Buildings and Infrastructure
We provide specialty chemicals used in the manufacture of building and infrastructure materials, as well as paints and coatings that are applied to building interiors and exteriors. The Maintenance, renovation and repair sub-segment is particularly important to our Decorative Paints Business Area.
43% of revenue
Much of this end-user segment has a very strong regional component and the regional outlook has been changing. The downward adjustment is particularly apparent in the Chinese New build projects sub-segment; in some parts of this market, we are even seeing contraction. This is important because Chinese new build is proportionately larger than European new build and much larger than in North American new build. Growth expectations for the Chinese Maintenance, renovation and repair sub-segment have also been adjusted downwards, but the European and North American regions are much larger in this sub-segment due to the size of the installed base.
Growth rates are increasing somewhat in Europe, where the market has been flat or even contracting over the last few years. Growth rates are expected to increase in some countries where the market has been flat or decreasing in size, such as France, Italy and Germany. On the other hand, in the UK – where the market has been recovering from the 2008-2009 recession and growth rates have been above GDP levels – the expectation is that growth rates going forward will moderate. We are therefore forecasting some growth in Buildings and Infrastructure overall in Europe.
Outside of China and Europe, analysts expect a return to growth in markets that have faced more recent macro-economic difficulties such as Russia and Brazil. We see limited evidence of such rapid recovery. The two regions where growth rates are expected to remain stronger are North America and India. However, our benefit from this will be limited, as we do not sell decorative paints in North America.
Future sustainability developments
According to the World Business Council for Sustainable Development’s (WBCSD) Vision 2050, 70 percent of the world’s population will live in urban areas and 95 percent of new building stock will use zero net energy by 2050. The proportion of buildings heated by fossil fuels will also fall below 6 percent. Sustainability issues beyond energy use and carbon emissions, such as indoor air quality, will also have a significant impact on product and service demand.
Implications for strategy and actions
Although growth rates in China are expected to be lower than in the past, the market is large and there is still significant growth potential. We will therefore continue to build our brands and capability in this important region. We will also make use of product and margin management approaches to achieve appropriate profitability levels. In Europe, North America and India, we will capitalize on organic growth opportunities as they arise. In Brazil and Russia, we need to ensure flexibility and agility to capture the benefits of a return to growth when it occurs.
Total construction 1
Bubble size based on 2015 output
Total market new build construction 2
Real 2010 $ billion, output
Maintenance, renovation and repair 2, **
Real 2010 $ billion, output
1 Source: IHS.
2 Source: IHS/Construction IC.
* Europe includes Turkey and Russia.
** Excluding infrastructure and industrial construction