Coatings Sector to Optimize Structure

By Yang Yuande, China National Coatings Industry Association

Ultra-conventional development of coatings sector during 2006-2010

1. Both output and economic benefit increased significantly

During the 11th Five-Year Program period (2006-2010), driven by rapid growth in other sectors - real estate, automobile, marine, transportation, traffic road and household appliances - China achieved double-digit growth in coating output - from 3.83 million tons in 2005 to 9.6663 million tons in 2010 - becoming the world's largest producer and consumer of coatings.
While the output continued to climb, financial performance was also quite good in the sector, with both sales value and profit growing much faster than output. Specifically, during 2001-2009, output grew 316.99% while sales value and profit grew 507.36% and 512.37%, respectively (60% and 62% faster than output growth).

Table 1 Output and Major Economic Indices of China's Coatings Sector During 2000-2010
Year    Output  (million tons)    Growth YOY (%)    Sales revenue (RMB billion)     Growth YOY (%)    Profit (RMB billion)    Growth YOY (%)
2000    1.8394    -    27.18    -    1.61    -
2001    1.816    -1.27    30.23    11.2    1.85    14.96
2002    2.0157    11    34.4    13.81    5.45    193.91
2003    2.4151    19.81    42.8    24.43    3.49    -35.96
2004    2.9815    23.45    53.99    26.13    3.21    -8.07
2005    3.8257    28.31    73.47    36.09    4.43    38.14
2006    5.078    32.73    96.32    31.09    6.57    48.21
2007    5.9728    17.62    126.47    31.31    8.64    31.55
2008    6.38    6.82    182.19    44.06    9.92    14.85
2009    7.5544    18.4    183.59    0.77    11.35    14.42
2010    9.6663    27.96    202.68    26.4    14.08    19.9
Source: CNCIC

2. The sector is dispersing geographically

During 2006-2010, China's production of coatings began to migrate from the first three large coatings production bases - the Pearl River Delta, the Yangtze River Delta and the Bohai Rim - to the central, western and northeast regions. China now has more than 20 coatings producers with annual production value of over RMB500 million, some of them even exceeding RMB1.0 billion. The regions of the original three coating production bases has expanded continuously: (1) Factories in the Pearl River Delta expanded to Fujian coastal areas with Guangdong as the core region. (2) Factories in the Yangtze River Delta expanded to surrounding areas with Jiangsu province, Zhejiang province and Shanghai as the core region. (3) Factories in Beijing and surrounding areas also expanded to the Bohai Rim area. (4) Central China has tended to be the fourth largest coatings production base.

Table 2 Regional Distribution of Coatings Production in China
Region    2000        2005        2009    
    Output (thousand tons)    Proportion (%)    Output (thousand tons)    Proportion (%)    Output (thousand tons)    Proportion (%)
Pearl River Delta    594.8    32.34    1 365.6    35.7    2 128.2    28.16
Yangtze River Delta    402.6    21.89    984    25.72    2 225.0    29.45
Bohai Rim    441.9    24.02    855.4    22.26    1 550.6    20.54
Others    400.1    21.75    620.7    16.22    1 650.6    21.85
Total    1 839.4    100    3 825.7    100    7 554.4    100
Source: CNCIC    

3. Product portfolio generally meets domestic demand

Development of the domestic economy has brought with it growing demand for coatings, and the special coatings market in particular has been booming. According to statistics, the proportions of architectural coatings in China's total coatings is 47.8%, much lower than the world average, and waterborne architectural coatings only account for around 1/3 of the total coatings market. China lags far behind Europe and the United States in the development of environment-friendly coatings.
In recent years, doors and windows, outdoor floor, furniture, decorative materials, steel structural parts, and many other such items are increasingly painted by their manufacturers rather than at the point of installation, promoting the rapid development of industrial coatings. In addition, surge of demand for coating products in sectors like auto manufacture, highway and bridge construction, and the rise of the crude oil storage projects and large-scale steel structure engineering also accelerates the growth of industrial coatings.

4. Changes of the organizational structure

According to an industrial census made by China in 2005, coatings enterprises in China was already numbered far more than 10 000 with widely scattered distribution. With the rapid development of the sector, employment has increased constantly. In coatings enterprises with considerable scale the number of production workers rose from 123.7 thousand in 2000 to 183.8 thousand in 2008.
The two highlights of the sector's development in recent years were: (1) The merger and acquisition of enterprises is active and expansion has accelerated. (2) The notion of branding has been implemented rapidly, and the market has focused on strong brands. China's coatings sector has formed a distribution pattern with large-scale enterprises as the mainstays and many small enterprises as supplements.
China's 1 401 coatings producers with considerable scale produced 9.6663 million tons of coatings in 2010, with an average output per enterprise of 6 899.6 tons, according to the statistics made by the National Bureau of Statistics of China. However, output per enterprise is far less than of western companies. In 2006, the average US coatings maker produced around 20 000 tons, and the top 20 firms made over 85% of the total output. In 2009, the combined output of top 20 coatings enterprises in China accounted for only 19.48% of the total.

