Japan’s Auto-Paint Makers Chase OEMs’ Global Growth

TOKYO – Japan’s automakers increasingly are looking to set up plants in or near their target markets, and paint companies with expertise in the auto-coatings sector are following their lead.

“In 2015, the overall Japanese paints and varnishes market recorded 0.3% growth, with producers struggling to remain competitive because production in Japan is pricier due to environmental requirements and higher labor costs,” says Andrius Balsys, a research analyst who monitors the paints sector for London-based market researcher Euromonitor International.

“So, in order to continue growing, Japanese paint companies are investing in production facilities abroad to meet the needs of the auto sector.”

According to the Japan Paint Manufacturers’ Assn., Japanese companies produce 30% of all automotive coatings in the world, giving them the largest share of the market, ahead of European makers, with 25%, and the U.S., with 19%.

“So our makers have 30% of the world share, but car production in Japan only accounts for 10% of the global output,” says Yoichi Yonehara, managing director of JPMA. “And with car production expected to decrease in the future, paint manufacturers here must consider expanding their activities overseas.

“But the paint industry must carefully watch the auto sector, not only from a viewpoint of the paint applications currently being carried out, but also to determine future trends such as the transition to electric vehicles.”

Kansai Paint, headquartered in Osaka, has issued a flurry of announcements of new overseas projects in recent months.

In April, it announced it plans to construct a dedicated auto-paint production facility in Morocco to meet the needs of European automakers with plants in the region. Work is scheduled to start in February at the site near the city of Tangier. Kamsai is not saying how much it is investing in the facility.

Kansai earlier acquired Freeworld Coatings, a paint maker in South Africa, and Astra Paints in Zimbabwe in 2013. In the fiscal year ending March 31, the company said sales in Africa totalled ¥42.5 billion ($418 million), roughly double the figure from four years ago, although not all of that can be attributed to the auto sector.

“Vehicle paints and coatings are one of the main businesses for us and we believe it is very important to win the technological competition,” Hisatoshi Noto of Kansai’s corporate planning department tells WardsAuto. “Our strategy is to supply paint to all automobile companies by responding to their requests and thereby expanding our business.”

India Seen as Prime Market

One market of particular interest to Japan’s auto-focused paint makers is India, Noto says, noting: “India has the second-largest population in the world and the percentage of middle-class people is going to increase from now on. We believe the Indian economy will grow for at least the next 30 years.”

One of the most popular early purchases for anyone aspiring to India’s middle class is owning a car.

Kansai already controls about half of the Indian market for automotive coatings and in May 2015 announced plans for a fifth production facility in Gujarat. The company is investing ¥7 billion ($68.8 million) in the plant, which is expected to have an annual capacity of some 42,000 tons, a significant percentage of which will supply the auto sector.

The company also has been addressing its global supply chains, launching production of automotive paint resins through its equity affiliate Hunan Xiangjiang Kansai Coating in Changsha in China’s Hunan province. Kansai is investing ¥billion ($29.5 million) in the plant to meet growing demand from both Chinese and Western automakers for paint.

Kansai’s domestic rival, Nippon Paint Holdings, also has its eye on the Chinese market.

“Although we do not expect an increase in domestic automobile production, we are keen to gain market share little by little in what is a struggling market because we believe that winning the confidence of Japanese auto OEMs will lead to inquiries and an expansion of our sales in overseas markets,” company spokesman Naruki Yamazaki says.

Yamazaki confirms only that Nippon is “studying various areas” for future overseas expansion, but adds China is its most important market because growth there will help its relationships with OEMs in the all-important European and U.S. markets.

Earlier this year, Nippon Paint completed an automotive-coatings plant in Shanghai that came on line in June. There also are plans to enlarge an interior-paints plant in Jiangsu province, with total new investment in China put at ¥7 billion.

South and Central America also are seen as opportunities for Nippon Paint’s automotive coatings.

A report by market-research company Fourin predicts South America’s auto market will soar 82% in the next decade, well in excess of the projected global growth of 32%. In response, Nippon aims to establish a new automotive coatings and water-based plant in Mexico in 2017, with additional investment in another existing plant designed to raise annual output of paint for 1 million vehicles.

The company also is bringing a production facility in Brazil on line before year’s end.

All companies in Japan with a stake in the coatings sector are investing heavily in developing new technologies that will keep them ahead of the global competition.

Last year, Asahi Kasei doubled its output capacity at its plant in Nantong, China, to 20,000 tons a year for agents used in automotive coatings. IHI is sinking about ¥10 billion ($98.4 million) over five years in a thermal- and surface-treatment business for auto-parts makers and cutting-tool manufacturers.