Mixed messages on growth in China indicate some uncertainty - but confidence long term

Automotive sector strong, appliance and flex foam mixed, while insulation still has great potential

By Liz White, editor

Polyurethane experts UTI spoke to at the PU China 2012 exhibition, held in Shenzhen, China, 18-20 Sept, had quite mixed views on how the sector is faring in the country. Some feel there has been a slowdown, others are convinced that business is still strong.

Polyurethane machinery maker Hennecke has been doing good business in China, "but we see a slowdown here in Q3, and some uncertainty about Q4," said Hennecke's Rolf Trippler, joint managing director with responsibility for sales and marketing. The first half of 2012 was "quite good for us in China and Asia," he added. Each sector is behaving differently, he said, with automotive seat machinery having quite a good first half, and the investment level in automotive parts still good

On the consumer side, for furniture and mattress foam, block foam still represents a good business, "especially in South-east Asia this year, where Indonesian companies have been investing in plants," he said. Trippler agreed that there is still a lot of potential for strong growth in the flexible foam sector in China and South-east Asia.

For Huntsman Polyurethanes, a major supplier of MDI (methylene diphenyl diisocyanate), business in China continues to grow strongly, at double digit rates, said Tony Hankins, president of the PU division, speaking in a 26 Sept interview at the meeting of the Center for the Polyurethanes Industry in Atlanta, Georgia. Hankins added that, "As far as visibility goes at the moment, we think Q3 will continue to see good growth." But he noted that it is difficult to see far ahead, particularly with China forming a new government in October. And equipment supplier Cannon also feels demand in China is dropping, especially in the appliance sector, since the peaks of 2010 and 2011. This is partly because "the expansion has been so tremendous," and some slowing was inevitable, indicated Wong Lee Meng, general manager of Cannon Far East Pte. Ltd.

Wong thinks demand has picked up in the second half for major appliance maker Haier, but that for other fridge makers it is not so good. Haier is a leader in the sector and has a lot of projects under discussion, he said. Peter Huo, global marketing manager for MDI supplier Yantai Wanhua Polyurethanes Co. Ltd, also believes that fridge building will be below last year's level in China. Huo told UTI at the PU China event that China's government had been slow to start any stimulus measures this year, having seen the effect of 2008 and 2009, "where it applied too much stimulus too fast."

The government is still concerned with preventing an asset bubble, so it is being careful and not dosing the Chinese economy with too much stimulus, Huo concluded. Meanwhile, at the CPUIA (China Polyurethane Industry Association) meeting held in Shenzhen, just before PU CHINA 2012, members expressed concerns about the shrinking of the flexible slabstock business in China, said Erman Tan, president of Singapore system house Asia Polyurethane Ltd.

One catalyst supplier said demand in China was so low that it had seen a 40 percent drop in demand for its material for flexible foam for export, Tan reported. Despite some reports of sliding flexible foam demand, Norwegian slabstock plant supplier Laader Berg is still seeing growth in China. Per Henning Vaagen, managing director and ceo, pointed to huge domestic consumption of flexible foam in China. But he noted that "figures from the US show that imports of foam products from China are falling."

Production going full circle?

Vaagen added: "We also find a development in China where low-cost products such as shoes - where some flexible foam is used - have moved to lower-labour-cost regions such as Vietnam and Thailand." But the high-volume consumption is still in foam for furniture and bedding, he added. Laader Berg sells to local Chinese groups and larger conglomerates, he said, noting that there has been some consolidation of foamers in China, but not at the level that Europe has seen, leaving only a handful of major foam-producing groups. Chinese foamers are also developing their product range, adding HR foam and viscoelastic types, he added. While many of those interviewed feel foam exports to the US from China have dropped, Paul Schouten, business development manager for foam-adhesives supplier Saba Dinxperlo, feels a lot of foam and furniture is still being exported from both China and India. One major destination for this is the Middle East: Schouten said he has been surprised at the size of the foam market there, and in Africa. Schouten said that Middle Eastern mattress manufacturers import foam from China because it can be better quality than foam made locally or in Africa. Chinese-made foam may not always be top quality, Schouten explained, "but it offers users a good balance between cost and quality." Schouten said in rural China, farmers have started making foam, putting simple foaming equipment on their land and taking advice from some of the major raw materials suppliers.

