Tense pigment market: focus on rising costs and longer production runs

The market research firm Markets and Markets predicts an average annual growth rate of 4.5% for the global pigments market between now and 2029. The market volume would increase from around EUR 15.4 billion to over EUR 19 billion. Ceresana also predicts an increase in demand. This is expected to rise to over 14.5 million tonnes worldwide by 2032.

Industry players are not quite as positive about the future. ‘For 18 months, the industry had to contend with weak demand. At the beginning of this year, a turnaround seemed to be on the cards, with some paint and varnish manufacturers sending positive signals. However, this now appears to have weakened again. In my view, this means that the market is stable at a low level,’ says Axel Schneider of CG Pigment Europe. Andreas Dyckerhoff from Bruchsaler Farbenfabrik says that the general political and economic situation is very volatile and is leading to a tense situation.

Demand for pigments is sluggish, especially in Germany and Europe, where business is stagnating. ‘From what we have heard from market players, only outside Europe was the first half of the year more satisfactory. Now, however, there are also signs of a slowdown at the beginning of the second half of the year. A turnaround is not really in sight yet,’ says Dyckerhoff. According to Markets and Markets, the pigment market in the Asia-Pacific region is growing robustly and is expected to be the fastest growing market by 2029. The region’s rapid industrialisation and urbanisation, increasing infrastructure investment and expanding automotive, construction and packaging industries are among the growth drivers. In addition, the growing middle class and its rising disposable income have increased demand for consumer goods, which in turn boosts demand for pigments in products such as paints, varnishes, plastics and printing inks.

Reading tip: Special Effect Pigments

Explore the fascinating world of special effect pigments and their impact on coatings aesthetics and functionality with ‘Special Effect Pigments‘. This book highlights the diverse range of effects achievable with special effect pigments, from metallic finishes to pearlescent and interference colors. Discover how to leverage these pigments to create coatings with unique visual appeal.

Geopolitical tensions lead to higher costs and
supply chain challenges

Geopolitical tensions remain a fundamental risk for the supply chains of iron oxide pigments from Asian production sites, according to Stefano Bartolucci of Lanxess.
In addition, container shipping on the routes through the Red Sea and the Panama Canal is currently affected, causing delays in shipments to and from Asia.

According to Bartolucci, transport costs from China to Europe and North America have risen sharply. Schneider agrees: ‘Geopolitical developments create obstacles that have to be circumnavigated in the truest sense of the word. The pigment market is largely supplied by products from China and India that have to be shipped to Europe. The problems in the Red Sea have led shipping companies to avoid the Suez Canal and take the long route around Africa. This costs time and money and causes delays in the supply chain. Suppliers such as Lanxess, which have a global production network with regional sales structures, offer the advantage to the paint and varnish manufacturers that they can minimise the effects of regional dependencies in the supply chain.

Bartolucci, however, points out: ‘Such a production structure also means a different cost structure for the supplier, in which regional factors such as higher energy costs in Europe must be taken into account. Stefan Ohren from Heubach sees pigment manufacturers under pressure from rising raw material prices and overcapacity in the market, which is leading to a very difficult market situation. The trend towards regional or local purchasing will continue, as global logistics are under pressure, which is why a strong European presence is of the utmost importance. In principle, Dr Lars Lücke from Harold Scholz is already seeing increased demand for raw materials from Europe. ‘Consumers in the DACH region do not want to rely exclusively on suppliers from the Far East, not least because of the experiences of the last two and a half years,’ he says.

Of course, EU pigments would have to remain qualitatively and commercially competitive, but consumers also know that they need manufacturers in the EU in the medium and long term. Nevertheless, Lücke is certain that Indian pigment manufacturers will gain market share in the EU in the near future.

Are you interested in more topics and content relating to the coating industry? European Coatings Journal is the leading monthly journal for the international coatings industry. As the trendsetting medium for deep technological insights, EC Journal goes beyond the surface, providing you with. More information on the magazine subscription can be found here.

Construction industry as main customer is weakening

Ears also views the current situation in the pigment market and particularly in the paint and coatings industry as very difficult. ‘Market demand is down by a double-digit percentage compared to the volumes we saw in the early 2020s,’ says Ohren. Bartolucci also confirms the double-digit decline. Global demand for synthetic iron oxide pigments for coating applications will decline by about 10% by 2023 due to the weakness of the construction industry and consumer restraint in the do-it-yourself sector, and then stabilise at that level. Lücke confirms the decline in the construction industry: ‘In the area of architectural paints, the economic slowdown caused by high interest rates and high real estate prices is clearly noticeable’. By far the most important sales market for the pigment industry is the paints and varnishes application area, which currently consumes around 5 million tonnes of pigments per year, as reported by Ceresana in its latest market study. Of this, around 2.5 million tonnes are used in interior and facade paints for the construction industry alone.

Situation in the European market remains difficult

Now that manufacturers have reduced their inventories, Bartolucci expects a slight recovery in the EMEA region in 2024. In addition, he says, customers are restocking at short notice due to current uncertainties in global supply chains. Lücke is cautiously optimistic about the market. The economic trend in Europe is pointing slightly upwards, but there are still uncertainties in the supply chain, especially for organic pigments. He hopes that the positive economic trend will continue. ‘We need a tailwind to survive in the market and at the same time to manage the transformation of the chemical industry towards climate neutrality,’ says Lücke. For Schneider, the long period of market weakness has slowly but surely led to a reduction in inventory levels. As soon as the market picks up again, the pipelines at all production levels will need to be refilled. This could even lead to bottlenecks in some areas. ‘Thanks to generous wage increases, end consumers have slowly overcome inflation. Therefore, an upward trend should soon be able to develop,’ says Schneider. In the medium term, he expects a robust recovery in the paints and varnishes market. However, it is difficult to estimate how long it will take to get there.

In particular, Ohren and Dyckerhoff do not expect a turnaround in Europe. ‘Based on the recently published ifo business climate indices, we do not expect any tailwind from the European macroeconomy. In particular, the value for the German construction industry has fallen to its lowest index level since 2015,’ says Ohren. According to Dyckerhoff, the mood is currently poor. The construction industry, for example, is at rock bottom. In addition to the tense economic situation, the pigment industry has to contend with a lot of bureaucracy. ‘There are restrictions, regulations and ever new approval procedures. If this continues, also at this pace, I see medium-sized companies in danger in the medium term. Nobody wants to go through that anymore and the result would be the migration of the pigment industry out of Germany and the EU,’ warns Dyckerhoff. In addition to the high costs in Germany and the EU, he is particularly concerned about the EU Green Deal, which leaves big question marks. He wonders whether SMEs will be able to meet the requirements at all and remain competitive in such an environment. ‘However, every risk and every challenge also offers opportunities. It is important to recognise and take advantage of these. As a medium-sized family business, we see our advantage in the flexibility that allows us to react quickly to new market demands,’ he says confidently.

Would you like to know how the paints and coatings industry is dealing with the challenges of the Green Deal and why sustainable innovations are becoming increasingly important? Are you also interested in the impact of market consolidation on smaller companies? You can find out more in our online database EuropeanCoatings//360.