By Xiao Shuyun, Song Jiaoyang, China National Chemical Information Center Consulting Department

Overview of China's coating market

In the past three years, the global demand for coatings has been relatively weak, with a growth rate of merely 3.7%. The market size of China's coatings industry has shown a growth trend. China's coatings market size was approximately RMB483 billion in 2022, and the compound annual growth rate (CAGR) from 2020 to 2022 reached 4.7%, surpassing the overall global growth rate. See Figure 1 for detailed information.

Figure 1 The size of China’s coatings market from 2020 to 2022

Among the overall market size of China's coatings market in 2022, architectural coatings (including wall, waterproof, floor, and functional architectural coatings) accounted for the highest proportion, with a share of 36% (RMB174 billion); followed by industrial coatings, accounting for 35%; other coatings accounted for 29%.

As of 2022, there were more than 6 000 coatings manufacturers in Chinese mainland, with the majority being architectural coatings manufacturers. However, the market share of the top 10 coatings companies was only 17.2% in terms of turnover. The top 100 coatings companies (including domestic and foreign companies) occupied about 42% of the Chinese coatings market. The market is relatively scattered compared with global top 100 companies which have a market concentration of 70% to 90%, and the 28% concentration of the top 10 companies. Therefore, it is expected that the market concentration of China’s domestic brand will further increase in the future.

Overall, competition in China's coatings industry is very fierce, and companies can be divided into three major echelons. The first echelon consists of foreign companies, and almost all large multinational coatings companies have established subsidiaries or joint ventures in Chinese mainland. With their technological and financial advantages, these companies are capable of covering all categories of coating products and capturing a significant share in the Chinese coatings market, representing companies including PPG, Nippon Paint (China) Co., Ltd. (Nippon), AkzoNobel Paints (Shanghai) Co., Ltd. (AkzoNobel), Sherwin-Williams (Shanghai) Co., Ltd., etc. Among them, Nippon has established seven comprehensive factories in China, including more than 70 production bases; Sherwin-Williams entered the Chinese market by acquiring China domestic brand, Guangdong Huarun Paints Co., Ltd. China's leading companies currently belong to the second echelon. They are gradually expanding their coating categories and have comparative advantages in specific market segments. The third echelon represents the overall current situation of China's coatings industry, that is, there are a large number of manufacturers which produce low quality and earn small profits. The situation of the three major echelons of companies in Chinese coatings industry is shown in Figure 2.

                Figure 2 Situation of the three major echelons of companies                                    in China’s coatings industry

Situation of Chinese coatings companies

In the sales ranking of Chinese coatings companies in 2022, there were 6 foreign-funded companies in the top 10, and there were only 4 local Chinese companies. The local Chinese companies included SKSHU Paint Co., Ltd. (3TREES), Beijing Oriental Yuhong Waterproof Technology Co., Ltd., Hunan Xiangjiang New Area Development Group Co., Ltd., and Carpoly Chemical Group Co., Ltd., ranking fourth, fifth, eighth, and ninth, respectively. Their sales volumes were RMB8.953 billion, RMB8.595 billion, RMB4.079 billion, and RMB3.88 billion, respectively. Most leading companies are dominated by foreign brands, while local Chinese companies generally have small scales and face disadvantage in competition. The ranking (by sales) of China's top 10 coatings companies in 2022 is shown in Table 2.

As a leading local coating company in China, 3TREES' business scope covers six major fields: exterior wall paint, waterproofing, insulation, flooring, auxiliary materials, and construction. The company is committed to providing one-stop procurement solutions for green building materials for the whole house. Currently, 3TREES has established 9 production bases, distributed in Fujian, Anhui, Hebei, Sichuan, Henan, Tianjin and Hubei, and there are also expansion projects in many places. Oriental Yuhong is a prominent player in the waterproof coatings industry, with a market share of over 35% in this segment. At the same time, in 2016, the company expanded its business into architectural wall coatings through the acquisition of Germany's DAW. Table 3 shows the ranking of enterprises in various coatings segments in China in 2022.

   Note: * represents foreign-invested enterprises

Opportunities and risks in the coatings industry

1. Industry opportunities

(1) National policies to maintain future development

According to the China's 14th Five-Year Plan for Coatings Industry issued by the China Coatings Industry Association, the development of China's coatings industry during the 14th Five-Year Plan period (2021-2025) will be consistent with the country's overall development strategy. Great efforts will be made to achieve sustainable growth, actively promote industrial upgrading, optimize the product structure of coatings, gradually increase the proportion of environmentally friendly coating products, and further increase investments in scientific and technological transformation.

