Profits Are Rising, but So Are the Risks—China’s Coatings Industry Is Living Through Its Most Awkward Year

 What makes the latest briefing from the China National Coatings Industry Association so intriguing is not the decline itself, but the fact that while things are shrinking on one side, profits are growing on the other. In 2025, China’s total coatings output fell to 34.602 million tons, down 7.1% year on year. Main business revenue dropped 3.9% to RMB 388.15 billion. Yet total industry profit rose 11.5% to RMB 29.25 billion, while the average price slipped to RMB 11,200/ton, down 3.15%. Put together, these figures resemble a company that looks thinner on the surface but has quietly built more muscle underneath: volume is gone, prices are softer, yet profitability has improved. This suggests that what China’s coatings industry experienced in 2025 was not an ordinary market downturn, but a harsher and more mature round of sector reshuffling. The era when companies could survive comfortably just by chasing scale, piling on output, and fighting for low-end orders is fading fast. The survivors are starting to make money through structure, cost control, and product mix.

That is why many people instinctively find it odd when they see output and revenue falling while profits rise. But the real state of the industry is hidden precisely inside that “oddness.” Coatings is not an industry whose health can be judged by total tonnage alone. It is naturally tied to downstream demand cycles. In 2025, the weakness of real estate and construction clearly weighed on traditional architectural coatings; at the same time, industrial coatings, niche functional products, and higher-value supporting materials were quietly gaining weight within the market. The result is something very Chinese and very industrial at the same time: the low-end market is still a battlefield full of dust and bruises, while higher-end and segmented markets are slowly lifting profit margins. In other words, the industry as a whole has not recovered. Rather, the companies that know how to make money are starting to live a little better.

The export data deserves an even closer look. In 2025, coatings exports reached 407,700 tons, up 21.99%, while export value came in at US$1.215 billion, up 14.28%. Volume grew faster than value. What does that mean? It means that China’s coatings exports are indeed expanding, but pricing has not strengthened in step. This is not a report card that should make anyone overly excited. It looks more like a report card earned by exchanging efficiency and supply capability for market share. Chinese companies are winning more share overseas, which shows that delivery, product range, cost performance, and supply reliability remain competitive. But when export value grows more slowly than export volume, it also means global buyers remain highly price-sensitive. It is fair to say that many of these orders were won through more aggressive pricing. The industry may appear to be enjoying an “export recovery,” but in reality it is dancing on a much thinner blade.

What truly pushes this briefing into deeper waters, however, is not coatings itself, but titanium dioxide and iron oxide pigments. In 2025, China exported 1.8169 million tons of titanium dioxide, down 4.36%, with export value falling 14.33% to US$3.579 billion. Within that total, chloride-process titanium dioxide exports reached 366,500 tons, up 6.03%, while sulfate-process titanium dioxide exports fell 6.67% to 1.4505 million tons. Iron oxide pigment exports amounted to 309,300 tons, down 8.77%, with export value falling 11.52% to US$287 million. These figures are cold, but they are honest. They tell the market that competition in raw-material segments is no longer simply about whether products can be sold abroad, but whether prices, margins, and the pace of product upgrading can still be preserved after they are sold. Titanium dioxide, in particular, shows a clear split between chloride and sulfate routes. At its core, this is a split between upgrading paths and the thresholds of international competition. The fact that chloride-route exports still grew shows there is room for the higher-end track; the decline in sulfate-route exports shows that the traditional high-volume route is facing increasingly intense global pressure.

The import side is just as revealing. In 2025, China imported 150,900 tons of coatings, down 8.01%, but import value rose 11.12% to US$2.010 billion. Put simply, China bought less, but paid more. There is nothing mysterious about that. It shows that the Chinese market still has rigid demand for certain high-end coatings, specialty-use materials, and key performance products—and none of them come cheap. Titanium dioxide imports fell 18.92% to 74,500 tons, while import value declined 21.23%. At first glance, this seems to indicate import substitution. But if you split the structure, chloride-process titanium dioxide still accounted for 44,400 tons of imports. In other words, domestic substitution is moving forward, but in high-end applications, international suppliers still retain a degree of stickiness and technical barrier. One foot of the industry has already stepped into self-reliance, while the other is still planted in the global high-end supply chain. It is not an easy stance to maintain.

If everything above still belongs to the internal temperature of the industry, then the Middle East situation is the external hand that has abruptly tightened the valve on the whole supply chain. According to the briefing, the conflict that erupted on February 28, 2026, among the United States, Israel, and Iran quickly spilled over across the region, sending shockwaves through global energy, shipping, and bulk chemical markets. For the coatings industry, what is truly frightening is never the missile itself, but the way it blows holes through delivery schedules and cost sheets.

