By Zhang Qian and Cheg Xiuhua, ibuychem.com

Production and benefits

China’s coatings output fell 8.5% YoY to 34.88 million tons in 2022, mainly because of factors like real estate recession, coronavirus, etc. By production regions, output of main ones (e.g. east China, south China and southwest China) all decreased.The coronavirus greatly lowered coatings output of Shanghai by 26% YoY.

Prices of raw materials remained high and demand for coatings was weak, both in 2022, the hardest year for domestic coatings producers in recent 20 years. Hence, main business income of domestic coatings firms declined 5.2% YoY to RMB452.5 billion in 2022, when total profit dropped 23.7% YoY to RMB23.3 billion (see Figure 1 for details).

Figure 1 Capacity, output value and profit of China’s coatings industry in 2022

Cost pressure alleviation and profit rebound

Coatings producers have contended with high cost pressure in recent years, given soaring prices of raw materials such as titanium dioxide, resin, emulsion, etc. Most of enterprises raised coatings prices, but this could hardly compensate pressure from expensive raw materials. Hence tumbling profits in most coatings firms. However, prices of raw materials started falling in the second half of 2022, and the decrease continued in the first half of 2023. According to data from ibuychem.com, coatings raw material purchasing cost index was down 11 percentage points from January 2023 to 76% in June 2023, when prices of main raw materials (e.g. epoxy resin, propylene glycol, acrylic acid, etc.) all declined (see Figure 2 for details). Cost pressure alleviated.

Figure 2 Purchase cost comparison of main raw materials in June and January 2023

Therefore, most coatings enterprises made more profits in H1 2023, especially those taking measures regarding product mix optimization, cost reduction and benefit increase, etc. In Hebei province, operating revenue of coatings manufacturing industry was up 3.5% YoY to nearly RMB5 billion, combined profit surged 26% YoY to RMB203 million, and output rose 31% YoY, all in the first five months of 2023, according to data from the Hebei Petroleum and Chemical Industries Association. Profit growth far exceeded revenue increase, which means that declining prices of raw materials led to higher gross profit of coatings products.

Consumption areas

* Real estate industry

Real estate industry once greatly propelled building coatings market, but since the second half of 2020, development of the real estate industry has slowed down, resulting in dropping demand for building coatings. In spite of being in an adjustment phase, the real estate industry is becoming stabilized in 2023.

* NEV industry

NEV industry embraced an explosive growth in 2022, when China produced 7.06 million NEVs and sold 6.89 million, skyrocketing 96.9% YoY and 93.4% YoY, respectively. In H1 2023, rapid growth continued: 3.79 million NEVs were produced, and 3.75 million were sold, surging 42.4% YoY and 44.1% YoY, respectively. Market share of NEVs rose to 28% in H1 2023 from 25.6% in 2022. Annual sales volume of NEVs for 2023 is forecast to soar 35% YoY to 9 million. This means that NEV industry’s demand for coatings will remain high. Further, many coatings enterprises developed special coatings for new energy batteries – a new competitive field with market size of around RMB20 billion.

* Other industries

Development of industries like electronics and chemical industries raised demand for industrial coatings, which are experiencing continuous expansion, technical upgrading, green transformation, etc. With sustainable development getting more attention, producers of industrial coatings will invest more in technical R&D, improve coatings performance, etc. to meet different requirements.

Future development

Benefiting from rapid development of the world’s leading coatings enterprises, and rising market value of major coatings producing countries (e.g. the US, India and Japan), the world’s coatings market size will expand continually in 2023, a key year during China’s 14th Five-Year Plan period (2021-2025).

With demand gradually recovering, domestic output of coatings for 2023– expected to enjoy growth rates of 1.4%-2% – may rebound to the level of 2021, and may reach 37 million tons in 2025 (forecast based on the lowest rate of 1.4%). Figure 3 shows China’s coatings output from 2021 to 2025. Profits of most domestic coatings firms will rebound in 2023. Growth of main business income is forecast to recover to 2.2%, even around 10% in key enterprises.   

Figure 3 China’s coatings output from 2021 to 2025