“ We Accelerate Growth”

Asia Pacific Paint and Coating Market Outlook

Chemicals, Materials & Food Practice

Frost & Sullivan
Sep 2012
© 2012 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated,
quoted, copied or otherwise reproduced without the prior written approval and consent of Frost & Sullivan.
Table of Contents

1 Macro Economic Outlook and Drivers

2 Paints and Coatings Industry Outlook

2
Macroeconomic Scenario- Asia still strong led by China, India
and ASEAN 5 and a rebound from Thailand and Japan

Regional GDP Growth

15
World
%

10 China
GDP Growth

India
5 Asean-5

Africa
0
2007 2008 2009 2010 2011 2012 Europe
-5 United States
Source: IMF(World Economic Outlook, 2011)/ 2012

 2011: Global World growth slowed down to 3.8% from 5.2% in 2010. Developing Asia also slowed to 7.9% from 9.5% in
2010. China and India key growth regions
 2012 : Global World Growth estimated at 3.3%, ( 2.5% by world bank) Developing Asia : 7.3%. ASEAN 5 gaining
importance along with China and India

3
Asia : One region, many countries , different growth
rates……means different strategies for different markets
GDP Growth of APAC Countries

China Per capita paints

India
High Growth <5kg
Indonesia Focus- Greater
penetration
Vietnam
Malaysia
Philippines
2012
Thailand
Taiwan 2011
HK Per capita paints
2010
SKorea >13kg

Singapore Focus- Greater

push to high-end
ANZ technologies
Japan

-5 0 5 10 15 20
GDP Growth %

4
Key Drivers of Growth in ASIA/ ASEAN

Growth in
Growing
Construction,
Middle Class/
Demographics Infrastructure
Purchasing
and
power
Manufacturing

5
Population favors Indonesia, Vietnam and Philippines

Population of Top 20 Population Countries

2025 2010

Source: United Nation Populations Fund

6
GDP Per Capita expected to grow in line with economic
growth
GDP - POPULATION CHART
2010 - 2015
1,800
1,600
1,400
GDP (US$ Billion)

Indonesia
1,200
1,000 Thailand

800 Malaysia

600 Vietnam
400
Philippines
200
-
0 50 100 150 200 250 300
POPULATION (million)

2010 2015 Size of bubble indicates per capita GDP

Source: IMF, Analysis: Frost & Sullivan

• Indonesia and Vietnam are predicted to be the fastest growing countries in next 5 years with increase in GDP per
capita are likely to be 9% and above

7
 Asia expected to receive high investments in
infrastructure
Projected Infrastructure Investment (Global), 2005-2030 Total
Water $22,610bn
Power $9,000bn
Road & Rail $7,800bn
North America Europe Air/Seaports $1,590bn
5,000
4,000
4,000
3,000
3,000 2,000 Middle East
2,000 1,000 400
0 300
1,000
0 200
100
0
Latin/South America Africa Asia/Oceania
6,000 800
10,000
600 8,000
4,000
400 6,000
2,000 200 4,000
2,000
0 0
0
Source: Morgan Stanley

M65B-18 8
Indonesia

9
Individually none of the ASEAN countries figure in top 10 globally,
but as a region ASEAN is likely to become 8th largest automotive
market by 2018 after China, Japan, India.

In 2010, ASEAN was 9th largest market 2015 it would become 8th largest market.

Country Sales 2010 Sales 2015 Sales 2018

1 China 17,212,891 1 China 29,010,852 1 China 33,391,276
2 USA 11,562,701 2 USA 16,466,283 2 USA 16,970,585
3 Japan 4,891,452 3 India 5,788,462 3 India 9,039,806
4 Brazil 3,363,445 4 Brazil 5,364,935 4 Brazil 6,287,188
5 Germany 3,109,641 5 Japan 4,591,476 5 Japan 4,517,218
6 India 2,712,587 6 Germany 3,850,511 6 Russia 4,025,975
7 France 2,669,402 7 Russia 3,429,031 7 Germany 3,968,411
8 UK 2,260,881 8 ASEAN 3,140,684 8 ASEAN 3,634,697
9 ASEAN 2,226,965 9 France 2,704,451 9 UK 2,897,909
10 Italy 2,128,492 10 Italy 2,563,360 10 Italy 2,793,822

