THE GERMAN paint and coatings industry is predicting that its sales will grow steadily in the coming year, as Europe’s largest economy continues its steady economic good fortunes.

The World Bank forecasts that 2017 gross domestic product (GDP) growth will be 1.6% and in 2018 it will be 1.5%. This is good news for German paint companies who are prime suppliers to a number of stable and largely mature markets across the German economy. The Verband der deutschen Lack- und Druckfarbenindustrie (VdL), Germany’s association of the paint and printing ink industry, recently reported that paint and coating production in Germany in 2016 rose by 1.2% year-on-year to 2.6 million metric tonnes, with a value of just over Euro EUR8 billion (USD8.5 billion) – up 1.3%. This was “a good year” said the VdL, which views 2017 with “cautious optimism,” predicting sales rising slightly to just over 2.6 million tonnes. Of the production in 2016, 1.17 million tonnes was exported. Also, just over half of domestic sales were made to the building industry; some 570,000 tonnes were sold to German industry generally, with the motor industry as the main customer; and 291,000 tonnes were sold as printing ink.  

If the number of applications for building permission is any guide, the coming year will be an excellent one for house-building, said Michael Bross, director of public affairs at the VdL. Given the number of permits “we think there is quite a lot of house-building activity planned. We are also optimistic about decorative coatings for architecture and in the DIY sector,” he said. As far as external outdoor paints and coatings are concerned, “we always have a problem with the weather. If you have a poor couple of months in the spring, you cannot compensate in May through October, but if March is dry and warm then that means a very good year afterwards. We can’t predict that, but as far as indoor activities are concerned we are relatively optimistic that we will at least get the same trend as last year,” he said.

And the motor industry? “The OEM (original equipment market) was up two per cent in 2015 and we think about the same in 2016. The motor industry is booming in spite of the problems at VW [the ‘dieselgate’ emissions testing fraud scandal] and we think it will carry on going up.” The picture is less clear for the refinishing market, traditionally a big user of paints however. “This has been going down for years and it won’t change because coatings for cars are better than ever before and there’s no need to change them except in the case of accidents. And the number of accidents is going down, first because of the growing technology utilised in cars and second because of the milder winters over the past 10 or 15 years. Most accidents happen in January and February and if you don’t have snow and ice, as has been the case recently, that’s good for the car owners, not so good for the body shops and refinishers.”

But where one market slows down, another starts up. The multinational German chemical company BASF, a major paint and coating manufacturer, has just announced a major investment in China where there are 170 million cars on the roads already, and with a 1.3 billion population, many more will follow. BASF Coatings (Guangdong) Ltd has been set up to exploit the huge Chinese refinishing market and serve as a technology and production hub to support BASF’s refinishing business operations across the Asia Pacific region.

BASF certainly has signalled its intention to focus more on automotive paints through its sale of its global industrial coatings business (the deal was completed December). It supplied a range of products for industries including construction, domestic appliances, wind energy and commercial transport, and was sold to Dutch company AkzoNobel for EUR475 million. BASF’s industrial coatings operation was said to be too small to compete effectively, as opposed to its much larger automotive division which generated as much as 77% of sales in the company’s coatings division. Following the deal, BASF said it intended to strengthen its core automotive OEM and refinishing coatings businesses. The company said the remaining part of its coatings division – consisting of the automotive OEM and automotive refinish coatings businesses, as well as the decorative paints business (including the leading brand Suvinil in Brazil), had sales of approximately EUR2.9 billion in 2015.

Looking at other paint and coatings segments across the German industry, the long slow decline in demand for coloured printing inks in Germany now seems to have been halted. Following several years when ink sales to newspapers and magazines fell off there were “no significant changes in purchase of printing inks” in 2016 said the VdL and the situation had been “stabilised” with a 1% rise in demand predicted for this year.

On the costs front, the VdL’s Mr Bross said that because oil had not gone up in price over the past year, transport and oil-based paint input costs had been kept low. “The oil price effect is not as important in the manufacture of coatings as you might think because we now have a lot of products that are not using any oil, for instance a lot of fillers and water-borne products. The oil price effect on the final product becomes less and less important the more complicated the product is,” he said. Moreover, regulatory pressures world-wide are forcing manufacturers away from VOCs (volatile organic compounds) towards water-based paints and powder coatings – a development of clear significance to Germany with its global business orientation, pushing its coatings sector towards reducing its reliance on oil.

Autobahn transport fees, an important production cost for the paint industry, also have not gone up in the past 12 months, but it was possible they could rise next year “depending on what kind of government we get in the elections in the autumn,” noted Mr Bross – highlighting the upcoming September 24 federal poll. Also, suppliers had warned of price rises on the way for some pigments used by paintmakers. “This will cut into the profit margins but I think 2016 will be relatively OK where this is concerned,” Mr Bross said.    

An important development that the coatings industry has long awaited is a government policy to stimulate the installation of coated thermal panels for insulation. This has been big story in the German media in the past year but there have been problems with disposing of polystyrene which requires special waste processing equipment and this are in short supply. All of this meant there had been no positive encouragement for home insulation with such materials. although this could change after the elections, Mr Bross said.

Overall, the German paint and coatings industry seems settled and quietly optimistic, leading the way in sales and innovation in Europe and little affected by Brexit and international events, except those that could influence the outcome of the German federal elections in the autumn and possibly lead to currency upheavals.