China: New leadership, five-year plan to benefit industry despite slowdown

16:40 PM | September 9, 2013 | —Deepti Ramesh

The slowdown in the Chinese economy and the focus of the country’s new leadership on reform rather than growth has caused revenues to fall for most major Chinese and overseas chemical firms. China’s growth, while slowed, is nevertheless strong compared with other countries. That growth, as well as impetus from the Chinese government’s 12th Five-Year Plan, the leadership’s sustainability goals for the economy, and plans for industrial restructuring, will boost demand for a variety of chemical products. Chemical companies, encouraged by the Chinese government, are also preparing to invest further in the country’s inland regions to take advantage of market potential there.

Economic growth in China has continued to slow in 2013, and there are huge questions surrounding the economy in the near term, experts say. Real GDP growth slowed from 7.7% in the first quarter to 7.5% in the second quarter. “The Chinese economy is still facing huge uncertainties, especially in the domestic construction sector and in overseas demand for Chinese products,” says Xianfang Ren, senior economist/China at IHS China Regional Service. “We are expecting quite strong downside risks in the second half of 2013, and whole-year economic growth might be just around the targeted 7.5% or even lower. We see potential for further economic slowdown in the second half of 2013. The only upside we are seeing is a slight shift in government fiscal policies to a more accommodative stance, which could provide some support for growth in the second half of 2013.... The year 2014 will only see a modest pickup in growth, to about 7.8%, partly driven by improving overseas demand for Chinese products,” Ren says.

Heuser: Targeting China sales of €12 billion in 2020.
Wong: Portfolio aligns with policy objectives.
Ritzert: Evonik aims to tap inland regions of China.
Segawa: Discussing new projects with Sinopec.
Yamamoto: China is a high-priority market.

China appointed new political leaders in late 2012 who will lead the country through the next decade. The leadership is more focused on reforms and restructuring and less on accelerating economic growth, experts say. “The leadership’s impact on economic growth figures is first of all reflected in their greater tolerance for slower growth: The government reportedly may lower growth target to 7% next year compared with the 7.5% target for 2013,” Ren says. “Slower growth will expose some of the issues covered up during the high-growth era, which will provide incentives for restructuring, which is a priority in the medium term,” she says.

The slowdown continues to impact key industries in China, Ren adds. “Major commodity and energy-intensive industrial sectors, such as steel, cement, and nonferrous metals, are still in heavy distress—so is the upstream mining industry, particularly coal. Lower demand, lower prices, and lower profit margins have created a vicious cycle, leading to lower investment and production. We expect these industrial sectors to be on a low-growth and low-margin path for quite some time,” she says.

The chemical industry in China is following the slowdown in the overall economy. Sinopec and PetroChina’s chemicals businesses report financial losses in the first half of 2013. However, growth prospects for the chemical industry in China remain bright for the next few years, experts say. The value of chemical industry output in China increased to 7.2 trillion renminbi ($1.17 trillion) in 2012 from Rmb6.62 trillion in 2011, says Norbert Meyring, partner at KPMG China (Shanghai) and who also heads KPMG’s chemical business for China and Asia/Pacific. “The chemicals market in China, between 2013 and 2015, is expected to continue its strong growth, although at a decelerated rate of 9–11%/year,” Meyring says. Figures released by the China Petroleum and Chemical Industry Federation (CPCIF; Beijing) show that the added value of China’s chemical industry increased by 11.9% in the first half of 2013 compared with the year-ago period—the same year-on-year growth rate as in the first half of 2012, Meyring says.

The value of the chemicals market in China is expected to reach $1.92 trillion in 2016, an increase of 87.9% compared with 2011, Meyring says. The compound annual growth rate (CAGR) of the chemicals market during 2011–16 will be about 13.4%, significantly lower than the CAGR of 22.3% during 2007–11, Meyring says. “The growth rate is still much higher than in most other regions of the world, and the slower pace is more stable and sustainable,” Meyring says. “Demand is expected to be higher for high-value chemicals. Chemicals demand growth in China is driven by increasing urbanization, investment in high-grade transport, green construction, and investment in information and communications technology, as well as the water treatment industries,” Meyring says.

