China Coating Industry Association
Output increases, but profits fall
In 2017, the output of coatings by 1 380 industrial enterprises of considerable scale in the coating sector of China reached 20.364 million tons, a YoY increase of 12.4%. With sustained drastic growth of large-volume raw materials and constantly increasing environmental protection pressure, survival worries in some enterprises that are poorly adapted to the new situation were aggravated and integration in the coating sector was accelerated. In 2 057 enterprises of considerable scale, the number of money-losing enterprises and the total amount of losses increased 26.3% and 45.1%, respectively, YoY. Their combined inventory was 12.1% higher. Some products were hard to sell. The necessity to cull capacity will remain stern in the future.
The total profit was RMB27.88 billion in 2017, a drop of 11.6% from the previous year, and the actual reduction was RMB3.66 billion. Deducting the abnormal fluctuation of RMB2.0 billion in 2016, the change in total profit for 2017 was -5.6%. The main reasons for the drop include a sustained price rise of large-volume raw materials, a cost increase in main businesses, a drop of product selling prices caused by strategic concentrated purchasing by users, upgrading of products, businesses and production lines caused by severe pressure to protect the environment and a temporary rapid increase of overall cost. The sustained environmental protection inspections of 2017 led to increased investment in environmental protection facilities and in R&D of environment-friendly products.
The percentage of coating raw materials with a price rise was 62.0% in 2017, and the percentage of coating raw materials with a price drop was 38.0%. The highest cost index of coatings reached 117% in 2017. The cost of raw materials has become a major factor constraining the development of the sector.
NBS statistics cover only enterprises of considerable scale (an annual output value of over RMB20 million), omitting the majority, around 8 000 firms. Due to the heavy pressure to protect the environment, 4 000-5 000 enterprises shut down or suspended production during 2016-2017. The withdrawal of these enterprises has eased low-quality competition in the coating sector and made the market more rational.
Green development becomes common sense
Environmental protection pressure in 2017 was even higher than in 2016. The priority today is control of air pollution. According to the air pollution pre-warning mechanism of China Meteorological Administration, if the pre-warning grade is above orange, major coating producers and painting units must suspend production and operation, so considerable financial loss befalls the sector in some regions. Moreover, the government requires enterprises to install facilities for collection and post-treatment of waste gases, drastically increasing the production costs of enterprises within a short time. Investments by coating producers and painting units in R&D of environment-friendly coatings and painting technologies and devices are conducive to the development of the coating sector in a high-end, green and environment-friendly direction.
The move of enterprises into industrial parks for development has become a trend. In the interest of green development, policies for environmental protection will keep driving. Moving into chemical industry parks is a path that coating enterprises have to take for long-term stable development and also a long-range outlay for coating enterprises to cope with the future market. Several dozen well-known coating enterprises such as Carpoly, ZhanChen, Clivia, Maydos and Oriental Yuhong successfully settled themselves down in industry parks in 2017.
Coating users have also gradually changed their preferences in coating products. The demand for environment-friendly varieties among users of industrial coatings is increasing, and their technical requirements are getting higher and higher. Users in certain sectors, in particular – automotive, agricultural vehicles, engineering machinery, fast track communication, steel structures and composite materials – urgently need environment-friendly coatings that meet their requirements. Coating enterprises, however, are yet unable to fully meet the needs of users.
China Coating Industry Association started to formulate the “Six Major Action Plans for the Green Development of the Coating Industry in China” in April 2017. Coating producers will lay greater emphasis on environmental protection and control in production, increase investments in the treatment of “wastes” generated in production, introduce efficient equipment and attain indexes for environmental protection, energy conservation and emission reduction. In R&D, coating enterprises will focus more on environment-friendly coatings with low VOCs, and form an environment-friendly coating system featuring the balanced development of high-solid varieties, powder varieties and UV curing varieties, with water-based coatings as the leaders, to better meet the needs in market.