Also, the domestic market for foam in China has really grown, he said, adding that everyone has seen how Chinese workers' wages are rising. This wealthier workforce can now afford mattresses and furniture, and as a result the furniture market is now growing really fast, Schouten said. Like other commentators, Hankins noted that "the investment model is moving from one of investment coming into China to one of domestic consumption." Labour costs in China are rising, Hankins agreed, with some production moving inland in the search for lower-cost labour. Two Chinese processors UTI visited immediately before PU China 2012 have plans to do exactly this (see Galanz and Shen Long stories p24 and 25). Hankins developed this theme further: he thinks some products "will go full circle and come back into Europe and the US." "That's driven by technology," he said, because in labour-intensive industries, if techno-logy can improve productivity, there's a case for production in regions of higher labour costs. "Footwear is a great example of that, where it is going around the world, and we are now seeing a resurgence of footwear manufacture in North America," Hankins said (see similar comments on this in our footwear feature p30).

Automotive still at a fast pace

Laader Berg's Vaagen said automotive is a strong sector in China at present. "Maybe automotive has slowed elsewhere, but in China growth is still positive," he added. Hennecke has also seen no signs of a slowdown in automotive sales in China, and Trippler feels it may take until 2014 for the current rapid rate of growth to slow, with 2013 at high levels still. A lot of capacity has been installed and "it depends on the economy, whether automotive will slow down earlier or later," Trippler said. At Cannon, Wong said automotive demand, in contrast to appliance, is quite strong, although he feels growth in China is slowing. But the market still has high potential, Wong thinks, because while the US has 500/600 cars per 1000 people, China still has less than 100 cars per 1000 people. "For sure for automotive there is growth ahead," Wong commented. But also, the Chinese government is trying to control car ownership in big conurbations as rapid urbanisation continues. For 2012, Wong said, GDP growth in China is about 7.5 percent, with current premier Hu Jintao confident it can keep this level, following GDP growth of 9 percent in 2011.

Construction and Insulation

Yantai Wanhua's Huo commented that he has seen reports that construction in China is now 25 percent down on previous levels. In raw materials for rigid foam, Huo said that the group expects "single digit growth" for this year, depending on the application. "Some will be above and some below 10 percent," he said. Looking at supply and demand, in China, Huntsman's Hankins said he thinks the Chinese market "will continue to grow very strongly," and this goes along with the continuing urbanisation of China. He is also convinced that the four megatrends of population growth, need for food, need for water, and of energy efficiency will continue to drive the MDI market, with similar effects in India, where the same trends apply. (For more on the insulation sector in China, see p23.)

Good range of visitors

Just under 5000 visitors attended the PU China 2102 event in Shenzhen, 18-20 Sept, nearly 1000 from outside China, said organisers Crain Communications Ltd and China Minmetals Corp.

Of the international visitors 22.5 percent were from Korea, 10 percent from Malaysia and 7 percent from India, with visitors from Thailand, Indonesia and UAE forming another 12 percent. For Cannon, Wong said the PU China show had been good, with good visitor number the first two days.

The group had hopes of tying up contracts for two seating lines discussed at the show soon after the event. Hennecke's Trippler was also quite happy with the company's visitors, which came not only from China but also from South Asia. He said Hennecke also learnt about projects which have just started or are coming up.

Trippler noted that Shenzhen is a good base for attracting visitors from other regions, and Vaagen of Laader Berg made similar comments, noting that at the Shenzhen event he routinely sees customers from the Middle East, India and Africa: "All these places are good markets for foam equipment," Vaagen commented.

Acknowledgement

Thanks to Christian Chen, who ably assisted with interpretation for some of the discussions with Chinese companies.

Automotive seats strong

Cannon has been extremely successful in supply of automotive seat plants, recently supplying one to Malaysia, and two in China, for Great Wall's car plant in Nanjing, and for Chery in Guangzhou. Cannon has supplied instrument panel plants to Taiwan, and plants for bumpers and headrests in Malaysia. It has also sold vacuum crushers for flexible seat foam to Toyota Boshuku, and does good business with this equipment, exporting to the US and Japan.

