Suppliers target new markets amid economic slowdown in China

Major players are adapting their capabilities and strategies to the new realities of China’s fast-evolving economy

By Louise McHenry

Polyurethanes experts attending PU China said the economic slowdown reported this year in China was having an effect on their businesses, but that the country, and the Asian region as a whole, still presented huge opportunities for the industry.

Tony Lanchak, vice president, urethane additives, Momentive Performance Materials, noted that there had been a slowing in the polyurethanes industry in China, especially in appliances. However, he added that China is a “gateway for growth” and that although growth may be in single digits, “I’ll take 7.5% any day”.

He said that while furniture, bedding and footwear had slowed, rigid polyurethane applications such as construction and automotive were growing well.

Lanchak added that Momentive has a lot of confidence in the Chinese market, as highlighted by the fact that the company recently moved its urethanes additives headquarters from New York City to Shanghai.

His thoughts were echoed by Kenny Pan, vice president of Huntsman Polyurethanes Asia-Pacific. In a 10 Sept interview at PU China, Pan told UTI that, although the Chinese economy as a whole may be slowing, the polyurethanes industry is still showing double-digit growth. He predicted that this will continue for “another 10 years”.

Wenping Zhang, manager of marketing and International business at Wanhua Chemical Group, said that changes in the Chinese economy in recent years have had a “severe impact” on the PU industry. Wanhua forsees “fundamental change” in the industry in China, Zhang said. First, the industry used to be driven by government investments, but Zhang does not believe this will be the case in the future, and therefore the industry has to change the mode of future developments.

The Wanhua executive also noted that the second factor driving growth in the past was exports. However, in the past years, “things have changed dramatically” as wages and the standard of living in China has increased.

“China is evolving,” Pan said, noting that it is moving from being a global manufacturing centre to a global market. As China develops, labour costs go up, and labour-intensive industries can either move to inland China or out to other Asian countries such as Vietnam, Indonesia and Thailand. This changes the industry within a country, such as China, but companies such as Huntsman, Wanhua and Momentive, which supply other countries in Asia can still take advantage of this movement.

However, Zhang also noted that as the Chinese industry is heavily reliant on exports-orientated markets, such as footwear – one of the labour-intensive areas that tends to be based in countries with lower wages – this socio-economic change will impact the polyurethanes industry.

Zhang noted that this migration does not happen overnight, as these industries tend have a long supply chain. However, in the long run, “this is what is happening”.

Maturing of markets

Zhang also added that, according to Wanhua estimates, MDI (methylene diphenyl diisocyanate) demand is still growing in double-digit figures this year. However, longer term, the company expects to see the market mature as demand for the raw material becomes saturated. If all the announced plans for increased capacity from MDI producers in China comes on stream, then manufacturers will have to “find some room outside of China for supply”, Zhang suggested.

He also noted that another strategy is to focus not only on commodity products but on speciality and performance materials, such as thermoplastic polyurethanes. “In this regard, China still lags behind, so there is a lot of room,” Zhang noted.

Expanding outside of China

Many of the Chinese companies that UTI spoke to at the event also highlighted the importance of seeking overseas business. (See some examples of these companies at the bottom of this article.).

Although Wanhua has been operating globally for many years, it is making a concerted effort to expand globally and has made some significant changes in order to promote a more international view. Earlier in the year, the company changed its name from Yantai Wanhua Polyurethanes to Wanhua Chemical. This change suggests two things, Zhang said. First, the extension of the company’s product portfolio to a more integrated chemical supply.

Secondly, the removal of Yantai – the city where Wanhua established its first plant – from the name indicates a less China-specific and more global view, the company said.

In terms of expanding its portfolio, Wanhua has added a greater range of chemicals. “Our business portfolio used to be dominated by MDI,” Zhang said, noting that it still accounts for 80% of Wanhua’s total sales revenue. “But in the past years, we have been investing a lot to develop some new isocyanates and we have commissioned some production facilities for aliphatic isocyanates.”

In 2012, Wanhua commissioned a 15 kt/year HDI (hexamethylene diisocyanate) plant in Ningbo, China. It also started a pilot plant for IPDI (isophorone diisocyanate) in Yantai. The company plans to expand production capacity further and in the near future, Wanhua will produce 60 kt of HDI per year and 25 kt/year of IPDI.

This brings Wanhua’s capacities to the following: MDI – 2m tonnes / year, TDI (toluene diisocyanate) – 300 kt / year, HMDI (methylene bis-cyclohexylisocyanate) – 15 kt/year, flexible PU foam – 200 kt/year, rigid PU foam – 300 kt/year, IP – 30 kt/year, IPDA – 25 kt/year and HMDA – 15 kt/year.

Zhang also noted that Wanhua had invested in propylene oxide (PO) with technology licenced from Huntsman, and the plant for this would be commissioned at the end of next year.

“In slabstock, we currently do not have the edge in cost but integrated PO will give us [this],” Zhang explained.