• AFTA (ASEAN Free Trade Agreement)- will encourage regional hubs for manufacture
• Healthy rivalry among various countries to attract investments
• Growth hungry Indian and Chinese companies vying for this market
• ASEAN is a competitive production base, net exporter with strong competencies in certain product
ranges. Rebound seen in Thailand after floods
• Japan expected to see the highest growth in 2012 after 2011’s earthquake and tsunami

10
Table of Contents

1 Macro Economic Outlook and Drivers

2 Paints and Coatings Industry Outlook

11
Asia’s share of paints and coatings has increased in line
with economic growth

Europe: 2.6% CAGR Growth

34.6
% 27.6
%

Middle East: 7.9% CAGR Growth

Asia Pacific:
America: 2.5% CAGR Growth 10% CAGR
1.6 2
% % Growth
32.9
% 25.9
% 40%
27%

Africa: 6.9% CAGR Growth

3.9 4.5
2001 %
%

2010

12
APAC market worth over $62 billion in 2011. Growth rate is
12-15 %
APAC Paint & Coatings Market Size ( 2011 )

Paint and Coatings Market: Percent of Paint and Coatings Market: Percent of
Revenue by Segment Revenue by Country

1% 3%
13% 10% 5% 2%
4% 1% 1%
1% 0%
3% 1%
11% 1%
13%

2%

6%
24%
12% 0%
65%

14% 6%

Automotive -OEM Decorative Protective Australia Indonesia Philippines Thailand

Automotive - Refinish Marine Wood China Japan Singapore Vietnam
Can Other Industrial Hong Kong Malaysia South Korea
Coil Powder India New Zealand Taiwan

13
Japan most advanced market while China is the largest

Developed Market
Japan
• Rapidly developing markets for paints.
• A mix of high end and low cost coatings
South
• Japanese market is mature and has
Korea
become stagnant- some rebound
Australia expected in 2012
• Manufacturers have resorted to eco-
friendly coatings to boost profitability
and to gain competitive advantage
China
• Focus on high end value paints
Low-end Coatings India
High-end Coatings
Thailand Malaysia
• Relatively more price-conscious
consumers
Indonesia
• Low cost coatings • South Korea and Australia are maturing
• Scope for improving quality markets, and moderate growth is
Vietnam expected in the next two years
• The growth of eco-friendly coatings,
Myanmar though, is expected to outpace the
Underdeveloped Market market

*Note: Bubble size indicates size of the coatings market

14
14
 High raw material costs puts pressure

Key Market Drivers and Restraints, Asia Pacific, 2011-2012

Greater Economic Growth in APAC region

Market Drivers

Increase in Purchasing power- Rise in Middle Class

Growth in end-use sectors- construction, automotive etc,

increasing investment in Infrastructure

Mergers & acquisitions and New technologies

Slower adoption of technology than expected

Market Restraints

Local companies cannot compete on R&D, marketing, branding

Reduced Export Demand from Western economies

Escalating Prices of Raw Materials as a result of rising crude oil prices as

well as developing markets increased consumption of these raw materials

High Medium Low

Source: Frost & Sullivan analysis.

15
Key Growth Segments- Construction and Infrastructure key growth
industries

• Global construction spending to slow to < 5% p.a. Asia constn

spending to increase by 9%p.a
• Japan – rebuilding from earthquake. Thailand- rebuilding after
floods
• China- growth in west,/ interior regions as per 12th 5 yr plan .
India rising middle class and urbanization drives housing
• Singapore drop in construction sector, sustainability and
productivity key
• Indonesia spending on construction to increase in line

• Korea- grew by 6% last year to become the largest in new

orders- 52 billions$ but slow down expected in 2012 due to
global crisis
• Challenges also seen in China due to high costs of labor and
raw materials and lack of competitive tech
• Emerging opportunities in Vietnam and India
• Industrial sector expected to grow at 6-8% in coming decade

• Car sales and demand to slow in H-1 2012 and is expected to

pick up later in ASEAN while China and India continue to drive
demand
• Thailand is expected to drive the demand through pent up
demand after floods and disruptions in supply chain
• Export market to slow
• Japanese players to bounce back
• China has the largest demand for car production.