The change in political leadership in China late last year has benefitted the chemical industry in the country, analysts say. “The Chinese economy is going through a transition from being an investment-led, export-oriented growth economy to a domestic consumption-led economy with more emphasis on the services sector,” Meyring says. “The new leadership has made its commitment to reforms very clear. Industrial restructuring is an important mandate, and outdated production methods will be phased out in 19 sectors, which could trigger a near-term reduction in growth but will lead to a major improvement in the country’s long-term prospects. The chemical industry is an important pillar of the government’s sustainability targets, especially with greater use of new materials and advanced polymers that are used in energy-saving and environment-friendly products,” Meyring says.

At least four of the seven strategic industries that receive special attention and support from the government use products from the chemical industry, Meyring says. The seven industries are new-generation information technology, energy-saving and environment protection, new energy, biology, high-end equipment manufacturing, new materials, and hybrid and electric cars.

The 12th five-year plan, covering 2011–15, and the targets set by the plan are also benefiting the chemical industry. “The 12th five-year-plan will continue to positively impact the chemical industry in the country because China largely follows the targets set under the plan,” Meyring says. “For the chemical industry, the five-year plan envisages a consolidation of this fragmented sector, upgrading of outdated production facilities, and moving up the value chain by producing higher-value products,” Meyring says.

Wuhan JV: Will help boost SK Global Chemical’s sales in China starting in 2014.

BASF says China’s policies offer the company several opportunities. “We are pleased to see that the Chinese government takes an approach of emphasizing sustainability in the 12th five-year plan and expect that this will bring positive impacts on the chemical industry and associated industries,” says Albert Heuser, president/Greater China at BASF. “The rebalancing of the Chinese economy that the Chinese government is aiming at will require many of our solutions. So we have a good chance to grow stronger than GDP by replacing traditional materials—for example, replacing metal with lightweight plastic in vehicles. We also see more business opportunities for ourselves and our partners in China, as many of our products can help to save energy and reduce emissions for the development of sectors such as automotive, construction, water treatment, and papermaking. BASF will provide products and solutions that can help customers to become more resource- and energy efficient; for example, BASF will collaborate with customers in focus markets to provide solutions for applications such as low-carbon construction, advanced pharmaceutical production, environmentally friendly coatings, more sustainable packaging, energy-efficient vehicles, renewable energy, and solutions for less resource-intensive agriculture,” Heuser says.

Dow Chemical says that its technology-driven and market-focused portfolio closely aligns with China’s economic- and social-development priorities. “Dow has many products and technologies that can be used to improve energy production and efficiency, water usage and quality, infrastructure efficiency, food production and safety, information technology, and environment sustainability. All these markets offer exciting business opportunities for Dow in China,” says Peter Wong, president/Greater China at Dow.

Chemical manufacturers are also taking advantage of the incentives available to companies investing in China’s inland regions as the Chinese government focuses on developing these regions, which have historically achieved much lower growth than the coastal regions, experts say. “The government is encouraging investment in the inland regions of China and is providing certain incentives to do so. Chinese state-owned enterprises, like Sinopec and PetroChina, have taken the lead partly in cooperation with multinational chemical companies in investing in the western regions of China,” Meyring says. “As the demand for chemicals increases in central China, along with the strong economic growth and also due to better access to feedstock originating from China, new investments are finding their way into these inland regions. BASF’s major investment in a methylene di- para -phenylene isocyanate (MDI) plant at Chongqing is one such example, Meyring adds.

BASF began construction on the 400,000-m.t./year MDI plant at Chongqing in April 2011. The MDI project involves an investment of about Rmb8 billion and is expected to become operational in 2014. BASF says that it is looking to invest further in the inland regions. “We have to consider various factors for investment decisions, including availability of raw materials, proximity to customers, local infrastructures, and potential partnerships,” Heuser says. “The Chinese government has been advocating that companies go west for some years, and we have seen fast growth in those regions. We will look at areas where our customers are and stay close to them. Our MDI project in Chongqing is a good example. Chongqing is at the center of a growing inland region. Investing here will give us access to what will be one of the biggest MDI markets in the world,” Heuser says.

