Buildings and Infrastructure
We provide paints and coatings that are applied to building interiors and exteriors, as well as specialty chemicals used in the manufacture of building and infrastructure materials. The Maintenance, renovation and repair sub-segment is particularly important to our Decorative Paints Business Area and accounts for roughly 75 percent of revenue.
44% of revenue
Consumer confidence is an important driver of the Buildings and Infrastructure segment. Compared with last year, we see a slightly softer outlook. On a regional level, we see optimism in Asia Pacific and North America, although the latter is somewhat more volatile. Consumer confidence in Europe and Latin America still shows signs of pessimism.
Trends in construction will also affect the Buildings and Infrastructure end-user segment. The outlook is for good growth. US construction is still in a cyclical rebound after the multi-year post-financial crisis decline. Chinese construction continues to recover. Government stimulus efforts have impacted house prices, which has renewed demand for new construction, although major pockets of housing vacancies exist. In India, construction demand is high due to increasing urbanization. Overall, we expect a recovery in construction in Europe and Brazil to low single digit growth; high single digit growth in India; while North America and China are expected to slow down slightly.
The total construction market can be split into two sub-segments: New build projects; and Maintenance, renovation and repair. A downward adjustment is apparent in Chinese New build projects, and while steady growth is foreseen, it will be lower than in the past. This is important because Chinese new build is slightly larger than European new build and twice the size of the North American new build market. Growth expectations for the Chinese Maintenance, renovation and repair sub-segment have also been adjusted downwards. The European and North American regions are much larger in this sub-segment due to the size of the installed base. It remains to be seen what the effect may be of the new government in the US, where promises were made during the election campaign of a national stimulus of building and construction activity.
The Maintenance, renovation and repair sub-segment is particularly important to our Decorative Paints business, with Europe an important market. Growth rates are increasing, whereas the market has been flat in recent years. There are positive effects in countries such as France, Italy and Germany. In the UK, the expectation is growth rates going forward will be low. This view may change as the possible impact of the UK leaving the European Union becomes clearer. Overall, we expect low single digit growth for this segment in Europe.
Outside China and Europe, analysts expect a return to growth in markets that have faced more recent macro-economic difficulties, such as Russia and Brazil. We see positive demand trends in Russia and expect growth in Brazil to slightly pick up again. In India, stronger growth rates are expected.
In general, we see higher demand rates for products that provide functional benefits, such as those that keep buildings cool in hotter climates, insulate buildings to conserve energy or which make interiors feel brighter and more spacious.
Future sustainability developments
According to the World Business Council for Sustainable Development’s (WBCSD) Vision 2050, 70 percent of the world’s population will live in urban areas and 95 percent of new building stock will use zero net energy by 2050. The proportion of buildings heated by fossil fuels will also fall below 6 percent. Sustainability issues beyond energy use and carbon emissions, such as indoor air quality, will impact product and service demand.
Implications for strategy and actions
Although growth rates in China are expected to be lower than in the past, the market is large and there is major growth potential. We aim to continue building our brands and capability in this important region. We will also use product and margin management approaches to help achieve appropriate profitability levels. In Europe, North America and India, we intend to capitalize on growth opportunities as they arise. In Brazil, we will remain flexible and agile to enable us to capture the benefits of a return to growth as it occurs. Our innovation pipeline is targeting solutions that provide additional functionality to consumers and for companies that construct, maintain or repair buildings.
Bubble size based on 2015 output
Total market new build construction
$ billion3, output
Source: IHS / Construction IC
Maintenance, renovation and repair
$ billion3, output
Source: IHS / Construction IC
1 Europe includes Turkey and Russia.
2 North America excludes Mexico
3 Real 2010