Development during the 12th Five-Year Program period (2011-2015)

1. Market conditions and macroeconomic environment

The current market characteristics are as follows:
(1) Increasing market demand for recognized brands.
(2) Market demand extending from the single product to its upstream and downstream value.
(3) Establishment of enterprises' risk management and decision mechanisms.
(4) Acceleration of enterprises' strategic adjustments and strategic layout.
(5) Tremendous restructuring of domestic coatings market.
(6)Increasing importance of raw materials in the development of high-end products.
Coatings is a processing service sector and hence closely related to the suppliers of raw materials as well as coating technology and coating control, and changes in upstream and downstream sectors have a direct impact on development. China's economy will continue its steady development with annual GDP growth above 7%, bolstering the development of coatings sector. Driven by an ongoing boom in new buildings, automobiles, household appliances, marine structures and shipping, and other structures with heavy anti-corrosion requirements, the growth of both the output and sales value the coatings sector should be faster than GDP growth.

2. Output prediction

During the 12th Five-year Program period (2011-2015), the economy will keep growing, and demand in downstream industries and commercial applications is expected to drive 10% annual growth in the coatings sector, with output increasing from 7.55 million tons in 2009 to 12 million tons in 2015.

Table 3  Forecast of China's Coatings Output in 2015   thousand tons
Variety    2009    2015 (predicted)
Architectural coatings    3 610    5 800
Automobile coatings    450    720    
Marine coatings    350    560
Wood coatings    720    1 100
Anticorrosive coatings    610    980
Powder coatings    830    1 300
Coil coatings    150    240
Others    830    1 300
Total    7 550    12 000
Source: CNCIC

3. The key and direction of the structure adjustment

China will encourage the production of environment-friendly and resource-saving coatings including waterborne wood coatings, industrial coatings, marine coatings, high solid coatings, solvent-free coatings, ultraviolet (UV) curing coatings and functional external wall thermal insulation coatings. A chlorination process will be developed for obtaining titanium dioxide from titanium-rich (more than 90%) materials (synthetic rutile, natural rutile and high titanium slag). A single line will have a capacity of 30 000 t/a or above.
China will severely restrict construction of
* new titanium dioxide units using the sulfuric acid process
* new lead chrome yellow units
* iron oxide pigment units with a capacity of below 10 000 t/a
* new solvent-based coating units (except certain varieties and production processes that are encouraged)
* new triglycidyl isocyanurate (TGIC)-containing powder coatings units

4. Product R&D

(1) Waterborne industrial coatings
At present, 52.1% of the output of coatings in China is solvent-based, and more than half of that contains organic solvents. China's manufacture of waterborne architectural coatings has matured. On the other hand, R&D is just getting started for waterborne industrial coatings for wood, autos and some anticorrosive applications, and some fundamental technical problems are far from being solved, holding up development.
China produces more than 700 000 tons of wood coatings a year, of which only 5% is waterborne  Moreover, many waterborne resins, the key raw materials, must be imported. Wood coatings for furniture and home decoration come directly in contact with the human body, potentially having a great influence on people's health. Development of wood coatings towards waterborne varieties is crucial for people's health.
The development of high-function waterborne anticorrosive coatings is big issue in industrial coatings. China is in the midst of large-scale infrastructure construction, and structures such as railways, highways, bridges, power transmission facilities and chemical containers need to be protected by special coatings.
(2) Exterior wall thermal insulating coatings
The hottest technical areas for R&D are heat reflecting coatings with good weather resistance, and heat insulation materials with flame retardant properties. The insulation materials and coatings with reflective functions are integrated in prefabricated panels, which are hung on exteriors of both new and old walls. The service life of the overall exterior wall heat insulation materials after assembly should meet the national requirements of 20-25 years.

5. Environmental protection

The coatings sector aims to reduce its energy consumption by 20%, material consumption by 5%, and discharge of "the three wastes" (wastewater, waste gases and waste residues) by 10%, all based on 2009 levels.

During the 12th Five-year Program period (2011-2015), China will

* promote waterborne coatings and increase the market share of high-solids alkyd coatings by 20%.
* implement international conventions
* prohibit the production of chlorinated rubber using the solvent method and the use of organo-tin antifouling paints such as DDT and TBT
* develop applications of environmentally friendly coatings such as high-weather-resistance powder coatings and UV curing coatings for use in waterborne coatings, powder coatings and automobile coatings
* develop circular economy for coatings and inorganic pigments
* push forward an evaluation system regarding clean production processes for pigments containing titanium dioxide or iron oxide
* promote the chlorination process for producing titanium dioxide using high grade (80%+) titanium materials as raw materials