Dow is another chemical major looking to invest in China’s hinterland. “Dow sees significant business growth opportunities in the inland regions of China under the Chinese government’s Go West and Northeast Revitalization development plans,” Wong says. “Dow has opened offices in Chengdu and Harbin in the last 12 months to better service our customers, better address local market needs, and adapt to the changing dynamics due to China’s growth. We are expecting solid growth coming out of these regions,” Wong says. Chengdu is in Sichuan Province, and Chongqing is one of China’s four direct-controlled municipalities and located within Sichuan.

Evonik Industries also aims to tap the inland regions of China for growth. Evonik opened an office at Chengdu in 2012. The opening “is a milestone for Evonik’s regional strategy which is in line with the Chinese government’s strategy and its 12th five-year plan,” says. “The development of the central region is of strategic importance in China’s development. Evonik perceives that the growth in the eastern region will slow down, while the central and western regions will develop rapidly. Evonik aims to seize the huge opportunities in the non-coastal regions of China,” Ritzert says.

A team representing all of Evonik’s business units has been working in the Chengdu office since 2012. The team is focused on providing solutions based on Evonik’s entire product portfolio, but mainly in the areas of automotive, electronics, coatings, feed, health care, and construction. Evonik also plans to increase substantially the number of its employees in the region as the company expands its business in western China.

The various segments of China’s chemical industry are having mixed fortunes, analysts say. “As the Chinese economy is going through a period of transition, the performance of various segments within the chemical industry is unbalanced,” Meyring says. “Chemical segments that supply the consumer products industry will benefit from this transition, but segments that supply the construction industry may suffer. The fine and specialty chemicals segment is outperforming other segments. [Businesses] that supply the automotive industry, pharmaceuticals, and new products focused on energy efficiency are performing well; and the agricultural chemicals sector is also growing strongly,” Meyring says.

Several factors will drive growth of China’s chemical industry in the near term, including “the Chinese government’s focus on domestic consumption,” Meyring says. “Retail sales of consumer goods are growing at an accelerated pace, rising faster in rural areas than in urban areas. China is not slowing down on infrastructure investments either; it is now providing targeted microstimulus packages for infrastructure projects like railways in inland areas,” he says.

BASF has ambitious growth plans in China. “While the growth rates of China have certainly slowed, it is still the fastest-growing major economy in the world, with significant potential for BASF,” Heuser says. “We aim to grow our Chinese business from sales of about €5.1 billion [$6.79 billion] in 2012 to about €12 billion in 2020,” Heuser says.

BASF’s Greater China sales were about €5.1 billion in 2012, restated from €6.7 billion because the company applied new financial reporting and accounting standards this year, BASF says. Sales in 2011 were about €6.5 billion.

“We will achieve our growth with continuous investment, focusing on growth industries and strengthening local innovations. We have made significant investments in China over the past several years, with new capacities coming onstream at Nanjing and Caojing, as well as Chongqing, in the next 1–2 years,” Heuser says.

BASF announced in June 2013 that it would invest €10 billion in Asia/Pacific in 2013–20, to achieve annual sales of €25 billion to customers in the region by 2020. “A significant portion of the €10 billion will be invested in China,” Heuser says.

BASF announced last July that it would invest about €90 million to establish a resins production plant at the Shanghai Chemical Industry Park, at Caojing. Start-up of the production line is planned for the second half of 2015. The plant will help to address the increasing demand for coatings solutions in growing industries, notably the automotive sector, in Asia/Pacific, BASF says. BASF announced last month that it would build, also at the industry park, an Ultramid nylon polymerization plant with a capacity of 100,000 m.t./year that is expected to start up in 2015.

BASF broke ground last June on a formulation and packaging plant for crop protection products at Rudong. The new plant, with a production capacity of 10,000 m.t./year, is expected to be fully operational in 2014. The site will enable the company to respond much more quickly and efficiently to growers’ needs in China and Southeast Asia, BASF says.

