Architectural Coatings Firms Face Severer Competition
Year:2019 ISSUE:24
COLUMN:FINE & SPECIALTY
Click:120    DateTime:Dec.26,2019


By Zhang Songchen, Zhang Cheng, China National Chemical Information Center


Combined main business income of China’s top 100 coatings firms was RMB160 billion in 2018, accounting for 48.91% of coatings industry’s total. In addition to a relatively low concentration rate, the coatings industry faced a challenge that it could no longer depend on resources, capital and labor for growth.


Three levels of architectural coatings firms

   As an important part of the coatings industry, architectural coatings are mainly used in internal and external walls of buildings for decoration and protection. Domestic demand is growing rapidly – increased awareness of safety heats up the application of architectural fireproof/waterproof coatings. Further, the market of architectural coatings is boosted by policies regarding reconstruction of old city, construction of urban low-income housing, shantytowns transformation, rural revitalization, etc.

   Architectural coatings enterprises are divided into three levels in China. Enterprises at the top of the layer are transnational coatings groups (e.g. Nippon Paint and AkzoNobel) generally with long history of development, advanced technologies, solid financial strength and a wide range of products. In addition, they have a leading position in the areas of special and functional coatings.

   Second-tier members mainly include domestic brand enterprises like 3Trees and Asia Paint. Focusing on the domestic market, they are competitive in some areas and are very likely to become stronger via upgrading technologies and increasing brand influence.

   Small coatings firms producing low-quality and low-price products are at the bottom. They are lack of advanced techniques and competitiveness. Hence, some of them will gradually withdraw from the market.


How to survive

   The coatings industry is mainly curbed by costs of raw materials such as titanium dioxide, MDI and acrylic acid, prices of which all kept high in 2018. Price index of titanium dioxide had surged by nearly three times from the end of 2015 to the middle of 2017.

   Domestic architectural coatings companies are greatly impacted by downstream markets like the real estate industry. The nation’s macro economy, monetary policy, fiscal policy and regulatory policy decelerated sales growth of the real estate industry in the first half of 2019, but the industry expanded sales volume and improved market concentration. The coatings industry performed similarly – market size kept rising stably although the number of enterprises suffering losses and amount of loss both grew year by year. SMEs (small and medium-sized enterprises) will be harder to survive due to economic transition and more stringent environmental policies. Leading enterprises are actively establishing new plants.

   The coatings industry is forecast to develop soundly in a long term. Output of architectural coatings is predicted to grow around 6% during the 13th Five-Year Plan period (2016-2020), and account for over one third of the coatings industry’s total. Green development, innovation, cooperation and talents will be highly concerned by coatings firms, which will feel stressed about more expensive raw materials.


Two sales models of architectural coatings

   Architectural coatings firms sell home-decorating products mainly through dealers, and in a few cases, consumers with large demand can purchase directly from the producers. In addition, leading enterprises set up exclusive shops and online shopping malls.

   In the engineering field, most architectural coatings enterprises adopt two sales models – direct selling (applying to real estate developers, project construction companies and their designated companies) and distribution (with dealers containing companies or individuals having capital strength and construction capacity).

   The most important customers of the leading architectural coatings firms, top 100 real estate developers generally choose “strategic purchase” increasingly adopted in recent years, and “bid inviting”. The first model requires suppliers of coatings to meet certain criteria, and the real estate developers to purchase directly at the agreed prices.