Industrial coatings industry participants in the near future bright. In addition to low interest rates from the economic level, participants cash and M & A market positive and other positive factors, there are some specific factors are also promoting the positive development of the industry. With customer demand New markets such as renewals, automotive and aerospace are increasingly growing and the global regulatory environment is constantly changing, and many companies are introducing innovative technologies. We have explored several key industrial coatings market drivers, as shown in Figure 1. In the In the foreseeable future, those who have accurate market positioning will use these trends to achieve substantial profits. The industrial coatings in this paper are broadly defined, including OEM coatings for automotive, aerospace and other uses; buildings, machinery and equipment And general industrial finish for electrical insulation; and industrial maintenance and protective coatings.
Industrial paint prospects: multiple power to promote the strong development of industrial coatings
The growth of the automotive and aerospace industries, the oil and gas industry to pick up
For the cyclical oil and gas industry automotive and aerospace industries, those who can adapt to changing customer needs, and the effective use of mergers and acquisitions to enhance the strength and sustainable development of industrial coatings suppliers, the short-term prospects.
The two major industrial coatings end markets in the automotive and aerospace industries have been strong in recent months, with the US 2016 low-profile car sales rising from an all-time low of 17.6 million to the unprecedented high, with China's auto sales reaching 24.4 million in 2016 , An increase of 15% compared to the same period.12 Although the China auto purchase tax concessions gradually reduced, leading to 2017 growth slowed, but the overall demand is expected to continue to rise in 2017, China's auto manufacturers are expected to usher in 5 % Of car sales growth.
Some companies are taking mergers and acquisitions as a new strategic tool for accelerating growth and improving core competitiveness due to the slowdown in organic growth in the automotive industry, and Axalta, which is separated from DuPont, is the leading practitioner of this strategy. As a leader in exterior coatings, the company has completed eight acquisitions since mid-2015, including the acquisition of United Paint's global automotive interior hard thermoplastic coatings business. During the course of the transaction, GraceMatthews The company to provide its trading advice, found in the business has important strategic significance of the buyer's point of view, showing the company's overall strength in the M & A market in the Ashley was the majority of the acquisition, the acquisition of the company are more Small private enterprises, able to integrate into the existing business of Aishi, have an important synergistic effect.
Industrial paint prospects: multiple power to promote the strong development of industrial coatings
The aerospace industry is in a similar strong growth period, as shown in Figure 2. Commercial aircraft delivery continued to rise, with Boeing and Airbus CEOs planning to increase the monthly production of medium-range aircraft to meet demand. The manufacturer's preferences have changed, gradually from the sporadic or easy to fade decals into the whole body of the paint, the latter's durability was significantly improved.
With the recovery in oil prices, oil and gas exploration activities also began to rebound from 2016 about 30 US dollars / barrel low, rose to WTI (West Texas oil) crude oil prices 45 to 55 US dollars / barrel. It is expected that the WTI will remain at or close to this level in 2017. Therefore, the US rig price index (oil and gas related industrial equipment demand indicator) steady growth, since May 2016, 400 or so low steadily rose to today's 800 Point above.
Technical progress of industrial coatings
Driven by changes in environmental regulations and customer preferences for high performance and longer service life, the industrial coatings market continues to innovate. In response to volatile organic compounds (VOC) regulations, to high solids low VOC or zero VOC and water Product changes continue in the automotive, aerospace and other industrial OEM markets, customers are seeking ways to shorten the production cycle, reduce the total cost, improve product quality. Paint manufacturers respond positively, the need to develop fewer roads but faster For example, Sherwin-Williams has recently introduced a double-coated powder system that can be used in a baking cycle so that the coating can increase production and reduce labor and energy consumption. The bottom and bottom of the workpiece on the corrosion resistance and impact resistance requirements, the use of nano-technology to enhance the corrosion resistance, scratch resistance and UV resistance of the self-repair coating.
What does this mean for the industry? With the steady growth in the overall demand for coatings, there is a greater demand for advanced technologies such as waterborne and high solids coatings, powder coatings, UV-curable coatings and two-component coatings. It means that mature large companies either maintain strong research and development capabilities or develop these technologies passively from the outside, which is more favorable for small-scale R & D companies who can adjust the company's overall strategy in a timely manner and through a wide range of Distribution network to promote.
Raw material prices rise
One of the downside faced by paint manufacturers is the recent rise in raw material prices, which account for a large share of the total cost of industrial coatings, as shown in Figure 3. About 85% of the coating costs come from raw materials and intermediates such as resins And latex), solvents and pigments, titanium dioxide (TiO2) and additives.
