Performance coatings
market overview

End-user segment strategy context

Performance coatings make up slightly more than half of the world market for paints and coatings. They are used in all four of our end-user segments, Buildings and Infrastructure, Transportation, Consumer Goods and Industrial. Most end-user segments have shown some recovery from the recession of 2008 to 2009, and their overall outlook is cautiously positive. However, there are two main areas of uncertainty. Firstly, although there is growing consensus that we are now reaching the bottom of the cycle in marine new building, the upturn has not yet occurred. Secondly, concerns remain about Buildings and Infrastructure and related markets (such as furniture and appliances) in Europe.

Additional information follows on the outlook for each of our end-user segments, along with the implications for our Performance Coatings Business Area.

Buildings and Infrastructure

The largest sub-segment for our Performance Coatings Business Area within Buildings and Infrastructure is Building products and components, accounting for nearly 90 percent of total revenues in the segment. We sell powder coatings, coil coatings, wood finishes and wood adhesives to this particular sub-segment. Protective coatings are supplied to both of the other sub-segments, New build projects and Maintenance, renovation and repair. Our customer base, and consequently our products and revenues, are oriented towards new build and larger construction projects.

Analysts expect reasonable growth in most geographies in all parts of Buildings and Infrastructure. Our view on the market outlook is largely consistent with this. However, we remain concerned about the outlook for our businesses selling into sectors of the Building products and components sub-segment that are oriented towards the residential market in Europe (such as Wood Finishes and Wood Adhesives), where evidence of market recovery is still limited. We will therefore continue to take a conservative view on growth for these businesses and have developed business plans on the basis of these more cautious growth estimates.

Transportation

Transportation is the largest end-user segment for our Performance Coatings Business Area. The vast majority of our Transportation revenues come from the Automotive repair and Marine and air transport sub-segments, with our revenues being roughly evenly split between the two. Although these sub-segments are approximately equal in size, they are very different in terms of their growth patterns and outlooks.

We expect stable but below GDP growth in the Automotive repair sub-segment. Growth will largely come from high growth markets, as the expected growth in mature geographies is low. In high growth regions, vehicle sector growth is somewhat above GDP growth, but this does not necessarily directly transfer to growth in coatings demand, as insurance and repair rates are not yet at mature market levels.

As mentioned earlier, the outlook for the Marine business is a key issue in terms of our Performance Coatings outlook. The recent late cycle drop in marine new building, combined with low freight rates, has restricted any growth in demand for marine coatings. The consensus view of analysts is that we are reaching the bottom of the cycle and the sub-segment will now return to growth, but evidence of this is not yet available. The aerospace business has already returned to above GDP growth, but the aerospace coatings market is small compared with marine coatings, so this has limited impact.

In addition to the above, we have revenues in the Transportation segment coming from the Automotive OEM, parts and assembly end-user sub-segment. Our position here is limited to powder coatings (used for wheels, for example) and specialty finishes (used for exterior and interior plastic components, such as fascias). Looking ahead, we expect moderate growth as the market has now recovered from the substantial downturn experienced in 2008 to 2009.

Consumer Goods

The majority of our Performance Coatings revenue in the Consumer Goods end-user segment comes from the Consumer durables sub-segment, into which we sell powder coatings, wood finishes, wood adhesives and specialty finishes. Nearly all parts of this sub-segment have fully recovered from the recession and are now on a reasonably normal growth trajectory at or slightly above GDP, with production continuing to increase more rapidly in high growth geographies to serve both domestic and export markets. The exception is in furniture which, as indicated earlier, is strongly linked to housing markets. Analysts expect growth going forward in furniture to be below GDP growth levels until we see full recovery in Buildings and Infrastructure.

We sell our packaging coatings into the Consumer packaged goods sub-segment. This is much more stable, because while consumers may down trade to some extent during a recession, they don’t stop buying basic necessities such as food, beverages and personal care products. The downturn therefore was very limited. Going forward, growth should continue to be stable at GDP growth levels.

Industrial

This is the smallest end-user segment for our Performance Coatings Business Area, where we sell protective and functional powder coatings. As both are oriented towards the oil and gas market, the outlook is for above GDP growth as high oil prices and strong high growth market demand continue to make a wide variety of projects economic.

Market leadership positions

 

 

Marine and Protective Coatings

1st

Protective coatings

 

Yacht coatings

2nd

Marine coatings

 

 

Automotive and Aerospace Coatings

1st

Specialty finishes

2nd

Aerospace coatings

3rd

Vehicle refinish

 

 

Industrial Coatings

1st

Coil coatings

 

Wood finishes and adhesives

2nd

Packaging coatings

 

 

Powder Coatings

1st

Powder coatings