Based on a report released by the Chemical Industry and Engineering Society of China, the total powder coatings output of the top 30 producers in China is 441.5 thousand tons in 2014, which is less than one third of total powder coatings output in China. The powder coatings market in China is still very fragmented and composed mainly of the products of domestic small- and middle-sized powder coatings producers. But the high-end segment of the local powder coatings is still represented by the products of foreign companies, such as DuPont, AkzoNobel, Nippon Paint, Tiger and PPG. Large foreign powder coatings companies enter the China market at an early stage of market development. With stabilized and consistent quality and mature technologies, foreign brands soon established their leading position in China.
On the contrary, domestic companies mainly compete in price in the middle and low-end market segment. This situation seems to get even worse if we look at the development of one of the major raw materials for powder coatings. The growth of the resin for powder coatings is apparently faster than that of powder coatings, resulting in a possible scenario in the future: Most of the powder coatings producers will still compete in price, especially in the low and middle-end market segments. For example, Anhui Meijia New Material, with the new capital raised from their stocks in the public market, is constructing a new polymer resin capacity of twenty thousand tons per year right now. Meijia is also a major domestic powder coatings producer in China, ranking fifth or sixth in the top 30 powder coatings producer list. So the new added resin capacity will mainly serve Meijia’s own production needs, but the price pressure will transfer to the whole powder coatings market when the new capacity is released.
Foreign powder coatings producers quickly adjust their business strategies in China
The slowing down of the growth of the electronic appliances, automotive and real estate industries in China is pushing resin and powder coatings producers to think about new ways out of this fierce competition. And the introduction of new environmental regulations in China is also encouraging some other industries such as aluminum profile manufacturing to use environmental friendly products such as powder coatings.
Although AkzoNobel, ranking number one for many years in China, produced 66 thousand tons powder coatings last year, mainly under the Interpon brand, the largest powder coatings producer not only in China but also worldwide said that China’s property boom of the past decade is well and truly over. Ton Büchner, chief executive of AkzoNobel, said, “China’s growth trajectory has slowed down significantl. China is not the constantly growing construction market that it has been for the past 10 years and we need to adjust to that.”
North America is improving and new markets in Asia, such as Indonesia and Vietnam, are improving. AkzoNobel is very clear of the latest global market trend and moving quickly with the launch of new business strategies. In the middle of 2015, AkzoNobel announced a plan to invest more than €30 million in Thailand to support regional growth of its Performance Coatings business.
But this does not mean AkzoNobel will not further develop the China market, which is still important in its global roadmap. The company just implemented into China with a new strategy different than the one which focused on capacity growth and new investment before.
Although the real estate market is slowing down in China, refurbishing and redecoration markets are still growing and taking over the market space left by new real estate market category, and non-residential construction market is also very active. For example, Shanghai Disney project, which will attract a total investment of 29.5 billion yuan, will provide a huge painting demand. AkzoNobel still invests in China but only in market areas that still shhow potential. For example, on March 1, 2015 AkzoNobel started construction of its new powder coatings plant in Chengdu, Sichuang province, adjusting its business strategy toward developing western China market, which lags relatively behind the development of the eastern coastal area. Potential in western China is still big. For example, Ford Motor, which has its main manufacturing base in Chongqing, grew by double digits in 2014 although entering China relatively late comparing with Valkswagon and GM.
In the top 30 powder coatings list for 2014, AkzoNobel is followed by Axalta Coating Systems, the former DuPont coatings branch, in China, with a total output of 42 thousand tons. Axalta Coating Systems at the end of last year renewed its strategic partnership with Huajia. With six powder coating operations across China, Axalta Huajia Coatings has increased manufacturing capacity and its product range to meet the growing demand for high quality powder coatings for its customers in China. The only Chinese domestic powder coatings producer ranked among the top three is Shandong Ai Ao Powder Coatings, which produced 33.5 thousand tons of powder coatings in 2014, about half of the output of AkzoNobel.
After divesting from DuPont, Axalta seems to be putting more effort in raising the new brand’s awareness in the China market, and marketing promotions such as event sponsorship, new product launches and seminars. Although, we did not see Axalta add big new investments in the powder coatings category in 2015 in China.
Compared with the past, new investments from powder coatings producers are dwindling. But even with less than seven percent growth, a possibility of only five percent for the automotive industry, China’s economic growth is still very impressive in the world compared with other developed countries such as Japan and Europe. But this will definitely lead to even fiercer market competition, especially in the powder coatings market. Only continuously improving companies can still stand on the top.