It is now making a unit in the Cannon-Shinnon plant in Zhongshan, for Toyota Boshuku's South African plant, said Wong. Cannon has supplied auto seat plants worldwide, in Venezuela, Bangladesh, Brazil, Pakistan, South Africa, Thailand, India and Indonesia. Shinnon has a lot of overseas projects now, evidence of the Chinese venturing further afield for such business, Wong said.

Cannon also has a new line in equipment for vehicle cavity filling, which injects semi rigid foam into the vehicle pillars, for noise reduction and vibration isolation. One of these has gone into Volkswagen's plant in Foshan. The equipment has a special mixhead and a mix ratio of 1:24, dispensing an isocyanate/prepolymer combination that also protect against corrosion.

Top quality for German group

Asked if Hennecke is competing with the local suppliers of machinery for flexible slabstock, Rolf Trippler, the company's sales and marketing director, said firmly: "That's not our market." In slabstock plant, Trippler characterised Hennecke as at the high end of the business, supplying companies who need high output of top-quality material.

It has supplied both western companies and some Asian investors that have come into China to participate in the rapid growth, Trippler said. For Hennecke, 30 percent of its business is in Asia now, with the company's sales in Asia having really grown last year, he added. Outside China, sales have grown in automotive and also in flexible slabstock. Hennecke is now setting up a sales/service site in Shenzhen, as it feels the city is a good hub for PU business in the region, Trippler said.

Record machinery sales for Baule

For Baule's hot-cast elastomer machinery business, sales are at record levels, "a surprise for us," said Abdel Arhzaf, sales and marketing manager with the Bayer-owned business. The machinery business has dominated its sales, both in China and globally, he said. Despite the uncertain economic times, offshore, which is a major user of PU elastomers, is going well, Arhzaf said.

Good H1 in reticulation

At ATL Schubs GmbH, joint ceo Axel Schulz said business is going well. In the first six months of 2012, the company delivered and installed five reticulation chambers, so "the first half was really good, but it is now quieter," with fewer projects around.

The maker of foam-reticulation equipment still has its eye on sales into China, and at PU China had received good enquiries on the first day, Schulz said, in an 18 Sept interview. Indonesia is also a region with good opportunities at present, with a lot of foam companies operating there, Schulz said.

The company's reticulation equipment is used to turn flexible polyester foam into open-celled material for technical uses, so its market is small and it normally sells only 3-5 of these giant chambers each year.

Technical foams have a wide range of uses, as filters in the automotive field and for air-conditioners, and as anti-explosion material, in fuel tanks. ATL Schubs has sold a reticulation chamber to FoamPartner Bock in Changzhou. It has also supplied large Japanese foam maker Toyo Quality One (TQ1) which has five plants in China, and another Chinese customer is Changzhou Yongfeng Foam Manufacturing Co. Ltd, said Schulz.

Reticulation involves a controlled explosion to break the cell walls and make an open-celled foam, said Schulz. Customers have different needs and foam types, including different pore sizes and densities, he said.

Another use is easy-dry foams used for outside furniture, and some reticulated foam is used in mattresses for better ventilation, to prevent the heat generation that people complain of with foam bedding.

Pascal gaining wider commercialisation

At fridge maker Haier's plant in Chongqing in western China, the company has been using the Pascal fridge insulation system developed jointly by Cannon (equipment) and Dow Polyurethanes (PU systems) for two years now. The process, which uses vacuum assisted injection, is "very innovative both on a technical level and a mechanical level," and is now a proven commercial process, commented Wong Lee Meng, general manager of Cannon Far East Pte Ltd.

Trials continue at Haier to assess productivity and output, and test different capacity fridges. One unit can fill a fridge in 15 sec, and the plant has 16 fixtures, Wong said.

Wong's deputy Ching Kwock Leong said Haier's new plant in Anhui Province has capacity for 3 million units, with six Cannon foaming machines.

Ching added that Cannon is probably the biggest supplier of fridge-foaming equipment in China, with perhaps 85 or even 90 percent of the market.

Haier is discussing using the Pascal system in other plants as well, and another Chinese fridge maker is also assessing the technology, Wong said.

