Coatings World - October 2015

Sealed in Stability
October 2015 www.coatingsworld.com Coatings World | 55

Competition is Getting More Intense

Unlike some industries where foreign companies still dominate the market, in the sealant market the level of foreign market share by output and revenue is low. Despite this, foreign and domestic companies sell to different markets, but the extent to which this applies differs by segment. Foreign companies are targeting the high-end market, and pricing their products accordingly. Most market demand is for non-high end products which favors domestic suppliers. Foreign products are popular in the automotive and transportation markets, and to a lesser extent, the electronics assembly industry. Foreign products are sold in the construction industry, but only make up 14 percent of total products sold by revenue in that industry. Domestic companies are particularly strong in the manufacturing, infrastructure, and construction industries. The SR segment is a maturing segment, meaning that growth is slowing and domestic companies have narrowed the technology gap between foreign companies. Average product price per ton is also decreasing. Foreign companies have a much stronger position in the PU segment, which is due to see the highest growth. In addition, many companies have a large amount of excess capacity; the industry average is 67 percent utilization rate. This means oversupply in this market and that prices are not likely to increase soon. Demand, while growing, is not increasing fast enough to raise prices in the short term.

The New Normal

The most important question that needs to be asked is: How will China’s economic slowdown affect the sealant market’s growth? The drop in overall economic growth impacts several major end-user industries for sealant products. More critically, these end-user industries are the top-three in all product segments. However, slow growth in different industries will affect some segments more than others.

The automotive industry – the main end-user industry for the PU segment – has seen drops in demand. Growth rates for sales and output of commercial and passenger vehicles during January-May 2014 were 9. 37 percent and 8.97 percent, for the same period in 2015 this fell to 3. 19 percent and 2.12 percent, a drop of 6.2 percent and 6. 8 percent respectively.

Both good and bad news exists in construction market. With the advent of buildings that use structural steel or reinforced concrete as the main means to bear a building’s load, the need to have the outer façade bear strong loads was removed. Nowadays exterior walls can be non-loading and use materials like glass that could not be used in the past. Sealants play a key role in ensuring these facades are weather proof, and hold together well.

These glass-covered office blocks standing tall in every one of China’s cities don’t just reflect light, they reflect the size of the construction industry. The construction industry is the backbone of China’s economy, and accounts for almost three-quarters of the total sealant market size.

However in recent years the construction industry has been slowing down dramatically. Despite rises in house prices, overall growth is a lot lower than in the early 2000s. Completed project area was 0.59 Bn m² in 2015 Q1, a cumulative growth rate of 9. 3 percent, down of 5. 6 percent from 14. 9 percent in 2014. The equivalent figure for new construction area was 0.9 Bn m²in 2015 Q1, a decrease of 11.2 percent from 2014 Q1s 1.02 Bn m². New areas under construction are relatively small in 2014 and most construction projects are those begun in 2013. This trend is part and parcel of the ‘new normal’ Chinese growth rate. This slowdown in construction affects the SR segment in particular, as construction is the largest end-user industry for SR sealants by far.