Annual review: PPCJ’s 2023 global coatings market update

Douglas Bohn, Orr & Boss Consulting Inc, delivers the annual global coatings market report for 2023 and into 2024 by region, segment and volume 

The global coatings market has struggled with volume growth this year.  Coming out of the pandemic, the global economy has faced several headwinds that has impacted the paint & coatings markets more than other markets globally. The main issue confronting the paint & coatings industry was the inflationary pressures that built up in the global economy and the need for Central Banks around the world to raise interest rates. The rising interest rates have led to a decline in building and construction activity, which has resulted in a slowdown in growth in the paint & coatings industry.  Despite the results this year, we are relatively optimistic and believe that volume growth will return next year and be stronger in 2025 and beyond.

Overview of the paint & coatings market

The 2023 estimated size of the global paint & coatings industry is US$195bn. Asia is the largest geography of the global market at 46% of the market. The next largest markets are Europe and North America at 22% and 19% of the global market respectively.

Decorative paints are the largest segment in the world, and this is true in all regions of the world.  General Industrial, Protective, and Powder are the next largest segments.

As mentioned above, this year has been a slow growing year due to the rising interest rates around the world and their impact on building and construction activity.   But we expect 2024 to be more positive, with all regions showing higher volume growth than this year.  The assumption behind our estimates for 2024 is that Central Banks around the world will pause the interest rate increases.  The chart below provides estimated volume growth in the market by region for 2023 and 2024.

As the chart indicates, global volume growth has been down. This is mainly the result of negative growth in Europe and North America. In Europe, the building & construction activity as well as industrial activity has declined nearly every month since February 2022. The uncertainty caused by the Russia-Ukraine conflict, the energy crisis of 2022, and the European Central Bank interest rate increases of 2023 have all had the impact of slowing building and construction as well as manufacturing activity. Layered on top of these factors is that economic growth is being driven by services like travel and entertainment, which also has the impact of slowing demand for paint & coatings.  Recently, there have been some signs that the decline in construction and manufacturing has levelled off in Europe. As a result, we think that there will be some modest volume growth in Europe in 2024.

Within North America, the declining market has been caused by the rising interest rates which has resulted in lower building and construction activity. Existing home sales are down 23% YTD and new housing starts are down 13%. The good news is that most of the decline in North America has taken place already. For 2024, we are expecting housings starts to decline but the decline will not be as much as in 2023. For existing home sales, we are expecting them to be approximately flat with 2023 in 2024.

In other regions of the world, we expect the Middle East to perform well. There are large on-going infrastructure projects in this region that will stimulate paint & coatings. Latin America has had a so-so year.   The largest markets in Latin America are Brazil and Mexico. Combined, the paint & coatings market in these two countries is US$8.4bn and they represent 60% of the paint and coatings market in Latin America. Brazil’s economy has been slowing and we estimate the paint and coatings market to be down 2% in volume this year.   In Mexico, we estimate some volume growth this year.  Since Brazil is down slightly and Mexico is up slightly, they are nearly cancelling each other out and the net result is that volume is flat this year in Latin America.

Asia summary

Within Asia, the market has been slower this year than we expected as well but still saw some growth led by South Asia. Since Asia is so large, we break the market down into sub-regions.  The total Asia paint and coatings market size is US$88bn.  Greater China is the largest market for paint and coatings in Asia.

The factors impacting the growth in this region are similar to the other regions; rising interest rates resulting in slower building and construction activity.  This, combined with China’s post-pandemic economy not growing as fast as previously thought, has resulted in slowing growth in the region, albeit still positive. The other factor influencing some of the markets in Asia is that the inflation issues of the last two years has resulted in consumers either downgrading their paint purchases by buying lower cost paints or delaying projects.

Despite these issues, there is growth in the market.  The market leader is South Asia, with India growing the fastest.  We have been saying for several years now that India is the growth leader due to favorable economic and demographic trends. Some of the factors influencing the rest of the Asian and global markets has been impacting India as well, with consumers downgrading their paint purchases. Thus, India and South Asia are not growing quite as strongly as we previously thought but are still exhibiting good growth.

The paint and coatings markets in Central Asia are growing.  The overall economy in these markets are growing faster than others in the world and that is leading to better growth.  Central Asia includes the countries of Kazakhstan, Tajikistan, Uzbekistan, Kyrgyzstan, Turkmenistan, Afghanistan, Mongolia, Georgia, Azerbaijan, and Armenia.

The countries of south east Asia have favourable economic and demographic trends and over the longer term, we expect the paint and coatings markets to perform well.  This year, these countries have been impacted by the rising interest rates, as well as consumers and contractors downgrading their paint purchases.

2024-2028 Forecasts

The longer-term growth forecast globally is better.  We are expecting global volume to grow at 4% per year.  Orr & Boss is assuming that the interest rate increases will be behind us by 2025 and pent-up demand will result in slightly better than GDP volume growth globally. Asia and the Middle East should be the best markets.

Within Asia, the markets with the best longer-term trends are South Asia, south east Asia and Central Asia.

Conclusions

Orr & Boss does believe that the paint & coatings market will grow stronger next year than this year.  This forecast assumes that interest rates will remain stable.  If they are increased further, it is likely that building and construction will suffer.  On the other hand, if they are reduced, we could see a pickup in demand. In either case, we are relatively optimistic about the demand for paint coatings products in the coming year.  We expect most regions of Asia to over-perform in the global market, as well as the Middle East to perform well.

www.orrandboss.com