Pigment Market Hit Hard! Demand Drops by 10%, Supply Chain Risks Intensify, Costs Soar!

Market research firm Markets and Markets forecasts that the global pigment market will grow at a compound annual growth rate of 4.5% from now until 2029. The market capacity is expected to grow from about 15.4 billion euros (equivalent to about 119.2 billion yuan) to more than 19 billion euros (equivalent to about 147 billion yuan). At the same time, Ceresana also forecasts an increase in global pigment demand, which is expected to exceed 14.5 million tons by 2032.

However, industry insiders are cautious about future market prospects. The industry has faced the challenge of weak demand over the past 18 months. Although at the beginning of the year, some paints and varnishes producers sent positive signals suggesting a possible turnaround in the market, the momentum appears to have waned recently. "From my personal observation, this is a sign that the market is stabilising at a lower level," said Axel Schneider of CG Pigments Europe. Andreas Dyckerhoff of Bruchsaler Farbenfabrik added: "The overall uncertainty of the current political and economic environment is causing tension."

Dyckerhoff further elaborated: "Pigment demand continues to be low, especially in Germany and Europe, and business is stagnating. According to our conversations with market participants, only outside Europe has shown satisfactory results in the first half of the year. However, there are already signs that business may slow as the second half of the year begins. The real turnaround in the market is yet to be seen."

According to Markets and Markets, the Asia-Pacific pigment market is performing strongly and is expected to be the fastest growing market until 2029. This growth momentum is driven by the region's rapid industrialization and urbanization, increasing infrastructure investment, and continued expansion in the automotive, construction, and packaging industries. In addition, the expanding middle class and its increasing disposable income have also promoted the growth in demand for consumer goods, which in turn has driven the increase in demand for pigments for products such as paints, varnishes, plastics and printing inks.

Geopolitical tensions continue to pose a fundamental risk to the iron oxide pigment supply chain in the Asian production base, stressed LANXess's Stefano Bartolucci. In addition, container traffic has faced challenges in the Red Sea and the Panama Canal, further exacerbating delays in the movement of goods in and out of Asia.

Bartolucci noted that shipping costs from China to Europe and North America have risen sharply. Schneider also said that geopolitical developments have created transportation barriers that need to be circumvented. The pigment market is mainly dependent on the supply of products from China and India, which are shipped to Europe. Because of the Red Sea problems, shipping companies have been forced to go around Africa rather than through the Suez Canal, increasing the cost of time and money, as well as causing delays in the supply chain. However, suppliers such as LANXESS, with their global production network and regional sales structure, offer coatings and varnishes producers an advantage in minimising the impact of regional dependence in the supply chain.

However, Bartolucci also pointed out that this production structure inevitably brings about an increase in production costs. Suppliers need to face different cost structures, where regional factors such as higher energy costs in Europe are important factors that must be considered. Heubach's Stefan Ohren believes that rising raw material prices and market overcapacity have put great pressure on pigment producers, making the market situation extremely severe. In the context of ongoing global logistics pressure, the trend towards regional or local sourcing will continue, so it is particularly important to establish a strong business network in Europe.

Dr. Lars Lucke of Harold Scholz observes that the demand for raw materials in Europe is increasing. In particular, he noted that consumers in the DACH region of Germany do not want to be overly dependent on suppliers in the Far East, especially given the experience of the last two and a half years. While EU pigments need to remain competitive on quality and commercial terms, consumers also recognise that they need EU producers in the medium to long term. However, Dr. Lucke is also certain that Indian pigment producers will gain a larger share of the EU market in the near future.

The construction industry's position as a core customer group is gradually weakening. According to the analysis of Ears, the current pigment market, especially the paint and coatings industry, is facing unprecedented severe challenges. Compared to the early 2020s, market demand has shown a double-digit decline, a trend confirmed by both Ohren and Bartolucci. Affected by the weak construction industry and the limited DIY market, the global demand for synthetic iron oxide pigments for coatings has been reduced by about 10% in 2023, and will remain at this level for some time thereafter. Lucke further noted that the architectural coatings sector is suffering significantly from the economic slowdown caused by high interest rates and high housing prices.

Up to now, the paint and varnish application field has always been the most critical sales market of the pigment industry, according to the latest market research report of Ceresana, the annual consumption of the field has been close to 5 million tons, of which the interior and exterior coatings of the construction industry have occupied about half of the wall, that is, 2.5 million tons.

For the European market, Bartolucci predicts a slight recovery in the EMEA region in 2024, even though manufacturers have started to reduce inventories. He stressed that given the uncertainty in the global supply chain, customers may adopt more rapid replenishment strategies. Lucke is cautiously optimistic about the market, saying that although the European economy is showing signs of recovery, the stability of the supply chain is still in doubt, especially in the organic pigments sector. He hopes the positive economic trends will continue.

Lucke further elaborated: "To gain a foothold in the market, we need to take advantage of favorable market conditions while proactively addressing the challenges of the chemical industry's transition to climate neutrality. For Schneider, the prolonged market downturn has gradually led to a reduction in inventory levels. Once the market picks up, production processes at all levels need to be quickly supplemented, which may lead to supply bottlenecks in local areas. Fortunately, with significant wage increases, end consumers are gradually overcoming the impact of inflation, indicating an upward trend in the market." From a medium-term perspective, Schneider predicts that the paint and varnish market will usher in a strong recovery, but the specific timetable is difficult to predict.

In particular, Ohren and Dyckerhoff are pessimistic about the future of the European market. Based on the latest ifo Business Climate Index, they predict that the European macro economy is unlikely to improve significantly in the short term, especially the German construction index has fallen to its lowest since 2015. Dyckerhoff also pointed out that the current market sentiment is depressed and the construction industry is at a low point. In addition to economic pressures, the pigment industry has to deal with a heavy bureaucratic burden, including endless restrictions, regulations and new approval procedures. He warned that if the situation continued, mid-sized companies could face a medium-term existential crisis.

Dyckerhoff singled out Germany's high costs with the EU and expressed concern about the EU's "green deal" initiative, which he said created a lot of uncertainty for small and medium-sized enterprises. He is not sure whether they can meet all the requirements and remain competitive in such an environment. However, he also stressed that risks and challenges often breed opportunities, and the key is to identify and seize these opportunities. As a medium-sized family business, they have the advantage of being flexible and able to respond quickly to new market demands.