Coatings World - March 2009

State of the Industry

tainers. The period 2002 to 2007 saw significant growth in the global economy with global GDP expanding at a compound annual rate of more than seven percent. The growth rate fell to less than four percent for 2008. In their most recent projection, the International Monetary Fund forecasts a 2009 growth in GDP of only 0.5%. This is the lowest forecast annual global growth rate since World War II. Clearly the stagnation of the global economy is having a negative impact on overall coatings demand.

Construction activity directly impacts a number of end-use markets and is a major driver of coatings demand. In addition to the decorative coatings segment, industrial maintenance, coil coatings and wood finishes are tied to construction. These end-use segments make up approximately 70% of overall coatings demand. Following years of significant expansion, the global construction market has dropped off considerably. Specifically, construction markets in leading Western economies are forecast to decline in 2009. The North American construction market is projected to shrink by roughly nine percent. The construction market in Japan is forecast to decline by seven percent and Europe is projected to decline by nearly two percent. For the near term, the decorative, industrial maintenance, coil and wood finishes markets will be negatively impacted by this decline in the construction market.

Industrial coatings demand is, by and large, driven by the demand for, and production of, the end use products. For example, transportation coatings demand is dictated by the number of cars, trucks and planes that are built. Unfortunately, demand for these manufactured products is down significantly. In 2008, global vehicle production declined more than five percent versus 2007 and a further decline of nearly nine percent is forecast for 2009. Transportation is not the only market facing a downturn. The U.S. Energy Information Administration (EIA) is projecting that

the Manufacturing Index for the U.S. will fall below 2002 levels during the course of 2009.

Regional growth in coatings demand has mirrored regional economic development. Over the past five years, those regions that have seen the greatest economic growth have experienced the greatest increase in coatings demand. This is most evident in the Asia-Pacific region where both GDP and coatings volume have been growing in excess of ten percent per year. It is important to note, however, that while growth follows the overall economy, there is wide disparity in per capita coatings demand.

North America has the largest per capita demand followed closely by Europe. Other regions of the world lag

by a significant margin. Chart 2 depicts coatings demand per capita for each region.

GROWTH FORECAST Clearly the current global economic slowdown is having, and will continue to have, an impact on the coatings industry. The recovery of the coatings market is inherently tied to recovery in the end use segments, and thus overall economic activity, construction and manufacturing. The short-term forecast may indeed be negative, however, the medium- to long-term prospects for the industry are much more positive. While the International Monetary Fund has downgraded its 2009 global GDP forecast to 0.5%

Table 1. Coatings Market Segments Investigated

Major Segment

Component Sub-Segments

Decorative Coatings

Professional Painters; Do-It-Yourself (DIY)

Transportation Coatings

Automobile, Light Truck, Van and SUV Finishes; Heavy-duty Truck, Bus and Recreational Vehicle Finishes; Aeropspace Coatings; Other Land Transportation Equipment Coatings