full-time wages, and a reduction in home working.

‘’The industrial coating sectors will in contrast to the construction area be slow to recover,” Maier said. ‘’This will be especially the case with the automotive and aerospace sectors as production is still down and will be weak even in 2021.’’

In Germany, which is Europe’s largest automobile producer, demand for OEM coatings dropped by 90 percent in March and April as COVID caused the closure of car plants, according to Maier. 

OEM coatings demand is likely to be bolstered next year by an upswing in sales of electric vehicles (EV) as a result of stricter European Union clean fuel standards.

However, for aerospace, the future appears bleak because of the impact of COVID travel restrictions.

Consultancies are predicting that by 2030 there will be as many as 4,600 fewer passenger aircraft in use than at present.

That will mean a considerable loss of revenues from specialty coatings for aircraft, parts and components. Aerospace could l be an example of a sector in which coatings companies will soon be considering their continued involvement.