The next business opportunity in the paint industry: the mid-to-high-end product market.

This year, the raw material market for coatings is booming. From January to November, the price of titanium dioxide has increased 12 times, while the price of the curing agent TDI has risen to 58,000/ton, far exceeding the expectations of coating manufacturers. In addition to the astonishing price increase, TDI is also facing an urgent situation of "high prices but no market, and no goods available."

The continuous rise in raw material prices has directly led to price increases for some coating products. Starting from October 2016, some coating companies could no longer bear the cost pressure from rising raw material and logistics prices, ultimately choosing to raise prices to maintain normal operations.

In the context of a relatively sluggish overall economic environment and a slowing growth rate of coating production, the continuous surge in the prices of basic chemical products has left industry experts baffled. In 2015, China's total coating production was 17.18 million tons, a year-on-year increase of 4.2%, with sales revenue growing by 7.1% and profits increasing by 10.9%. Although all data showed an increase, they consistently indicated that the growth rate of coating production in 2015 was significantly lower than before.

As we entered 2016, China's coating production continued to show a steady growth trend, while total profits saw a significant increase. From January to April 2016, the coating manufacturing industry in our country maintained a steady growth trend, breaking through a total production of 5 million tons against the backdrop of a sluggish downstream market. The cumulative main business income reached 124.608 billion yuan, a year-on-year increase of 3.7%, and total profits exceeded 10 billion yuan, reaching 10.792 billion yuan, a substantial year-on-year increase of 32.1%.

The situation where the growth rate of coating production is slowing down while profits are rising sharply indicates that the proportion of mid-to-high-end coating products has increased significantly, reflecting a relatively good operational situation in the entire industry. In my view, the growth trend of mid-to-high-end coating products is an inevitable result of industry development. This result is influenced by many factors:

Supply-side reform implements quality improvement and quantity reduction in the coating industry.

In 2016, the state focused on launching the "supply-side structural reform" policy, improving product quality from five aspects: "reducing production capacity, reducing inventory, reducing leverage, lowering costs, and filling short boards," and eliminating backward production capacity.

Stimulated by national policies, many small and medium-sized coating enterprises gradually realized that simply competing on price and volume can no longer meet market demands, and they must optimize their products to seize market share.

For a long time, the issues of "overcapacity" and "serious homogenization" in the coating industry have been well-known, but without policy-driven solutions, these problems are difficult to fundamentally resolve. With the implementation of "supply-side reform," various problems and contradictions existing in the coating industry will be exacerbated, and some small and medium-sized enterprises may face severe survival challenges due to inferior product quality.

Faced with the test of survival, enterprises have only two paths to choose from: one is to transform and upgrade to improve product quality; the other is to wait for death. Regardless of which path enterprises take, it is undoubtedly beneficial for the overall development of the industry.

Increasing cost pressure triggers a new round of reshuffling in the industry.

2016 can be said to be the most difficult year for coating enterprises. On one hand, some markets are approaching saturation, making it difficult for coating product sales to achieve significant growth again; on the other hand, the continuous surge in raw material prices has brought unbearable pressure to coating enterprises.

In the face of being squeezed from both sides, some people say that the coating industry is becoming increasingly difficult, while others see business opportunities. In recent years, water-based paints have become an important development trend in the coating industry. However, due to cost and other reasons, the development of water-based paints has faced certain obstacles. Now, with the rising prices of raw materials such as PU and PE, some companies that originally produced oil-based paints are interested in transitioning to water-based paints, promoting the development of environmental protection.

Indeed, the continuous rise in raw material prices can benefit water-based paint companies to a certain extent and also promote coating companies to develop environmentally friendly coatings, guiding the market towards healthy development.

The next business opportunity: the mid-to-high-end market for coating products.

With the continuous improvement of social living standards, people not only value the quality of coating products but also have greater pursuits for the artistic effects of coatings, washability, air purification, thermal insulation, moisture retention, sound insulation, and fire prevention. It is undeniable that in this rapidly changing era, the operational space for traditional ordinary coatings is becoming increasingly limited, replaced by high-tech, environmentally friendly, and highly personalized functional coating products.

To keep up with the trend of the times and meet the diverse needs of different consumers, many coating companies in our country have developed coatings with special functions such as thermal insulation, haze purification, formaldehyde removal, and flame retardancy. Compared to traditional latex paints, these functional materials are clearly more favored.

On one hand, consumer demand is changing; on the other hand, the small and low-end markets are being suppressed. Various factors will promote the development of the mid-to-high-end coating market in our country.

Currently, the Chinese coating industry is entering a new stage of development, in which small, homogenized production enterprises that have been marginalized by the entire industry will be eliminated. Mergers and reorganizations will encourage large manufacturers to enter the mid-market in a way that is closer to users. Even in a slowing growth market, opportunities are still everywhere.