Martin Manson, global business director flexible foam Evonik, added: “The flexible foam business in China is exporting less. It is a little weaker than in the past, exports have dropped, and the housing market is slower. Some production is transferring to Vietnam, which is a strong growth area for flexible foam.”
Wanhua’s Huo confirmed this: “The Chinese home furnishing market saw an uptick following the stimulus package but not by a big amount. It is not as robust as 4 or 5 years ago.”
Lanchak explains: “China’s foam has to be focused on the domestic market. The middle classes are suffering a squeeze and focus has shifted to the lower end. People tend to buy what they can afford,” he said.
Does that pose a problem to western firms operating in China? Momentive is not suffering said Lanchak: “Our production is totally local, so that we can complete with anyone who wants to build share in the lower end. You have to pay attention to the lower end,” said Lanchak.
Looking at the bigger picture once more, Wanhua’s Huo continued: “Chinese economic growth is reported to be around 6.5%, but it is a two-tier economy, heavy chemical, machinery and such are growing very slowly, but new economy and the service sectors are not bad.”
Huntsman’s Pan said: “MDI growth overall in the market was 4% in 2015, and I would be surprised if it is more than that in 2016. The market is still tough.”
“We are seeing even 10% growth in MDI sales for Huntsman as MDI can replace TDI and the automotive industry is growing at around 7-8%,” Pan added.
Lanchak agrees that China is attractive: “It’s an opportunity, we are investing in China we do everything here from raw materials, work in progress through to finish goods.”
His company is taking a strategic look at what it does though.
“Momentive has just announced a VP for greater China,” said Lanchak. He continued: “This role has no profit and loss responsibility and will be able to look across all Momentive businesses across China to ensure that our approach is right so that we can invest in the right areas.”
This is not a unique role. “Similar roles for Latin America south-east Asia and India have been appointed and Japanese role will be appointed soon. These people are respected knowledgeable members of the polyurethane community.
Momentive is investing in marketing, sales, research and development in China, he said. “We have just bought on a third finish goods reactor, and we are upgrading reaction vessels. We need to do this to make sure we have the capacity in China and also in Europe.”
China’s One Belt, One Road policy offers opportunities for polyurethane, Huntsman’s Pan said.
One Belt, One Road
“The programme needs infrastructure such as roads, refrigerated transport, refrigerated warehousing. Cities which could be built in the west of China to support travelers along the road will also need to have insulation,” he said.
The policy, commentators suggest, is a way for China to access deep sea ports through countries such as Pakistan and Bangladesh as a way of counteracting the effects of the Trans Pacific Protocol (TPP) trade deal between the US and a number of south east Asian nations.
Thomas Faenger, global business director, rigid foam comfort & insulation, Evonik said. “There is good demand in China, but China is not the best export market because of the TPP. This has led some companies to transplant production into countries such as Vietnam, which is benefiting from shoes and appliances too. Some new white goods manufacturers are moving to Vietnam and other countries in the rigid polyurethane space.
However, while China’s economy has slowed it is still large and experiences a considerable amount of incremental growth in slow years, which means demand for polyurethane is continuing to grow.
Wanhua’s Huo said: “China’s GDP is around $11 trillion which gives between $600 and $700 bn incremental growth each year. Back in 2002, China’s GDP was about $1.5 trillion, just over twice the size of today’s incremental growth.”