Wong also said that Cannon's JL mixhead is winning it business in appliances, because it is the first mixhead that can dispense material at a rate of 1kg/s. For big fridges, the chemical system is very fast, so users need good laminar flow, with very high output, and with very low bubble and gel formation.

Dexin adds 100 ktpa of polyols

Zibo Dexin Lianbang Chemical Co. has recently enlarged its polyether polyol capacity to 330 ktpa from 230 ktpa, with some of the added capacity intended for export, said Cui Shoutun, export manager.

Dexin also plans to make higher quality polyols and extend its range into added-value products including polyester polyols for making technical foams.

About 10 percent of its production is exported, to the Middle East, Africa; South-east Asia, Europe and North America, said Cui.

He claims Dexin is the leading polyol supplier in China, supplying flexible and rigid polyols, polymeric types, and polyether polyols for high resilience foams.

Its rigid polyols are mainly for export, Cui said. The company's website says it has a 10 ktpa capacity PU system house and a 5 ktpa production line for polyester polyols.

Hebei Yadong adding 25 ktpa polyol

Rigid polyols producer Hebei Yadong Chemical Group Co. Ltd plans to add 25 ktpa to its existing 100 ktpa capacity plant in Shijiazhuang City, Hebei Province, said Bruce Zhang, of the group's international trade department. The operation supplies polyether polyols for rigid foam to make insulation panels, and for the CASE (coatings, adhesives, sealants and elastomers) segment. Its expansion will be completed by the end of this year, Zhang said.

New additives from China

Many additives suppliers are part of big multinational groups, but Siltech is a small, privately owned supplier of organosilicone-based additives, set up by president Ben Lin and his partner in Shanghai, China.

It has venture capital backing from the US, giving it "pretty good seed money," and allowing Siltech some 4-5 years to grow, said Lin.

"We decided to do our own research and patent the chemistry," Lin said, and the company has 3-4 patent applications approved already.

Lin sees the PU sector in China as having many opportunities for growth: "it has not reached its full potential."

The PU sector also has opportunities in organosilicones, and Siltech can take advantage of lower costs of materials and labour in China to offer materials at a price that is perhaps 20 percent less than other suppliers, he commented.

"The strategy for now is to use in-house research expertise and build up its own brand, utilising good technical service," Lin said.

Siltech's first stabilisers were aimed at the high-resilience flexible foam business, but it also serves the rigid foam sector, and this forms most of its sales at present, Lin said, with half of its material going to appliance makers for fridge insulation.

Currently Siltech sells only in China but it also plans to export material, Lin said.

Siltech, which employs 40 people, grew 20 percent in its first year, with the government's policy of stimulating appliance sales helping here.

Now that these incentives have changed, sales have slowed, but the business is making money, and offering good returns to the investors, Lin said.

New systems business takes off

New systems business Jiangsu Yobo Polyurethane New Material is growing its polyol and systems business in three phases, at two sites in Jiangsu Province, said William Pan, general manager.

Yobo has about 30 ktpa blending capacity for systems, and about 50 ktpa of polyol capacity, as well as the ability to make 15 ktpa of polymeric polyols. Phase 1 of polyol production came on stream this year in May, Pan said, with the polyols for flexible foam coming on stream in September.

In a second phase, planned for start up for Q3 next year, Yobo will add 150 ktpa of polyol capacity, he revealed. "We think the market is quite huge," Pan commented, putting growth in the polyols business at about 8 percent a year - the same level as GDP growth in China. In phase 3, Yobo will expand its rigid systems and the systems house, Pan said.

The systems business is growing even faster at 10-12 percent, "especially for flexible foam for automotive uses," where Yobo is "quite positive about the sector," Pan said.

A major use for its systems lies in insulation for appliances, and it also offers polyols for the flexible foam sector. The company also exports polyols and found the PU China 2012 event valuable for talking to potential customers overseas, and this may help it to add to its current export markets, which include Europe, Africa and Pakistan, Pan said.

Pan has a background in the PU sector. "I joined to build a new management system," for the 300-strong workforce, he said. Currently Yobo does most of its business in the domestic market, selling 5-10 ktpa into the automotive seat market for moulded flexible foam, for customers including some of the major seat makers operating in China - Johnson Controls and Lear, Pan indicated. Some of its systems go directly to the Chinese OEMs, who tend to operate their own in-house seat making units, he added.

