From January to July, China produced 9.868 million tons of coatings, increased by 2.3 percent over the same period of last year, but much slower than the GDP growth rate, which is 6.8 percent for the first half year. Major coatings provinces including Guangdong, Shanghai and Jiangsu have lower coatings output than last year, mainly because of frequent production restrictions ordered by local governments with the purpose of improving air quality. But the west and middle regions still showed fast growth speed. For example, Sichuan grew by 7.8 percent and Hunan, Anhui, and Hubei all have two digit growth in the first seven months.

If you look at several major downstream markets which have big impacts to the coatings market, one can find out that their recent development and future prospects do not seem to be favorable. This, added with unstable export and oil markets, might signal a soft coatings market for the next year.

Pillar industries show mixed performance, with possibilities for weakening in the next year

Low-speed growth has become a reality because of slowing down for demand growth in downstream markets. Most companies’ business reactions based on products and sales strategies are a lack of innovations and efficiencies. Instead, those companies who implemented the right strategies win market shares and grow even faster.

As the largest downstream sector for coatings, the real estate property market is critically important to China’s coatings industry.

From January to September, China sold a total of 1.19 billion square meters of real estate properties, increased by 2.9 percent over the same period of last year.  But in September alone China sold a total of 168 million square meters of residential real estate properties, decreased by 3.6 percent over the same period of last year.  Real estate companies normally will speed up selling their houses by offering attractive discounts to lure customers in the fourth quarter. So the growth of total sales in 2018 is still foreseeable, but the growth rate might be limited.

China’s automotive market, another important downstream market for coatings, is showing soft signals already, which might have an important impact on the markets of industrial coatings and OEM coatings.

In September China produced 2.356 million vehicles and sold 2.394 million vehicles, decreased respectively by 11.7 percent and 11.6 percent over the same period of last year. From January to September, China sold 20.49 million vehicles, an increase of 1.5 percent over the same period of last year.

The furniture industry is an important contributor for export. And it is an important user of wood coatings in China.

In the first half of 2018, China produced 381 million pieces of furniture, increased by 1.42 percent, and the total profit of the furniture industry decreased by 6.07 percent. So even with total revenue and volume continuously growing, China’s furniture industry is perplexed by price increases for raw materials and environment protection pressure, etc. 

The impact of trade war will kick in

In 2018 the U.S government added extra tariffs on goods imported from China.

Furniture, mobile phone, computer, etc., are experiencing 10 percent extra tariffs, and this rate will rise to 25 percent from the beginning of 2019.

Right now, 10 percent tariffs are causing little concern, but 25 percent which could be implemented from next year will have broader repercussions. 

Sunrise Furniture, a furniture maker producing contemporary designs out of a facility in Dongguan, Guangdong province, said that its market share in America could plunge dramatically if the 25 percent tariff rate takes effect. This will negatively impact some coatings segments such as wood coatings, metal coatings and plastic coatings.

Environment protection pressure on coatings industry will endure

The State Council of China approved a three-year action plan. Analysts said economic and industrial restructuring will be the key for reducing particulate matter density.  It is prohibited from constructing new solvent-based coatings, inks and adhesives projects which produce high VOCs or new projects which use high VOC coatings, inks and adhesives. And total VOC release volume in 2020 will be reduced by over 10 percent from the level of 2015.

By the end of 2019, the development of compulsive national standards for limiting VOCs of coatings, inks and adhesives will be completed. And these standards will be put into implementation since July 1, 2020.

Environment protection will continue to push forward the development of waterborne coatings in China, although the overall market share of waterborne coatings is still small, the growth rate will be much higher than that of the coatings market as a whole.

Large companies continue their growth and expand their footprint

In 2018, many coatings companies experienced growth, even when the external environment is not favorable. Compared to their competitors, these companies have differentiated product portfolio and aggressive marketing strategies.

Yip’s Chemical Holdings Limited’s coatings business achieved fast growth in sales volume, sales revenue and gross profit by 19.2 percent, 22.2 percent and 21 percent respectively in the first half of 2018 over the same period of last year.

Yip’s Chemical owes this success to shifting to an environmentally friendly product portfolio, structural cost reduction, and opportunistic acquisition, etc.

Unfortunately, gross margin continued to hover at a relatively low level due to sustained high raw material prices and rising cost because of VOC investment at the Jinshan plant.

Yip’s Chemical said it is confident that with 36 years of a foothold in the market, prudent business strategies, continuous investment into meeting higher HSE standards, and good progress of integration after acquiring “Camel,” its business is set to lift off again after bumpy transition cross these few years.

As some companies focus on organic growth, other companies continue to increase their footprints to grab new market share. 
In the first half of 2018 Asia Cuanon’s sales increased by 19.34 percent to reach 651 million yuan, but their profit decreased by 46.87 percent over the same period of 2017.

The company cited rising raw material and labor costs as the reason for profit drop. The company now has five plants in China, and recently the company announced to build a new plant respectively in Chongqing and Changsha respectively, which coincides with the company’s plan to build 10 billion yuan sales capacity in three years and 15 billion in five years.

As China’s coatings market continue to develop further, those coatings companies who have more internal strengths, including technologies and marketing acumen, will continue their growth in fierce competition and become even stronger than before.