Performance Coatings end-user segment outlook

Our Performance Coatings Business Area serves all four of our end-user segments. Although there are relevant end-user segment trends that remain positive, our outlook remains cautious.

Transportation

Transportation is the largest end-user segment for Performance Coatings. Around two-thirds of our Transportation revenue is derived from the two automotive sub-segments – Automotive OEM, parts and assembly and Automotive repair. We see continued growth in Automotive OEM, particularly in China, although this is of less benefit to AkzoNobel as our position in this sub-segment is quite limited. We expect much lower growth rates in the Automotive repair sub-segment, but the growth is more stable and less cyclical. Growth rates in Automotive repair will continue to be higher outside of Europe and North America as the car park and rate of insurance coverage continue to grow.

Our remaining revenue in Transportation comes from the Marine and air transport sub-segment, into which we sell both marine and aerospace coatings. The long-term outlook for marine remains quite positive, as wealth and international trade should continue to increase. There is also evidence that the bottom of the cycle has been reached in marine new build, although the market takes longer than expected to recover. In fact, new contracting dropped significantly in 2015. Meanwhile, the maintenance market continues to grow at a moderate rate, mainly because the growth in the global merchant fleet is offset by declining freight rates – which have not yet recovered significantly – dampening demand for maintenance activities. Aerospace is a much smaller market than marine, but we do expect continued robust growth.

Demand in the Transportation end-user segment also relates to sustainability. Therefore, products sold into this segment that help utilize less energy and other resources will grow disproportionately.

Consumer Goods

We sell powder coatings, wood finishes and adhesives and specialty finishes into the Consumer durables end-user sub-segment, mainly contributing to the manufacture of furniture, domestic appliances and consumer electronics. We also sell packaging coatings into the Consumer packaged goods sub-segment, for use in food and beverage packaging.

Growth rates in the Consumer durables sub-segment are largely expected to be at, or somewhat above, regional GDP growth rates overall. Some shifts in outlook have been evident, however, as domestic market growth rates in China have reduced. External analysts are currently predicting a stronger growth outlook for furniture than for domestic appliances. We expect continued reasonable growth overall in the more technology-driven aspects of the Consumer durables sub-segment, although it is important to note that trends differ significantly by type of product.

In the Consumer packaged goods sub-segment, we expect growth to be slightly below regional GDP growth rates in both high growth and mature geographies. This sub-segment tends to be more stable and less cyclical over time.

Buildings and Infrastructure

The Buildings and Infrastructure end-user segment is undergoing considerable change. Growth rates have reduced significantly in China, especially in the New build projects sub-segment, which is important for the performance coatings market. On the other hand, we are seeing evidence of a modest return to growth in Europe. Growth is higher in North America.

Similar shifts are taking place in the maintenance, renovation and repair sub-segment. Maintenance growth rates are expected to be somewhat higher than they have been in Europe and growth rates are decreasing in China.

Industrial

In the Industrial end-user segment we sell protective and powder coatings for industrial uses, primarily for the oil and gas industry. This industry has come under significant pressure due to lower oil prices, resulting in delays and cancellations of capital spend. In new construction, we are seeing drastically reduced investment in oil and gas upstream, with downstream projects remaining more solid. With regard to maintenance, some upstream businesses are no longer profitable for our customers and we are therefore seeing a shutdown of high cost production units, disproportionately affecting North America and land rigs.