Pan said he thinks many competitors lost money this year, while "we are profitable." He also thinks that Chinese customers are changing their habits and moving away from dependency on the big Western systems houses.

TDI oversupply in China

For the TDI operation Nocinco, part of China North Chemical Industries Group Co. Ltd, business is good, said Jiao Junlai, manager of the import/export department of Nocinco Kaiming Chemicals Ltd.

In August, the state-owned company shut down one of its two TDI units for maintenance, which interrupted supply. Now it is back to normal, with sales for Nocinco are good at present, Jiao said.

China has five TDI suppliers, with a total of 800 ktpa of installed capacity, and consumption within China currently at about 500 ktpa, according to Jiao. Nocinco itself has two TDI plants, with total capacity of 150 ktpa, and Jiao said it has no plans to expand, having added 20 ktpa two years ago.

Nocinco exports material to South America, Africa, the Middle East, and a small amount to India, he added. Oversupply means producers of TDI need to export more material in future, Jiao feels.

Tall and square

Norway's Laader Berg has had "nice growth every year for the last four years, with last year the best ever, and this year looking even better," Vaagen said.

It is now booking orders for next year. Generally, Europe is slower, but Vaagen said there are always opportunities. In particular, he sees increasing competition amongst foamers: "They need improve their operations ... to renew their technology, reduce waste, and raise efficiency," he said.

"Foamers have small margins, and the business is very competitive. So they really have to make competitive products and produce premium foam," Vaagen feels. He also said there is a huge difference in quality between Chinese- and western-made equipment.

"To make a high-quality foam, you need a high-quality machine, and for high-quality foam you get a better price in the market," he said. A higher price acts as a stimulus for those making foam to get the best out of their machines - and also western customers demand high quality foam, he added.

"Tall and square," is a company mantra, because the vital feature that Laader Berg says its machinery offers is a tall square block with consistent hardness and density all the way through. That gives the most cost-effective foam block, minimising trimming and waste. Laader Berg's customers, "make premium foam and get paid for it.

Foaming is complex, but we have made it easy to operate," he added. The Norwegian foam slabstock pioneer has sold 20 of its machines in China, and has been involved with the Chinese market for 35 or 40 years, Vaagen said.

Saving money with water-based glues

At PU China, Saba Dinxperlo, was aiming to make contact with potential customers among Asian foamers/converters for its environmentally friendly foam adhesives, said Paul Schouten, business development manager with the Dutch company.

"Our focus is really on bigger foam groups," Schouten said, since the smaller local foamers tend to use traditional latex adhesives for mattress and furniture production. Saba has just set up a sales office staffed by local people in Guangzhou, an ideal location, as it is a major furniture and mattress production region, Schouten said.

This year Saba successfully launched a new series of water-based adhesives for foam bonding, the 12.0 Hybrid Series, and says the market "is really enthusiastic about the performance of these products." Saba's message is that while this product may be more expensive than the solvent-based glues Chinese foam bonders are used to, they can save money overall, as less material is needed.

The bonding process can also be faster with the water-based material, Schouten added. Use of solvent-borne foam adhesives in Europe is declining, and is very small in the US, Schouten said, with Asia now the only major user of solvent-based adhesives.

Plea for stable prices in PU

Prices of polyurethane raw materials need to be stabilised, according to Erman Tan, ceo of Singapore systems house Asia Polyurethane Mfg Pte Ltd.

"What we would like as a member of the PU business community is healthy growth, but also a more stable pricing situation," Tan said. "We don't like huge price fluctuations." Tan also noted concerns about oversupply in PU raw materials, "which is a problem globally and is not healthy for the industry.

" He acknowledged that this oversupply is a result of the slowdown in worldwide markets But the APU chief feels there needs to be a better balance between supply and demand. Generally there is concern in China over the state of the world's economy, Tan said.

APU also hopes that a new government in China will institute some more stimulus packages for infrastructure development, to build roads, rail systems, hospitals and schools. Tan is also interested in the idea of a global PU association, to promote the common interests of all players in the sector, particularly in sustainable businesses and materials.