Building on construction growth

The construction industry in China is currently growing above GDP, Momentive’s Lanchak said. There is a growing desire in China for energy conservation in building, to makes new building’s passive – using zero energy. The Chinese government is energy conscious, Lanchak suggested.

In Beijing, for example, there is a programme focusing on energy efficiency in new construction and retrofit. This is just one city with a population of a European country, noted Paul Austin, Momentive’s global R&D director, urethane additives, as he highlighted the wealth of opportunities available for those in the polyurethanes industry. This is not only for new construction but also the aspect of retrofit, Lanchak added, emphasising that this is happening outside Beijing as well.

Huntsman’s Pan also noted that in 2013, the government had made specific developments in terms of introducing policy on energy-saving in housing. “I definitely believe that polyurethanes can play a critical role in supporting this new policy,” he said.

However, in recent years polyurethanes in particular has had a bit of a bad press in China, following a number of fires in residential housing that were blamed on insulation made from the material.

Lanchak noted that this is a global issue – the notion of PU and polyisocyanurate (PIR) having safety issues – but that there have been huge improvements in fire standards for these materials.

Austin noted that indeed there are still some local restrictions on the use of polyurethane for insulation, due to some of the fires that have occurred, but better fire retardancy has been pushed for insulation. “It will slowly be accepted everywhere in China,” Austin said.

Lanchak added that this safety goes beyond insulation and also plays a part in bedding and furniture, for example. This is something that Momentive sees as a health and safety issue, and having it highlighted to ensure safety is definitely a good thing, Lanchak emphasised.

Pan noted that environmental health and safety is becoming important for companies in the urethane insulation industry. The company offers “fire retarding grades [of materials], which not only improves insulation, but take care of safety. We want to support the whole society like that”, he said.

Momentive “operates with green in mind”, Lanchak said, and does this in two ways. First, by aiding production that promotes environmental health and safety, low volatile organic compound (VOC) emissions and sustainable solutions. Secondly, it offers products that can help customers to achieve better cost performance, saving money in energy and materials.

China is developing its own regulations for dealing with chemicals and this is a “good sign”, Huntsman’s Pan said. In China already, there are some strict regulations dealing with product registration, he added. Any product imported into China has to meet this regulation – “it’s similar to a REACH programme”, Pan noted. A similar programme is happening in South Korea, called K-REACH – “that shows you who the role model is”, the executive added.

Bluestar

Bian Hengwen, assistant general manager of Shangdong Bluestar Dongda Chemical Industry Co. Ltd, told UTI that his company attended PU China because it hopes to expand in new markets overseas. In China, Bluestar is already well-established in its main business of polypropylene glycol (PPG), the executive noted. Though the company already supplies overseas markets, such as the US, Hengwen said, it does not yet have enough business overseas and is putting more effort into developing this. Bluestar’s manufacturing facilities are based in Zibo in the Shandong province of China.

Equipment supplier makes connections

Established 20 years ago, JHPK – Beijing Jinghua Park Polyurethane Equipment Co. Ltd – makes and sells polyurethane high-pressure spray equipment, which it sells globally. It also supplies some raw materials to be used with the equipment.

Some 80% of business is in China, sales manager Mei Hong told UTI. The other 20% is mainly in south east Asia but the company also exports to countries such as Russia, Brazil, Sudan, Syria, Iraq and Italy, the executive said. The company has sales partners across the world but the main business is based in China. JHPK carries out all its manufacturing in Beijing, where it has a 20mu (13 333 sq.m) factory, Hong said, adding that the site in total, including warehousing, is 50mu.

This is the fourth time that JHPK has attended PU China. Hong his company was a repeat visitor to the event because it allows the company to establish a good connection with the industry. It also provides a platform for the equipment manufacturer to expand its business, both in China and overseas. Hong added that the company finds PU China to be the most professional event in the industry.

Lecron Energy-Saving Materials

Andy Kong, part of the overseas sales team with Lecron Energy Saving Materials, introduced the company, which makes polyols for rigid and flexible foam, as well as pre-polymers for elastomers. Typical applications include rigid foam for refrigerators, paper insulation, and spray foam, supplied to both to domestic and overseas companies. Lecron mainly supplies to the domestic market, which accounts for about 70 to 80% of its business.

Kong noted that the overseas markets poses more challenges in terms of more rigid and strict requirements. He noted that in China is easier to meet requirements, not only in terms of cost, but in terms of technical know-how. This is why the company has established an R&D centre in order to improve the physical characteristics that can be achieved with its polyols, offering better performance for customers, Kong said.

Lecron, which has three manufacturing bases in Zibo, Shangdong province, as well as a plant in Liaoning for sandwich panels, currently produces 100 kt per year of liquid raw materials. It has a new plant in the pipeline which will also produce 100 kt per year, Kong said.

Providing sustainability products is a focus for the company, and it is achieving this through two ways. First, Lecron is developing bio-based polyols using material extracted from cotton seeds, Kong said. Secondly, Kong noted that the government is advocating energy efficiency in building, a big proportion of which is in insulation. PU can fit that gap, Kong said, so the company is focusing on the energy efficiency of insulation.