(2) Market concentration to be improved

Currently, the competitive landscape of China's coatings industry is fragmented. The leading companies are dominated by foreign brands, with the market share of the top 10 coatings companies blow 20%. In comparison, the top 10 companies in Europe and the United States have a market concentration of 70% to 90%. This suggests that there is still room for improvement in China's market concentration. At present, China's domestic brands are rising rapidly, and the industry is strengthening the integration.

(3) The re-coating market is the main source of increasing demand for architectural coatings in the future

The current re-coating cycle for houses in China is about 10 years, and the cycle will continue to shorten in the future. Additionally, there is an upward trend in the proportion of second-hand housing transactions, which will gradually expand the re-coating market. Furthermore, China's urbanization rate is currently around 65%, and there is still a room for improvement in the stock of new properties, which will continue to support the growing demand for re-coating. It is expected that in the next five years, the re-coating market will experience a growth rate of 8.6%, far exceeding the growth rate of new properties. Therefore, the growth in the re-coating market will become the primary driving force behind the increasing demand for architectural coatings in the future.

In terms of market size, China’s architectural coatings market was valued at approximately RMB174 billion in 2022, of which wall coatings was about RMB130.5 billion, accounting for 75%, being the most important part of architectural coatings. Re-coating is expected to be the major source of increasing demand for architectural coatings in the future. In 2022, the demand for coatings in new properties accounted for a large share, about 64%, a decrease of 4 percentage points from the previous year. However, the current re-coating cycle of Chinese houses is about 10 years, and the cycle will continue to shorten in the future. At the same time, the proportion of second-hand housing transactions has an upward trend, and the re-coating market will gradually expand. Furthermore, China's current urbanization rate is about 65%, and there is still room for growth in the number of new properties. It is expected that by 2027, there will have been a housing stock of 50 billion square meters. The increase in housing stock in the future will also largely support the rapid growth in demand for re-coating. It is expected that the re-coating market will maintain a growth rate of 8.6% over the next five years, far exceeding the growth rate of new properties and becoming the main driving force behind the increasing demand for architectural coatings in the future. By 2027, the proportion of re-coating is expected to reach 47%, while the proportion of construction coatings for new properties will drop to 53%.

2. Industry risks

(1) Macroeconomic and real estate downturns affect the coating market

The coatings industry is relatively sensitive to macroeconomic fluctuations and is significantly affected by the international economic environment and macroeconomic fluctuations. For the coatings industry, risks are mainly reflected in the downturn of the shipping market and overcapacity caused by international market fluctuations, declining market demands, and tense regional political environments, resulting in a decline in market demand for industrial coatings such as ships. Additionally, there are increasing regulatory policies in domestic real estate, policies suppressions and declining demands for coatings in architecture.

(2) Fierce competition in coatings market

The competition of coatings industry in China is very fierce. Currently, most of the leading international coatings companies have entered China domestic market and occupied a high market share in the China’s coatings market due to their technological and financial advantages. However, domestic Chinese companies generally have smaller scales, being in a weaker position amid the competition and here is a risk of price war.

(3) Increasingly strict environmental protection policies

China's current policy focuses on restricting the development of solvent-based coatings. To achieve this, strict limits have been imposed on volatile organic compounds (VOCs) emission from furniture and interior decoration materials, and it is clearly stipulated in the guidance catalogue of industrial structure adjustment that new solvent-based coating production lines with an annual capacity of less than 30 000 t/a should be prohibited. As the "green threshold" for imported products from  the European Union, and developed countries like the United States, and Japan continues to improve, and domestic implements a series of stricter domestic environmental protection policies and regulations, the development of solvent-based coatings is facing increasing restrictions. Consequently, the proportion of solvent-based coatings in both industrial and civil coatings has been continuously declining.

Moreover, if the country introduces more stringent environmental protection standards in the future, companies may need to further increase their investment in environmental protection and environmental management expenses, which may affect the profitability of companies.

(4) Rising raw material prices lead to lower profits

The development of China's coatings industry is greatly affected by the upstream and downstream industries. On the upstream side, raw materials including resins, solvents, and titanium dioxide account for about 80% of the cost of coatings. Price fluctuations have a certain impact on the profitability and even sales of the coatings industry. Recently, the escalation of the situation between Russia and Ukraine leads to the surge in crude oil, the turmoil in the global commodity market, and the rapid rise in the prices of coating raw materials, so most companies in the Chinese coatings industry have already suffered losses.