Coatings World - March 2010

State of the Industry

U.S. and Western Europe have been especially hard hit. For example, the U.S. Census Bureau in its recently released “Paint, Varnish, and Lacquer - Third Quarter 2009” reports that total U.S. coatings sales through the first three quarters of 2009 were down nearly 20% in terms of volume when compared to a similar period in 2008.

In contrast to what has been seen in North America, Asia-Pacific is the only region that has shown growth over the past year. While far less than the double digit growth that has been seen in years past, this region has continued to show modest growth. Representing more than 40% of the global total, Asia-Pacific has become the largest geographic region in terms of coatings volume. Europe is the next largest region representing more than one-quarter of the world’s coatings volume. NAFTA trails Europe and comprises less than 20% of the volume. The balance of the market volume is split between Latin America and the rest of the world (ROW).

ECONOMIC INFLUENCES Coatings demand is affected by a number of factors. The three most prominent determinants are overall economic activity, construction levels and the quantity of specific end-use products manufactured such as automobiles, furniture and containers. The best measure of overall economic activity is GDP. As a rule of thumb, coatings sales tend to follow overall GDP. The most recent International Monetary Fund data illustrates the significant declines seen in Europe and North America as well as the slight growth in Asia-Pacific. GDP declines, accompanied most likely by coatings consumption declines, were experienced in Latin America and the ROW markets. These, however, were smaller in nature than those experienced in Europe and North America. This data is presented in Chart 2 on the next page.

Construction activity directly impacts a number of end-use markets and is a major driver of coatings demand. In addition to decorative coatings, industrial maintenance, coil coatings and wood finishes are tied to construction. These end-use segments make up approximately 70% of overall coatings demand. After contracting in 2008, the global construction market shrank a further five percent in 2009. In particular, total construction in both North America and Western Europe declined by more than ten percent. These significant losses were countered somewhat by growth in Asia-Pacific. While overall growth was seen in Asia-Pacific, there has been a decline in the Japanese construction market. Steep declines in North American and European residential construction in 2008 were offset somewhat by commercial construction. Despite stimulus spending, 2009 saw a decline in residential and commercial construction in both these regions.

As you would expect, industrial coatings demand is largely driven by the demand for, and production of, the

Chart 1

end use products. For example, transportation coatings demand is dictated by the number of cars, trucks and planes that are built. Demand for industrial coatings has been severely impacted by the decline in industrial output experienced during this recession. The transportation sector has been particularly hard hit. Following a decline in global production of nearly four percent in 2008, global automobile production fell an additional 18% in 2009. This downturn in the global transportation coatings market has been felt in all regions. The only significant producer of vehicles to experience growth is China. China has now supplanted the United States as the world’s largest automobile market and accounted for nearly 20% of global vehicle production in 2009. While the decline in other manufacturing sectors has not been as severe as the automotive market, this market does serve as a microcosm for manufacturing activity as a whole.