Reports such as "Chinese coating industry suffers severe overcapacity in 2015, making de-capacity the only way out' can be seen again and again, however, whilst researching capacity expansion in the Chinese coating industry in the recent two years, CCM noticed that Chinese coating enterprises, especially the leading ones, are still expanding their capacities without showing any restraint under the circumstance of serious overcapacity.
Main newly-built and operating programs of coating in 2015 and next 3 years in China
|
No.
|
Location
|
Enterprise
|
Newly-built capacity (thousand tonnes)
|
Investment (RMB, million)
|
Estimated production date
|
|
1
|
Hebei Province
|
Henan Senyoo Coating Co., Ltd.
|
500
|
300
|
Foundation was laid in Oct. 2015
|
|
2
|
Hubei Province
|
Wuhan Twin Tigers Coatings Co., Ltd.
|
250
|
N/A
|
PhaseⅠ: 0.15 million t/a (put into production in 2015)
PhaseⅡ: 0.1 million t/a (started to be built at the end of 2015)
|
|
3
|
Anhui Province
|
Oriental Yuhong Waterproof Technology Co., Ltd.
|
280
|
1,578
|
July 2018
|
|
4
|
Shandong Province
|
Shandong Saideli Paint Industry Group
|
202
|
280
|
Foundation was laid on 19 June, 2015
|
|
5
|
Henan Province
|
Nippon Paint China Co., Ltd.
|
600
|
650
|
Foundation was laid on 29 Aug., 2015
|
|
6
|
Hunan Province
|
Hunan Xiangjiang Kansai Coating Co., Ltd.
|
240
|
1,200
|
June 2018
|
|
7
|
Hubei Province
|
Nippon Paint (Hubei) Co., Ltd.
|
500
|
314
|
Sept. 2016
|
|
8
|
Tianjin Municipality
|
Baojun Guanhong Coating Science and Technology Co., Ltd.
|
200
|
1,500
|
Aug. 2016
|
|
9
|
Henan Province
|
Henan Jingang Energy-saving Building Materials Co., Ltd.
|
200
|
190
|
Nov. 2017
|
|
10
|
Sichuan Province
|
Sichuan SKSHU Paint Co., Ltd.
|
180
|
300
|
In operation
|
Source: CCM
According to rough statistics from CCM which are based on news reports from the Chinese coating industry, there will be 47 newly-built and operating programs of coating and the published incremental capacity will approach 6 million t/a (excluding the indeterminate capacity of some enterprises) in 2015.
It is worthwhile to note that according to the data from the National Bureau of Statistic, the total coating output in China in 2015 was 17.17 million tonnes. If incremental capacity rises are fully released in the next 3 years, total coating output will be more than 22.50 million tonnes.
China's coating industry is facing the severe challenge of overcapacity.
Why do enterprises still expand capacity crazily under the circumstance of overcapacity?
1. Chinese enterprises follow the "old fairy tale" blindly.
The aggressive growth of the Chinese coating industry in the past 20 years has generated countless wealth and, embarrassingly, there is a prevalence of plagiarism and serious product homogeneity in the industry. Nowadays it is no longer a seller's market anymore; however, the lingering past promise of wealth and the current low threshold of entry into the industry still attracts Chinese enterprises like crazy to join the industry.
2. The newly-built capacity is to replace low-end capacity.
Because the requirements of environmental protection have been improved and consumer demand has changed, the coating industry needs new coating products (like environmental friendly coating, high-performance coating, high value-added coating, etc.). This can be seen in the product types which newly added capacity produces, for example, the waterproof coating production base with a capacity of 0.28 million t/a invested by Beijing Oriental Yuhong Waterproof Technology Co., Ltd.; the artistic coating program with a capacity of 0.2 million t/a built by Henan Jingang Energy-saving Building Materials Co., Ltd.
3. Some enterprises really need to increase the scale of production.
After years of market development of good momentum, enterprises like Hebei Chenyang Industry & TradeGroup Co., Ltd., Changzhou Jiunuo Building Material Science and Technology Co., Ltd., etc. have original capacity that cannot support sales demand anymore, so they are carrying out plans for capacity expansion.
How to achieve de-capacity?
1. The survival of the fittest
The survival of the fittest is an unchangeable market law, and the de-capacity of the coating industry must rely on the market if it is to be achieved. Along with the slowdown of the coating industry, the standard threshold for entry was higher and accelerated the industry reshuffle. The market will enter a new period of continued turmoil and see remodeling of brand patterns. When market pressure increases, the speed at which large-and-medium-sized enterprises enter township markets is increased, which will lead to the decrease in market space and profit margin for small brands. This will speed up the phenomenon of brand elimination, and the degree of brand concentration of the coating industry will be increased.
2. Accelerating process of enterprise mergers and acquisitions
According to the Analysis Report of Top 50 Chinese Coating Enterprises in 2015 published on tujie.com., the degree of concentration of the Chinese coating industrial is still very low. In 2015, the combined revenue of the top 50 coating enterprises accounted for 28% of the total in China, and the revenue of the top 10 enterprises accounted for 14.33%. This shows the immature development of the Chinese coating industry.
To date, global chemical industries are conducting a slew of mergers and acquisitions. Foreign coating enterprises such as Nippon are becoming increasingly ambitious in China, and will build a high qualified national brand when they have the chance. Local Chinese coating enterprises should actively seek out mergers and acquisitions to enhance their strength and transform the enterprises by phasing out low-end capacity and achieving de-capacity.
3. Shut down low-end capacity based on policy guidance
In 2015, a new environmental protection law was passed, and policies including paint tax collection, a ban on solvent coating in Shenzhen, the transformation of water-borne furniture in Beijing, etc. were put into implementation. The aim of these actions is to reduce environmental pollution, but in actual fact, it powerfully accelerates the de-capacity process of the coating industry. The dramatic decrease of profit margins, especially for some small-and-medium-sized enterprises, forced them to exit the market.
Therefore, CCM believes that although the capacity of Chinese coating industry will reach a new height in the short term, the growth of production output will remain slow. During the releasing process of the newly-built capacity (and also the process of redistributing market resources of the coating industry), the shares of small-and-medium-sized enterprises will shrink dramatically, but the degree of industrial concentration should increase steadily.
About CCM:
CCM is the leading market intelligence provider for China's agriculture, chemicals, food & ingredients and life science markets. Founded in 2001, CCM offers a range of data and content solutions, from price and trade data to industry newsletters and customized market research reports. Our clients include Monsanto, DuPont, Shell, Bayer, and Syngenta.
For more information about CCM, please visit www.cnchemicals.com or get in touch with us directly by emailingecontact@cnchemicals.com or calling +86-20-37616606.
Tag: coating