Industrial paint prospects: multiple power to promote the strong development of industrial coatings
Industrial coatings manufacturers have traditionally been able to deliver changes in raw material costs to customers because of the intense competition in the industry, and many paint manufacturers have benefited from the decline in commodity prices over the past few years, but recently the prices of many commodities Rally, and is still rising. Crude oil prices rebounded from the recent low to about $ 50 / barrel, was widely used to ensure that the opacity of the coating and the price of titanium dioxide as a white pigment has risen, including Chemor, Companies such as Tronox and Huntsman have signaled price increases in recent months (Figure 4).
Leaders with a certain size and strong purchasing power are more likely to bear the pressure on the cost of raw materials, but fortunately for the paint participants, most experts predict that prices will stabilize over the next few months.
Using M & A to promote the creation and growth of value
The integration of the coatings market continues, and once the merger of Sherwin-Williams and Valspar has ended, the three top-tier coatings companies (PPG, SHW / VAL and Akzo Nobel) will control the world's One-third of the market 6. With the further development of the situation, M & A offers a whole new opportunity.As we have written in the GraceMatthews newsletter, the industry's major deals will affect the entire value chain. First, For example, Sherwin-Williams and Valspar merge the annual synergistic effect of $ 280 million, of which the potential synergies are huge, and in turn, the valuation is higher Half of the synergistic contribution to the cost of raw materials. Although the divestiture was approved by the Federal Trade Commission (FTC), the transaction was of great appeal to both parties. On 26 January, Xuanwei announced that it would divest the assets (the estimated income did not exceed $ 650 million), Sherwin-Williams and Valspar, respectively, rose 7.6% and 2.2%, respectively, indicating that investors in the basic does not affect the merger after the expected completion of mergers and acquisitions under the premise of the transaction The possibility of confidence.
Second, in order to seek sustained growth, large enterprises began to small-scale mergers and acquisitions or open up the neighboring market, because the direct expansion of the scale of the opportunity is not much in the most recent case, the coating technology and production capacity is known for PPG, In recent years, the wave of industry mergers and acquisitions makes medium-sized paint companies gradually scarce, we expect most M & A activities will focus on large companies on the income of 10 million to 100 million yuan (revenue) of the coating service provider MetoKote company in recent years, The acquisition of small companies within the dollar range.
The third trend in the good prospects for mergers and acquisitions is that as CEOs are keen on the management of portfolios, large companies tend to split their shares, and the heyday of large-scale group building has long since faded, and we are beginning to see many Core assets were stripped, such as air products company to its high-performance materials business sector stripped to Evonik, BASF will be its industrial coatings business split into Akzo Nobel.
In the field of industrial coatings, private equity has never been very active, most recently only Capital Southwest investment Strathmore Products, and TonkaBay acquisition of Sierra Coatings. However, for private equity buyers in the field of industrial coatings opportunities exist. With a variety of platforms and mergers and acquisitions opportunities The private capital is flowing into the field of industrial coatings, there are now more than 8,000 billion dollars in cash investment.
New government infrastructure spending plan
Although there are indications that there are indications that the US Trump regime will have a substantial infrastructure investment plan in 2017. Funds will be used directly in the transport, water, energy and telecommunications sectors, which will generate Direct impact, especially in the field of industrial coatings involving concrete, metal structures, machinery and equipment applications. When we are waiting to announce the size and pace of funding for a package of financing schemes, the basic needs of significant investments have provided good for the coatings industry The American Society of Civil Engineers estimates that by 2025, $ 3.6 trillion will be needed to build airports, highways and other infrastructure.
Constantly changing regulatory environment
Regulation of the industrial coatings market has been in place, except that there is a wide range of differences between countries, and in developed economies such as the United States, restrictions on VOCs and ozone are becoming more stringent, although the authorities are in conflict with regulations, but California and Pennsylvania and other regions are taking the initiative to implement the laws and regulations enacted by the state government, the world's leading industrial coatings producer - China, has responded quickly to air pollution around the country and recently imposed restrictions on VOC emissions to coatings and other industrial manufacturers However, most multinational paint manufacturers are able to successfully deal with these laws and regulations, and most companies believe that environmental regulation will only become more stringent in the future, so that in the case of possible Under the integration of production lines, reduce costs, and intends to use the most stringent laws and regulations as a new product development guidelines.
Regulations will continue to be a driving force for industry consolidation, and small businesses with limited R & D budgets are struggling to cope with the rules and regulations of different regions, while multinationals are constantly seeking to acquire different technologies and assets to make their environmental Product is ahead of the market. Akzo Nobel is such a publicly recharged acquisition of the company, recently to 480 million euros acquisition of BASF's global industrial coatings business.
In short, the industrial coatings market is still attractive for capital and M & A investments, and despite rising raw material prices, there are more indications that paint manufacturers are promising, those who have the ability to anticipate customer and market demand, and have innovative products Companies will grow and expand through complementary acquisitions, and important initiatives in end markets such as automotive, aerospace, oil and gas will also drive the growth in demand for industrial coatings, and the industrial coatings market will remain healthy in the coming years situation.