BASF, also in June, opened a world-scale tert -butylamine production plant at the Nanjing Chemical Industry Park. The plant is wholly owned by BASF and is integrated into the production facilities of BASF-YPC, a 50-50 petrochemical joint venture between BASF and Sinopec at Nanjing.

BASF and Xinjiang Markor Chemical Industry Co. (Markor; Korla, China) signed key cooperation contracts last May for the establishment of jv’s for the production of butanediol (BDO) and polytetrahydrofuran (PolyTHF) at Korla. The jv companies will be established once the relevant Chinese regulatory approvals are obtained. The plants will produce 100,000 m.t./year of BDO and 50,000 m.t./year of PolyTHF. Production at these plants is expected to begin in 2015. BASF says that it is strengthening its existing investment partnerships in China, such as those with Sinopec, and forging new partnerships. BASF and Sinopec, earlier this year, completed a joint feasibility study to establish a world-scale isononanol plant at Maoming. The companies plan to form a 50-50 jv, BASF MPCC, to carry out the project. Production is expected to begin in mid-2015.

BASF-YPC announced last May that it would build a plant for the production of neopentylglycol at its Nanjing site. BASF-YPC will also expand its capacity for ethylene oxide and build an acrylic acid facility and a butyl acrylate plant at the site. Production is expected to begin in 2014. BASF-YPC, in May 2012, broke ground on a 60,000-m.t./year superabsorbent polymers (SAP) plant, which is expected to begin commercial production in 2014.

BASF, meanwhile, is looking at possible acquisitions in China. “As outlined in our strategy, more than €2 billion in regional sales will be achieved through new business and acquisitions by 2020,” Heuser says. “We are always looking for ways to enhance our portfolio through acquisitions, and this includes China,” Heuser says.

Major South Korean companies see China as one of their most important markets and plan to invest and grow their businesses further there. LG Chem recorded sales of 9.8 trillion South Korean won ($8.82 billion) in China in 2012 compared with sales of won9.6 trillion in 2011. China accounted for about 42% of LG Chem’s total sales in 2012, and China is the second-largest market for the company, after South Korea. LG Chem expects sales in China to increase by 5–7% in 2013 compared with 2012. The company says it cannot predict its growth in China beyond 2013 because the global business environment is too uncertain.

The global recession and, in particular, the slowdown of the Chinese economy have afflicted LG Chem and its businesses in China, the company says. Since 2009, LG Chem has invested about Rmb4 billion to build capacity and boost consumption within China but could only achieve limited short-term results because demand has been slow to recover, the company says. Oversupply in the Chinese market due to capacity expansions by various manufacturers and declines in products’ selling prices have hurt LG Chem and its profits in China, the company says.

LG Chem says that several factors will help drive its business growth in China. “A thriving domestic market, a transparent environment for corporate management, and the growing buying power of consumers will lead to greater growth,” LG Chem says. China’s mature business clusters have the potential to create stronger consumption power that will also boost demand for petrochemical products, LG Chem says.

LG Chem expects that businesses related to alternative energy and environmentally friendly products, which require advanced materials, have a lot of growth potential in China and offer huge opportunities. These businesses include solution-polymerized styrene-butadiene rubber, SAPs, ethylene propylene rubber, specialty polyethylene (PE), and, in the long term, automotive batteries for electric vehicles, which will be a fast-growing business in China, the company says.

SK Global Chemical, the petrochemical business of SK Innovation (Seoul), formerly SK Energy, is making significant investments in China and plans to grow its business in the country. SK Global Chemical recorded sales of about Rmb9 billion in China in 2012. It says that the Chinese economy’s slowed growth has affected several industries, such as construction and automotive, impacting the company’s business in China. SK Global Chemical expects that its sales in China in 2013 will be similar to those in 2012. Sales in 2014 will increase because of the start-up of the company’s Wuhan ethylene jv and Ningbo ethylene propylene diene monomer (EPDM) rubber plant, the company says.

The 50,000-m.t./year EPDM rubber project at Ningbo was announced last year. The EPDM plant is under construction and expected to start commercial production in the fourth quarter of 2014, SK Global Chemical says. The project is a jv with the Chinese government-owned Ningbo Development Zone.