16
Key Growth Segments- Decorative and Protective coatings expected
to see higher growth rates than other segments

• 2011 Market Size: USD 15 Bn

deco
• Key countries: China and India, Indonesia
• Market drivers: Growth in construction industry and ecofriendly
coatings
• Market restraints: Rising raw material prices, presence of
numerous unqualified coating suppliers.

• 2011 Market Size: USD 9-11 bill

• Key countries for marine: Vietnam, Japan and South Korea,
Protec
China
tive
• Market drivers: Environmental drive to antifouling paints,
and growth in the ship maintenance market, investment in
marine industrial infrastructure
deco • Market restraints: Rising crude oil prices, rise in metal prices,
rising global crisis

auto • 2011 Market Size: USD 6.3 Bn

• Key countries: China, India, Thailand and Indonesia
• Market drivers: Growth in production and domestic sales, pent
up demand in Thailand
• Market restraints: Rising raw material prices and competitive
pricing in the automotive industry.

17
 Key countries driving growth- China, India, Indonesia and Vietnam
besides rebound seen in Japan and Thailand

 Growing segments: Industrial and
Decorative coatings
 Market Drivers: High growth end-industry,
China as hub for 3 C manufacture,
increasing commitment to green, growth in
West China/ second tier cities
 Growth : 10-15%p.a
China India  Growing segment: Decorative segment,
automotive and protective
 Market Drivers: Growing middle class
population, increased sale of premium paints in
urban areas.
 Market Restraint: No mandatory standard for
regulating lead in paints or VOC emissions, so
slow shift to green expected
 Growth: 13-15%p.a

ASEAN
Vietnam Highlight
- Growth in marine and wood coatings
 Growth Regions: Vietnam and Indonesia - 70% of raw materials imported
 Market drivers: High potential growth region driven by - Growth 10%p.a
increasing spending power and continuous economic
development, Increasing environmental awareness . Green
labeling, worker safety on the rise in Singapore/ Malaysia. Indonesia Highlight
Thailand on a rebound
 Market restraints: Rising raw material prices/ inflation is a
- Large population and potential to grow -
mainly decorative and protective
concern - Constn sector to increase to 9% of GDP
- Growth of paints >8% p.a

18
Trends in Decorative Coating- Construction spending drives
decorative. Low VOC, functional coatings the trend

Decorative coating Overview and trends

• Decorative coating market grows parallel with the activity in

construction and renovation of commercial and residential .Countries
such as China , India, Indonesia has a high demand for Decorative
paints.
Others
15% • Companies like Nippon and Akzo Nobel are very active in the
Indonesia decorative coatings market with environment friendly paints (reduction
5%
of voc) in paint
• Major driver includes rising paint consumption per capita due to trends
China in interior decoration and standard of living in Asia Pacific
Australia
•
43%
6% Development of green and sustainable building in Asia-Pacific region
(for e.g. countries like Australia, Singapore, New Zealand) will be a
driver for decorative coatings
Japan • 3 tech trends: sustainable coatings (energy / fuel saving), functional/
15% smart coatings ( e.g dirt resistance), ecofriendly ( low VOC,
India
16% formaldehyde free, water borne)

19
Marine coating- Korea and China drive this market

Marine Coatings Overview and trends

• Marine coating is estimated at about 6% of coating business.

• Ship Building moved to Asia- South Korea, China and Japan leading
Ship building countries globally. They take up 80% share of ship
Singapore
Others
building globally
3%
8% • New shipping hubs in Vietnam, Philippines and India.

Thailand • In future high quality paint per litre value is expected to increase due
6% to rising cost of raw materials
• Innovations in Copper and Tin free anti fouling system to increase.
Glass flake epoxies for higher abrasion resistance to increase.
China
46% Coatings focused on reducing drag and increasing fuel efficiency on
Japan
18% the rise

South
Korea
19%

20
Protective coating – China drives this market. Japan and Thailand
rebound. Increasing investment seen in Indonesia and India

Protective coating Overview and trends

• Protective coatings take up about 12-14 % of total paint and coating

market share in Asia pacific
Australia
2% Others
• China leads the market for protective coatings.
South
Korea
6% • High growth of industrial sector like Energy and power sector, Oil and
3% gas units, Infrastructure Sector and manufacturing industries promotes
India the usage of protective coating
•
5%
Companies like AkzoNobel and PPG are very active in this segment
Japan
6% and they investing in R&D to develop new eco friendly products with
better functionality and emphasis on environment friendly product such
as low voc and water based

