After suffering losses in Q1, key market segments show growth again.

Total investment for China’s real estate property market for the first seven months in 2020 increased by 3.4 percent over the same period of last year, proving that the largest market for the coatings industry has fully recovered since the second quarter.

Engineering architecture coatings, also called the B2B architecture coatings market segment, has increased its market share in the total architecture coatings market.

Sales of fully decorated house in total housing sales increased from 12 percent in 2016 to 32 percent in 2019, completing in advance the original target of 30 percent fully decorated house share set for 2020 by the government.

This new trend will further push small producers to leave the market and push the interior architecture coatings companies to consolidate further, making the domestic coatings industry healthier than before.

According to the National Bureau of Statistics, the coatings output is 12.21 million tons for the first seven months of 2020, which decreased by 4.9 percent over the same period of last year. But sales and profit of the industry have been showing recovery month by month.

Not only real estate property market is recovering but also the automotive market is growing again, although total passenger cars’ sales from January to September are still below last year.

From January to August, China’s total trade volume for cargo decreased by 0.6 percent, but export value for the individual month has become positive continuously for three months over last year.

The export value of home furniture and components decreased by 4.2 percent in August comparing with July, but the total export value increased by 1.6 percent from January to August, turning to positive for the first time in 2020.

Several market segments still under pressure

Not every downstream market is recovering so fast, especially those industries that count on the export market for a big percent of their revenue.

For example, the shipping industry’s output decreased by 7.1 percent in the first eight months of 2020, and new orders also decreased by 4.5 percent for the same period.

This will put pressure on the marine coatings industry. But new projects can still be seen recently.

Hempel broke ground of a new production base in Zhangjiagang, Jiangsu province.

The total investment will be 1.14 billion yuan and the total capacity will be 200 thousand tons per year after the project is put into operation in 2022.

Even domestic demand is not so strong for certain markets, and passenger cars are one of them.

The automotive market grew by 11.6 percent in August over the same month of last year.

However, whole year performance until August still decreased by 9.7 percent, a gap that might not be easily filled out with four months left for 2020.

And when we look at the passenger car market, its growth is six percent in August and whole year performance before September for this segment decreased by 15.4 percent.

But China is probably one of two major markets – India being the other – in the world that can still enjoy two digits growth in August.

Architectural coatings companies with scale show strong growth

Architectural coatings’ performance has seen great improvement after the first quarter as well.

The big increase in sales and profit is not driven by the recovery of application markets such as real estate property markets and automotive markets but driven by new investments and projects as well as industry consolidation.

This is especially apparent in the architectural coatings industry. 

Total sales of SKSHU’s second quarter is 2.16 billion yuan, increased by 37 percent over the same quarter of last year.

Sales for the first quarter decreased by 31 percent over the same period of last year. So the second quarter’s strong performance brings the company’s total revenue of the first half to a positive 15 percent increase.

Asia Cuanon Technology reported total sales of 1.27 billion yuan in the first half, increased by 33.9 percent over the first half of last year, and its profit in the first half increased by 213 percent over last year.

Industrial consolidation in the architectural coatings industry has moved more sales to large companies and small companies feel that it is more difficult to survive without the economy of scale in production and sales volume.

The low price of raw materials also benefits the stronger negotiation power of large companies.

Asia Cuanon on Sept. 17 announced that the company plans to invest 2 billion yuan to construct a comprehensive production base in Chongqing. The new base will have the production facilities of architectural coatings, waterproofing roll roofing, waterproofing paint, etc.

The total capacity of the new base, the largest project for Asia Cuanon, will be 1 million tons per year after completion.

Currently, Asia Cuanon has announced its plans to build production bases in Xinjiang, Henan, Hebei, Henan, and Anhui.

Domestic companies target lucrative industrial markets

Although domestic companies are expanding shares in the architectural coatings market, industrial coatings and automotive coatings markets are still largely the playground of international brand owners.

Lucrative profit in these high-value markets is very attractive to domestic players.

SKSHU recently said it wants to enter this market as well, targeting aerospace coatings, automotive coatings and marine coatings, etc.

It also disclosed that SKSHU recruited more than 40 PhDs recently.

It is not easy to get customers’ trust for new brands, especially when those downstream markets are mostly led by international brands as well. And it will take time to develop high-quality products which can show differentiation in the market.

So we can only judge whether these companies can succeed or not in competition when the time comes..