Innovation becomes internal impetus
2017 was a year with higher policy pressure and higher market pressure. Nevertheless, the coating sector still achieved anticipated developments. Output and main-business revenue both increased. Innovation-driven development is one of the main reasons, and it is also an important approach for supply-side structural reform.
To meet environmental protection requirements and needs of users, coating enterprises constantly developed new product varieties, conducted research on new processes and diversified and differentiated products in 2017. Research into water-based coatings attracted the greatest attention in 2017. The R&D of water-based industrial coatings, in particular, was the most popular. Water-based automobile coatings, water-based fast track communication coatings and water-based engineering machinery coatings developed rapidly. R&D into UV curing coatings also developed quite rapidly. Research on applications of water-based UV curing coatings in the painting of wooden products such as furniture, in particular, went forward. The development of new products such as water-based coatings and UV curing coatings also promotes research on application processes, application methods and application devices. Product innovation has enhanced the market competitiveness of coating enterprises.
China Coating Industry Association accelerated the formulation and revision of standards for coatings and ensured the sound development of the coating sector in 2017. China Coating Industry Association Standard Setting Committee completed the formulation of four standards including the “Technical Specifications for the Assessment of Green-Design Products – Water-Based Building Coatings”, organized the formulation of nearly 10 group standards such as the “Technical Specifications for the Repainting of Inner Wall Coatings in Interior Decoration and Repair” and the “Automobile Upholstery Coatings (Water-Based Varieties and Solvent Varieties)” and participated in the formulation of two national compulsory environmental protection standards – “Standards for the Discharge of Atmospheric Pollutants in Furniture Manufacturing” and “Standards for the Discharge of Atmospheric Pollutants in Container Manufacturing” – and also in the formulation of “Engineering and Technical Specifications for the Control of Wastewater in the Titanium Dioxide Industry” and “Standards for the Discharge of Inorganic Pigment Pollutants”.
The application of renewable new materials in coatings is one of the keys to technical breakthroughs for the sector. The pace of applying the recently emerging material graphene in coatings has greatly speeded up. Many coating enterprises have become involved in such research. They try to make breakthroughs in the application of graphene in heavy anticorrosion coatings and have already made some practical achievements. The R&D and application level of graphene coatings in research institutes and enterprises such as CAS Ningbo Institute of Industrial Technology and Xinhe New Material Co., Ltd. is already world class.
New development modes are actively explored
Traditional development modes in enterprises are already unable to meet the needs of development. Enterprises highlight innovation in development modes.
Coating enterprises have expanded industrial chains, enriched product lines and consolidated market competition advantages. For example, producers of building coatings and home decoration coatings have gained access to the industrial coating sector. Producers of conventional industrial coatings have extended into the automobile and ship coating sector. Producers of building coatings have broadened their businesses to the floor coating sector. Coatings enterprises have expanded their industrial chains to the painting sector and even the ink sector.
Coating enterprises have unfolded international cooperation. Jiangsu Elephant East Asia Coating Co., Ltd. has launched cooperation with coating enterprises in Canada to jointly produce and sell coatings. Carpoly has started cooperation with Euroquimica of Spain to produce automobile and industrial coatings. SKSHU Coating Co., Ltd. has visited coating industry organizations and enterprises in Europe to seek opportunities for cooperation. Baolijia, ZhanChen and Bardese have set up overseas offices to seek cooperation in multiple forms.
The role of capital in enterprise development has continued to show itself. M&As among foreign enterprises and among domestic enterprises frequently take place. In 2017 Sherwin acquired Valspar, Dow merged with DuPont, CRF acquired Zibo Huarun, Guangxin Material acquired Eternal (Guangzhou) Fine Coating and Chuangxing Fine Chemical (Shanghai) and Jiangsu Hongtai marched into the UV curing coating sector. Capital will play a more and more important role in the future development of the coating sector. Market concentration will increase greatly, and a new competition pattern will form.