China
78%

21
Automotive Coating- Besides China and India, pent up
demand from Thailand and Japan drive growth

Automotive coating Overview and trends

• Automotive coating market grows parallel with the production and car
sales in Asia pacific ,Countries such as China ,Japan and India has a
Thailand high demand for Automotive paints. Pent up demand from Thailand is
2% Others expected to increase in 2012
•
4%
India Rebound expected from Japanese players like Honda, Toyota in 2012
South
6% • Japanese companies like Nippon and Kansai are very active in this
Korea market followed by BASF and PPG.
•
7%
Auto companies are generally more environmentally conscious and
demanding ecofriendly materials which will drive coatings like
Waterborne & UV curable coating
China
56%
Japan
25%

22
Major companies are multinational or regional in operations……small
country centric companies may lose out with global trade

Key Takeaway: Nippon Paint and Akzo Nobel have a wide presence in the Asia Pacific
coatings market, further reinforcing their market revenue.
Key Participants, Asia Pacific, 2011
India South Korea

Asian Paint KCC

Berger Samhwa

Kansai DPI / Nooro

Thailand Japan

TOA Nippon Paint

AkzoNobel Kansai

Nippon Paint SKK

Malaysia Taiwan

Nippon Paint Yungchi

AkzoNobel AkzoNobel

Jotun Kansai

Indonesia China

AkzoNobel Nippon Paint

Nippon Paint AkzoNobel

Mowilex Valspar
Philippines
Singapore Vietnam Hong Kong Australia & New Zealand Boysen
Nippon Paint AkzoNobel AkzoNobel Dulux
Charter Chemical
Valspar
AkzoNobel 4 Oranges Nippon Paint
Dutch Boy
Jotun Nippon Paint Camel Paint

23
Industry dynamics differ by segment: Decorative paints is high
volume business relying on channel push and advertising pull.
Industrial coatings rely on technology and service

 Presence of MNC’s growing in the region with greater

Architecture
investments and commitment – e.g Akzo, Nippon, KCC
 Local companies under pressure to grow through tie-ups with
MNC’s or expanding to new markets- e.g Asian Paints, TOA,
Yung Chi
 Continued investment in Branding, distribution network, new
product introductions


Industrial
Key Players include Jotun, Nippon, KCC, PPG
 Players need to drive eco friendly practices and coatings
 Technology, service and reliability of company is important
 As Asian end users expand globally, Asia paint companies like
KCC, Nooru, will expand outside Asia

Automotive  Industry very price sensitive and pro environment

 Key paint companies continue to focus on developing eco
friendly process and key account relationships
 Strong presence of Japanese paint companies like Kansai and
Nippon

24
Last Word

 In Rapidly developing markets such as China and India, we note that market leaders are
dominating by focusing on volume sales at affordable prices. This helps build brand awareness
and gain popularity and recognition amongst the masses. Nevertheless, premium products are
also sold to boost profitability. Focus on second tier cities/ cities in the West or interior regions in
China

 Much of the focus is now also shifting towards emerging markets mainly Vietnam and Indonesia.
Volume is the name of the game in these markets. Domestic suppliers resort to competitive
Major I are
pricing as multinational
the sole competitiveor regional
strategy. in operations……small
Established country
paint manufacturers are leading through
product
centric offering and quality
companies maybutlosealso ensure they have
out with a reasonably
global trade wide product range to cater
to low to high price needs. Increase in competition and expansion expected as many companies
are eyeing these markets

 In mature markets such as Australia and Singapore, we note that manufacturers focus more on
product differentiation to standout against the competition. Focus is on eco friendly, sustainable
coatings or higher functionality products. Quality and innovation are also key drivers in these
markets

 Sustainability and green initiatives will continue. Growth in point of sales tinting seen in countries
such as Malaysia. Mid tier expected to grow as companies push to offer more choices in this
space

25
For Additional Information

Krithika Tyagarajan
Research Director
Chemicals, Materials and Food, Asia Pacific
(65) 6890 0230
ktyagarajan@frost.com

Please log on to our Paint Frost

website at www.paintfrost.com
for more info.

26