The Wuhan facility, a jv with Sinopec, started production in August. SK Global Chemical signed a jv agreement in late June with Sinopec for the Wuhan complex. Sinopec, as a result, holds a 65% stake in the complex, and SK Global Chemical holds the remaining 35%. The project, which comprises 11 production units, including a naphtha cracker with capacity for 800,000 m.t./year of ethylene, was built with a total investment of Rmb18.63 billion, SK Global Chemical says. The complex will make a combined 2.3 million m.t./year of products, including 600,000 m.t. of PE and 400,000 m.t. of polypropylene (PP), SK Global Chemical says.

The Wuhan jv is one of three projects that SK has pursued in partnership with Sinopec. SK Energy and Sinopec, in 2004, established a solvent-manufacturing jv plant at Shanghai that has a capacity of 60,000 m.t./year. SK Global Chemical formed a 50-50 jv with Sinopec earlier this year to build a 200,000-m.t./year BDO plant at Chongqing. SK Global Chemical and Sinopec will invest a total of Rmb3.8 billion in the BDO project. The BDO plant is under construction and expected to be completed by the end of 2015, with operations beginning in 2016, SK Global Chemical says.

“It is estimated that the growth rate of the Chinese economy will be slower, but the growth trend in China has shifted from simple growth of scale to a growth of quality, and we believe there will be huge opportunities in China for advanced chemicals as well as specialty chemicals,” SK Global Chemical says. The company continues to look for investment opportunities in China. “SK Global Chemical has laid the foundation for its business in China by investing in some large-scale projects, such as the Wuhan ethylene project and the Chongqing BDO project. In the future, we would like to focus on downstream opportunities at those existing projects. We will keep an eye open for low-cost feedstock as well as opportunities in advanced chemicals and specialties, and we will make efforts for further cooperation with our business partners in China,” SK Global Chemical says.

Major Japanese chemical manufacturers have seen their revenues in China suffer recently as a result of the slowdown, but companies remain optimistic about the Chinese market and are moving ahead with their investments in the country. Mitsubishi Chemical Holdings recorded sales of ¥301.6 billion ($3.08 billion) in China in the fiscal year ended 31 March, a decrease from ¥356.3 billion in the previous fiscal year. “About ¥30 billion of the decrease in sales is due to the slowdown in demand in China in the second half of the fiscal year, mainly for products used in the automotive industry,” says Taku Segawa, executive officer and chief representative/China at Mitsubishi.

The business environment continues to be challenging for Mitsubishi in China, the company says. “The sharp slowdown in demand occurred in the fourth quarter of 2012, but demand in China has recovered gradually to normal levels since then. The tough business situation for Mitsubishi may continue, however, due to overcapacity in various sectors in China such as synthetic fibers, materials used in steel, and flat-panel displays,” Segawa says.

Mitsubishi Chemical, despite the challenges, remains optimistic about the opportunities for the company to grow in China, and expects certain business areas to offer particularly strong growth opportunities. “Business areas relating to environmental protection and sustainability such as products used in water treatment, and prevention of air pollution and biological degradation; health care; and highly functional materials such as functional films, biodegradable resins, and products for printed solar photovoltaics offer Mitsubishi huge opportunities in China,” Segawa says.

In 2013, Mitsubishi Chemical has started commercial operations at five plants in China: a food additives plant, at Pinghu, Zhejiang Province; a plant producing high-performance film for agricultural use, at Wuxi, Jiangsu Province; a plant manufacturing functional film with special optical characteristics, at Suzhou, Jiangsu; a plant producing electrolyte solution for lithium-ion (Li-ion) batteries at Changshu, Jiangsu; and a membrane bioreactor for water treatment, at Wuxi. The company, meanwhile, is exploring new opportunities in China. “We are currently evaluating several new investment projects in China, and projects related to environment and health-care business are among them,” Segawa says. Details of the projects have not disclosed. Mitsubishi Chemical says it is considering establishing a new R&D center in China and that it aims to enhance cooperation and coordination between its subsidiaries and affiliates in the country.