Why is the Strait of Hormuz so alarming? Not because the line on the map is narrow, but because such a significant share of global energy and chemical logistics truly has to pass through it. From coatings solvents and resins to additives, packaging, transportation, and utilities, the entire chain is wrapped around energy. When energy prices rise, it is not merely that electricity and steam become more expensive—the hidden cost level of the entire formulation system rises with them. And if the market happens to be in a weak-demand cycle, companies cannot fully pass those cost increases on to customers. That means margins get squeezed from both directions: upstream becomes fiercer, while downstream becomes stingier.

The second, more direct fault line is methanol. The briefing points out that more than 60% of China’s methanol imports come from Iran, while 32% of global methanol trade passes through the Strait of Hormuz. That is not sensationalism. For China, methanol is not an isolated product. It runs downstream into olefins, acrylics, and more, then ultimately transmits into the coatings system through resins and intermediates. When methanol tightens, what rises is not just one chemical, but the mood of an entire chain of chemicals.

What deserves the greatest caution here is that “good news for domestic coal chemicals” and “bad news for coatings margins” can both be true at the same time. Once overseas methanol supply is disrupted, domestic coal-to-methanol and coal chemical chains naturally gain price support and substitution opportunities. But for coatings producers, that is not necessarily good news. Because coatings companies do not sell raw materials; they buy raw materials to make formulations. Rising upstream prices may be a profit opportunity for coal chemical producers, but for coatings plants they are often a procurement department’s nightmare. A tailwind for one industry can be a cost disaster for another. That is why every time upstream chemicals surge, investors cheer while manufacturers lose sleep.

The third variable is more hidden, but no less deadly: sulfur. China is a major sulfur importer, and the Middle East is a key source region. Once the region is shaken and Hormuz becomes unstable, sulfur prices do not merely rise—they often enter the classic chemical pattern of panic buying first, withholding second, and chasing prices afterward. Sulfur is directly tied to sulfuric acid, and sulfuric acid in turn affects titanium dioxide, certain pigments, and a range of inorganic chemicals. So for the coatings industry, the Middle East conflict does not travel through a long detour from television headlines to factory floors. It enters through sulfur and sulfuric acid, and knocks directly on the cost door of titanium dioxide and pigments.

This means that in 2026, China’s coatings industry may have to face something even more uncomfortable than weak demand: demand may remain sluggish while costs begin to grow restless. When demand is weak, companies fear volume loss. When costs rise, they fear margin erosion. And when both happen at once, the industry quickly becomes stratified. Companies with strong brands, strong pricing power, industrial-end customer structures, and higher product differentiation can slowly raise prices, adjust formulations, or delay the impact of some costs. Low-end commodity producers, by contrast, are forced to choose between losing orders and losing profits. The former group suffers but survives; the latter often disappears from the market before anyone quite notices.

Now, if you look back again at those 2025 figures, a lot begins to make sense. Why did output and revenue fall while profits rose? Because the industry was already undergoing advance-stage consolidation. Why did export volumes rise faster than export values? Because companies were winning market share abroad, not premium pricing. Why are titanium dioxide and iron oxide so important in this story? Because they form the cost floor and competitiveness floor of the coatings industry. Why does the industry become nervous the moment the Middle East destabilizes? Because China’s coatings sector may look like domestic manufacturing on the surface, but at its core it has long been part of a global supply chain. Energy, methanol, sulfur, shipping, insurance—if any one gear jams, both formulations and profit statements begin to distort. Today’s Chinese coatings industry is no longer a rough story of how much is made and how much is sold. It is a precision business of how tightly costs, structure, technology, and orders can be held together amid global turbulence.

To put it even more sharply, the biggest question facing China’s coatings industry in 2026 may not be whether there will be growth at all, but who can still defend margins amid uncertainty, and who will be exposed the moment costs are hit. Because once the property dividend fades, margins on generic products thin out, and overseas markets become increasingly cutthroat, the truly valuable companies are no longer those with the largest capacity, the lowest offers, or the broadest channels. The valuable ones are those that can turn supply-chain volatility into their own moat. They know when to lock prices, when to build inventory, when to switch feedstock routes, when to explain price increases to customers, and when to walk away from low-quality orders. At the end of the day, the coatings industry may seem to be selling color and adhesion, but what it is really competing on is accounting ability, risk management, and industrial patience.

This latest Middle East upheaval will, in the short term, undoubtedly push up costs, amplify volatility, and unsettle expectations. But it also acts like a cruel searchlight, exposing the real base color of the industry more clearly than before. Who has been surviving only by being cheap, and who has already learned to survive by relying on technology, structure, and management—the answer will soon become obvious. China’s coatings industry in 2025 may look as if it is shrinking. But what it is actually doing is quietly burying the old world in which being big was enough to win. In 2026, the gunfire has merely helped lift another layer of soil off that grave.