Italy’s paint and coatings sector not off the hook

Brenda Dionisi reports from Milan on how Italy’s paint sector is expanding following post-COVID subsidies but a difficult year lies ahead

Despite high production costs and continued geopolitical instability, Italy’s domestic market for paints and coatings performed well in 2022 thanks to government tax credit schemes that boosted the building sector. Indeed, according to national paint trade and industry association Assovernici, Italy’s paints and coatings market posted overall satisfactory performance in 2022, thanks to positive sales growth in the building paints and coatings segment, with a 10% increase in overall sales volumes in the first half of 2022.

Driving growth factors

The main factor driving this growth has been government incentives offering tax credits for public and private building renovations aimed at façade renewal and energy efficiency. Launched in July 2020, Italy’s so-called ‘Superbonus 110%’ green renovation scheme was introduced as part of the then government’s Relaunch Decree (‘Decreto Rilancio’) (Law Decree n. 34 of 19 May 2020)¹ aimed at securing economic recovery from the COVID-19 pandemic. Active until November 2022 when the country’s new centre-right government reformed it, the scheme offered tax credits of up to 110% on the cost of renewing and earthquake-proofing residential and commercial buildings. Building owners could transfer the tax deduction to the company that performed the renovation, which in turn was allowed to transfer these credits to a financial intermediary. Owners could also recover their investment and an extra 10% in the form of income tax deductions over five years.

In November, the scheme’s subsidies were scaled back to 90% of costs by Decree Law 6 of 13 January 2023² and it scrapped transferring tax credits to third parties, with the new government complaining the scheme was too costly and encouraged fraud in the building sector, including false invoicing.

The scheme has, however, boosted the construction industry, with sales of exterior building paints outperforming all other paint and coatings segments by 60% in the first half of 2022, Assovernici preliminary data showed. Performance remained stable or slightly negative in the other architectural paints and coatings segments, such as the interior paints segment, which boomed during the pandemic but is now dependent on fluctuating household consumption trends, Assovernici noted³. This segment growth helped offset the negative sales volumes recorded in the same period for interior paints (-10%), paints and coatings for wood (-20%) and enamels (-17%). The second half of 2022 was marked by a slight decrease in overall demand, though official year-end figures will be released in April 2023, said the trade association.

Challenges remain

Despite a generally positive year, and despite variations in segment performance, manufacturers experienced several challenges in 2022. These included a chronic lack of raw materials and energy price hikes due to Russia’s invasion of Ukraine, which significantly impacted production costs in the first semester. This pushed companies to “quickly exhaust warehouse inventories and… focus on solving supply chain difficulties,” Assovernici President Giovanni Marsili told PPCJ. Raw material availability improved in 2022 H2, however prices have remained high and continue to fluctuate creating instability. Still high energy costs and inflation levels will also probably affect companies’ bottom lines in 2023, he added: “This makes planning very difficult for companies and near impossible to forecast what 2023 will be like,” said Marsili.

High energy costs and inflation have dented general Italian domestic demand in 2022 and so far in 2023. Indeed, Italy’s national statistics agency (ISTAT – Istituto Nazionale di Statistica) projects Italian GDP to increase in 2022 (+3.9% compared to 6.6% in 2021) and then slow in 2023 to 0.4%⁴. While the European Commission estimates that Italy’s economic output grew by 3.9% in 2022, with annual average inflation of 8.7%, with growth driven by domestic demand, in particular housing investment. It forecasts growth in 2023 to be 0.8% and 1% in 2024, while the annual inflation rate is expected to be 6.1% in 2023 and 2.6% in 2024⁵.

Despite this, on the production side, the Italian paints and coatings industry appears resilient, with market researcher Euromonitor International forecasting constant sales through 2024, especially for architectural and decorative paints, for which Italy is a leading producer in Europe. It said the retail value of architectural home paints, which include decorative paints and lacquers and varnishes (both interior and exterior) used for residential/home improvement, produced in Italy, reached €478M in 2021 and grew slightly in 2022, to €481M. These figures include only sales through retail channels to consumers. It excludes all sales to trade, business and professional painters/decorators. Euromonitor also forecasts further grow in this segment in 2023 to €482M, to reach €484M in 2024. Meanwhile the retail value of Italy’s decorative paints sales, (not including lacquer and varnish sales for home improvements but referring to interior and exterior paints residential/home improvement), grew from €424M in 2021 to €425M in 2022 and 2023 and will reach €427M in 2024.

Nonetheless, Gianni Martinetti, President of the paints and varnishes group of AVISA (Associazione nazionale vernici, inchiostri, sigillanti, adesivi), part of Italy’s national chemicals industry association, Federchimica, said that architectural paint and coating sales growth is expected to slow down in 2023, despite the tax credit scheme reforms. “The spike in sales for external architectural paints in 2022 tells us that the government incentive schemes for the green renewal of buildings is certainly a driver of growth,” he said. But further changes and sustainable financial reforms “are needed to ensure a longer-term vision and application of the scheme,” especially taking account of the planned European Union (EU) directive on the energy efficiency of buildings requiring energy efficient and decarbonised building stock by 2050, now under discussion, he told PPCJ.

That said, state incentive schemes will always be needed to support green renovations of Italy’s vast building patrimony and products will become more innovative in order to ensure zero emission building goals: “For example, the current incentives are aimed at renovations to make buildings better at retaining heat,” he said, adding that as global warming continues, “we will need new generation building materials, like exterior paints that can cool buildings down and perhaps support mechanical cooling systems,” said Martinetti.

He argued that some Italian paint and coating companies had less competitive edge internationally in 2022 due to rising raw material and energy costs. Depending on the market segment, strict EU chemicals regulations are also hurting Italian paint and coating exports to markets lacking such costly restrictions, he said: “Europe has suffered the most from the energy crisis and, given the great uncertainty and instability of the market, this pushed the Italian paint producers who could in 2022, to invest in energy efficiency technologies for factories and in other measure to make supply chains more efficient and flexible.”

One is Veneto-based architectural paints maker The San Marco Group, which closed 2022 with double-digit growth, recording over €115M in turnover. Among the company’s priorities in 2023 are infrastructure and industrial process upgrades worth €9.2M. These upgrades include installing photovoltaic systems in its four Italian plants, expected to cover at least 40% of plants’ energy needs, as well as water purifying systems reducing waste and controlling water recycling and consumption directly.

A weak Euro and high production costs also encouraged some Italian paints makers to consolidate in 2022, noted Martinetti. These include the sale of Italian manufacturer of high-performance polyurethanes for coatings and industrial adhesives, the Varese-based SAPICI SpA, which was bought by New Jersey-based Sun Chemical. The acquisition, which included two production plants in Italy and one in China, will transform Sun Chemical into “an integrated player in the lamination adhesives market, directly owning assets, technologies and resources to improve the product portfolio,” said a note from Sun Chemical. 

Also, in December 2022, Sherwin Williams bought Italian family-owned Industria Chimica Adriatica (ICA), of Marche, which makes industrial wood coatings, with a 2021 turnover exceeding €150M⁶.

 The US major acquired its production facilities in Italy and Poland, commercial and distribution offices in China, Germany and Canada and ICA’s interest in the India-based joint venture, ICA Pidilite⁷.