Mitsubishi Chemical signed a basic agreement with Sinopec in 2009 for a partnership covering a range of business fields. A Mitsubishi-Sinopec jv, in 2011, began producing bisphenol A and polycarbonate at Beijing. Mitsubishi says that the two companies are exploring options to expand their partnership. “Both companies continue to discuss several possible new projects, including those related to products for environmental protection and high-performance resins, and we will make an announcement when we have reached a final agreement with Sinopec on a new project,” Segawa says.

Mitsui Chemicals recorded sales of ¥165 billion in China in the fiscal year ended 31 March compared with sales of ¥203 billion in the previous fiscal year mainly because of a decrease in sales for the company’s basic chemical products, such as phenol and purified terephthalic acid, the company says. Market prices for these products were very low, and the appreciation of the Japanese currency during the period also affected sales, Mitsui Chemicals says. Mitsui Chemicals expects that the company’s sales in China will be about ¥185 billion in the current fiscal year.

Mitsui Chemicals says that certain businesses, such as phenol, ethylene propylene diene terpolymer (EPT), the company’s Evolue metallocene polymer, dental materials, health-care products, and nonwoven products have huge growth potential in China. Mitsui Chemicals is investing to build capacity, to take advantage of the growth opportunities in these businesses.

In 2012, Mitsui Chemicals and Sinopec formed a 50-50 jv, Shanghai Sinopec Mitsui Elastomers, at the Shanghai Chemical Industry Park, at Caojing, for a project to manufacture EPT. The jv will have capacity for 75,000 m.t./year of EPT. The project will involve a total investment of Rmb2 billion. The plant is expected to begin commercial production in the first quarter of 2014.

Shanghai Sinopec Mitsui Chemicals (SSMC), another jv between Mitsui Chemicals and Sinopec, is building plants with capacity for 332,500 m.t./year of cumene; 250,000 m.t./year of phenol; and 150,000 m.t./year of acetone at the Shanghai park. The total investment in that project is ¥30 billion. All three plants are expected to become operational in the first quarter of 2014.

Mitsui Chemicals formed a company in 2011 at Tianjin for the production and sale of spunbonded nonwoven fabrics in response to increased demand for disposable diapers in China. The new company will produce 15,000 m.t./year of spunbonded nonwoven fabrics, and the plant will begin commercial operation in September 2013.

Mitsui Chemicals entered into an agreement with Formosa Plastics (Taipei) in December 2012 to form a jv company in China to manufacture and distribute electrolyte solution, one of the main components of Li-ion batteries. The 50-50 jv is based at Formosa’s manufacturing complex at Ningbo. The total investment in the project will be about $20 million, Mitsui Chemicals says. Construction on the jv facility is scheduled to begin in September, and commercial production is expected to begin in mid-2014. Its first phase will produce 5,000 m.t./year of electrolyte solution.

In 2012, Mitsui Chemicals established a company, Mitsui Chemicals Functional Composites, for functional polymeric materials in the Jinshan district of Shanghai. The new company will manufacture and distribute Milastomer, a thermoplastic olefinic elastomer widely used in glass run channels for car windows and in sheathing applications; and Admer, a polyolefin widely used as an adhesive for car fuel tanks and food packaging, Mitsui Chemicals says. The total production capacity will be about 11,000 m.t./year. Production is expected to begin in the fourth quarter of 2014. Separately, Mitsui Advanced Composites (Zhongshan, China), a Mitsui Chemicals subsidiary, increased its PP compounds capacity by 10,000 m.t./year, to 70,000 m.t./year earlier this year. Mitsui Chemicals says it continues to look for further growth and investment opportunities in China, particularly in the fields of automotive, electronics, food and industrial packaging, and health care.

Asahi Kasei recorded sales of ¥155.57 billion in China in the fiscal year ended 31 March compared with sales of ¥151.29 billion in the previous fiscal year. The small sales increase reflects tension between China and Japan over a territorial dispute, Asahi Kasei says. The slowdown in China also hinders Asahi Kasei’s business there, the company says. “We do perceive ongoing risks of slowing growth due to curtailment of investment in the manufacturing sector, protraction of the period of inventory drawdown, deterioration of the real estate market, and prolonging of the Chinese government’s frugality campaign,” Asahi Kasei says. “Nevertheless, we believe there is high probability for a gradual recovery in the rate of economic growth during the second half of 2013 as measures to suppress investment are eased. Asahi Kasei considers China to be an important market, and we plan to further expand business in the country. We expect the market will continue to grow in China for products used in the automotive, health-care, water-treatment, and electronics fields, and we are aiming to continue to expand our presence in China in these fields,” Asahi Kasei says.

Asahi Kasei says that China has increasing needs for high-performance, high-quality products. The company has about 20 business bases in China, which the company continues to develop, focusing on materials for automotive, water treatment, medical devices, and electronics. Asahi Kasei established regional headquarters at Shanghai last year, and the company will utilize the new subsidiary to facilitate expansion in China, it says. “We are considering increasing the number of marketing offices in China for performance plastics and expanding production capacity in China for coating materials,” Asahi Kasei says.

Asahi Kasei announced on 29 August that it would construct a plant at Nantong for Duranol polycarbonate diol, an intermediate for high-performance polyurethanes. Construction on the 3,000-m.t./year plant will begin in spring 2014. The plant is expected to start production in early 2015.

Asahi Kasei completed the acquisition last month of DuPont’s stake in the companies’ Asahi-DuPont POM (Zhangjiagang, China) equally owned jv, which produces and markets of polyacetal (POM) copolymer in China. “Obtaining full ownership of the company reinforces the expansion of our performance plastics business in Asia. In Asia overall and in China in particular, we forecast demand growth for POM in automotive applications. We will enhance APZ’s production capabilities for differentiated grades in order to achieve earnings growth,” Asahi Kasei says.

Asahi Kasei announced earlier this year that it would expand capacity for the company’s Duranate hexamethylene diisocyanate (HDI)–based polyisocyanate at Nantong. Duranate capacity there will be doubled, to 20,000 m.t./year, by early 2015. “The capacity expansion for Duranate at Nantong is proceeding on schedule. Duranate is mainly used in automotive coatings, and we forecast huge growth in demand in China and other Asian markets for the product as automobile ownership increases,” Asahi Kasei says.

In 2012, Asahi Kasei began construction on a plant for the production of Sunfort dry film photoresist at Changshu. The plant is expected to start up in September. Dry film is used to form circuit patterns on printed wiring boards used in PCs and tablet PCs, mobile phones and smartphones, and automotive electronics.

Teijin recorded sales of ¥97.81 billion in China in the fiscal year ended 31 March compared with sales of ¥121.88 billion in the previous fiscal year. “The fall in sales in China is consistent with the fall in Teijin’s total sales in the fiscal year,” says Izumi Yamamoto, Teijin group corporate officer and chief representative of Teijin in China. “Sales from China accounted for about 13% of the company’s total sales in the fiscal year ended 31 March, which is nearly the same as the 14% share in the previous fiscal year,” he says.

The slowdown in China has slowed Teijin’s business there to a certain extent, but the company is optimistic about the growth opportunities the Chinese market offers. “In light of visibly slower growth in China, hopes for rapid growth seem slimmer, but China will continue to be one of the high-priority markets in Teijin’s medium-to-long-term growth plan, and we will pursue further business expansion,” Yamamoto says. “The impact of the slowdown can be seen on certain businesses such as the stagnant demand for polycarbonate in electronics materials. On the other hand, demand for various automotive-related materials is relatively firm. We also see an increase in demand in China for meta-aramid fibers for use in filters,” Yamamoto says.

Teijin says its growth strategy in China focuses on certain business fields. “We are focusing particularly on emerging industries specified in the country’s 12th five-year plan, such as energy conservation, environmental preservation, and new materials. China prioritizes a high-performance, energy-saving, waste-reducing, and recycling-oriented economy, and Teijin aims to expand business in these areas through strategic alliances with local partners, the expansion of production and R&D bases, and the development of environmental protection–related businesses. The partnership with China Chemical Fibers Association (CCFA; Beijing) is one of the initiatives toward achieving this,” Yamamoto says.

Teijin formed a partnership in 2012 with CCFA to pursue business opportunities in chemical fibers and related industries in China. Teijin, as the first step in this partnership, established a jv named Zhejiang Jiaren New Materials (Shaoxing) with Jinggong Holding Group (Shaoxing), a multinational company involved in environmental management. Teijin, through the jv, will chemically recycle polyester then manufacture and sell the resulting fibers—aiming to establish a closed-loop recycling system in China. The jv is investing about ¥6 billion to construct facilities for dimethyl terephthalate production, polymerization, and fiber spinning. The facilities are expected to become operational in May 2014, Teijin says.

The slowdown in China has affected other chemical multinationals in different ways. Dow’s sales in Greater China slipped 2% in 2012 from $4.5 billion in 2011. “While we saw a slowdown in China in 2012, driven by lower export growth and softened domestic infrastructure investment, Dow Greater China was able to deliver revenue of $4.4 billion in 2012,” Wong says. China is Dow’s second-largest international market, after the United States.

“As the global economy improves, we see growth continuing in Greater China and believe that the Chinese government will be able to adjust, to meet its economic target of an annual growth rate of 7.5%. At the same time, we maintain our view that we have to reset expectations around this growth, as it is likely to remain below historical rates. However, at Dow, we remain focused on how we can turn these challenges into opportunities to grow our businesses in China,” Wong says. “As the global economy slowly recovers, we remain cautiously optimistic on 2013 and 2014,” he says.

Sadara Chemical, a $20-billion jv between Dow and Saudi Aramco at Al Jubail, is expected to be fully operational in 2016, and it will export much of its output to China. “Nearly 60% of Sadara’s products will be supplied to Asia/Pacific, with a focus on China, in technology-rich sectors like energy, transportation, electronics, consumer goods, and infrastructure. The start-up of the Sadara investment will be a very important element of our global growth strategy and will greatly benefit Dow’s Asia/Pacific business,” Wong says.

Evonik recorded sales of more than €1 billion in Greater China in 2012 compared with sales of €1.2 billion in 2011. “The decrease in reported sales was due to the divestment of the company’s global carbon black and colorants businesses [in 2011 and 2012, respectively], as well as changes in reporting methods. If these factors are excluded, Evonik’s performance in China in 2012 actually increased slightly compared to 2011,” says Ritzert.

Evonik sees significant opportunities for growth in certain businesses in China despite the slowdown. “We see huge opportunities in the megatrends of resource efficiency, health and nutrition, and urbanization, and Evonik can offer materials and solutions in the areas of transportation, energy efficiency, and food safety, among others,” Ritzert says. “The global specialty chemicals market is expected to grow to $610.14 billion by 2016 at an estimated CAGR of 4.11% from 2011 to 2016. This growth is largely driven by Asia, especially China. We believe that we can benefit from this rapidly growing market with our products and solutions.”

Evonik announced earlier that it would target annual sales of about €2 billion in China by 2015. “Stepping up investment in Asia, and especially in China, is a key element in our global growth strategy,” Ritzert says. “Since the start of 2011, we have decided to invest more than €350 million in the construction of new production capacities for specialty chemicals in China.”

These investments include a facility at the Shanghai Chemical Industry Park, at Caojing, to produce isophorone and isophorone diamine. The facility, with an investment exceeding €100 million, is scheduled to be onstream in the first quarter of 2014. Evonik is also building a 230,000-m.t./year hydrogen peroxide plant at Jilin that is scheduled to become operational in late 2013. Evonik says it has completed construction of an organic specialty surfactants plant at the Shanghai park and that the plant should be operational by the end of October.

Petrochemical industry leaders*
(in thousands of m.t./year)
Sinopec 11,668
PetroChina 8,294
Shanghai Secco Petrochemical 1,950
CNOOC and Shell Petrochemicals 1,562
Sinopec Sabic Tianjin Petrochemical 1,500
Fujian Refining & Petrochemical 1,310
Shenhua Group 1,100
Panjin Ethylene 910
Datang International Power 375
*China’s leading producers of light olefins, ranked by 2012 capacity. Source: IHS Chemical.