Market Insights 5 Key Insights into China’s Chemical Industry

From Henrik Bork*/Ahlam Rais

With sales of more than 2 trillion euros (2.26 trillion dollars; 2020), China is by far the largest chemical producer in the world. Even though growth has slowed from an average of 8.7 to 5.7 percent in recent years, this figure is still very impressive by global standards. This is also true for investments in property, plant and equipment, which amounted to 115 billion euros in 2020. Based on our China Market Insider series, we have summarized some interesting market trends and developments in China's chemical industry this year.

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PROCESS regularly reports on the Chinese chemical and pharmaceutical market with the format ‘China Market Insider’.
PROCESS regularly reports on the Chinese chemical and pharmaceutical market with the format ‘China Market Insider’.
(Source: ©sezerozger - stock.adobe.com)

China aims to become carbon neutral by 2060 while maintaining its position as the world's largest chemical producer. With this objective in mind, the country has set up the largest chemical company in the world – Sinochem Holdings which will have estimated sales of more than 144 billion dollars, thus, making it larger than BASF and Dow combined! The country has also made its intentions clear to achieve its carbon-neutral goals in the said timeline by supporting only the construction of green or climate-friendly plants. In this background, PROCESS Worldwide recaps 5 key insights into China's chemical industry:

1. China Establishes the World's Largest Chemical Company

The world’s largest chemical company will soon be in China! The merger of chemical giants Sinochem and ChemChina has recently been approved, thus, paving the way for Sinochem Holdings, a mighty single organization with estimated sales of more than 144 billion dollars! The merger of the two state-owned enterprises Sinochem and Chem­China is now in progress. Once complete, the new company — Sinochem Holdings will be established which will hold 100 % stake of both Sinochem and ChemChina.

Wholly owned by Sasac (state-owned assets supervision and administration commission), this will be the world’s largest chemical company which will focus on the three key sectors of “life science, material science, and environmental science”, states Sinochem CEO Yang Hua. “It’s all about ‘transformation’, and after the merger, the new company will want to benchmark itself only against the biggest and best chemical companies on earth,” opined Ning Gaoning, who currently heads both the merging state-owned enterprises.

2. BASF is Working on the ‘Green’ Verbund Site in China

BASF plans to invest around ten billion dollars at the giant Verbund site in southern China by 2030. There, at the southern tip of mainland China, the company's third-largest site is currently being built, after Ludwigshafen and Antwerp. Construction started in 2019. The first plants are scheduled for completion by 2022 and will produce engineering plastics and thermoplastic polyurethane (TPU).

Even before anything has been built there, BASF is already presenting the site as a ‘role model for sustainable production’. In its own words: "BASF will operate the first factories at the Verbund site in Zhanjiang, Guangdong Province, 100 per cent with renewable electricity.”

To achieve this goal, the company has been helping local government agencies in Guangdong to develop their new energy policy, which aims to increase the share of renewable energy in the energy mix at the behest of the Beijing headquarters. The Germans have proposed a new concept with pioneering character in the Southern Province, the press release says. The concept, called R-DPP (Renewable Direct Power Purchase), is intended to ensure that industrial electricity consumers can improve their carbon footprint in the future. BASF announced that it is working with China Resources Power on the project.

China Resources Power, once founded as a developer and operator of coal-fired power plants, now generates a little more than half of its energy from renewable sources such as solar, wind, and hydropower. BASF will now become the power producer's first customer in China to purchase clean power under the new R-DPP concept, the press release said.

3. Paradigm Shift: Climate Protection Prioritized Over Construction of New Chemical Plants

In the course of China's efforts to reduce its energy consumption and achieve its ambitious climate protection targets, the coal-fired ethylene production project set up by the state-owned ‘Shaanxi Coal’ and the ‘Chemical Industry Group’ in the town of Yulin in the northwest province of Shaanxi had already been suspended on July 2, the Caixin business magazine reported.

The project, which was expected to be completed by 2025 with an investment of about 19.4 billion dollars, failed to pass an official "energy-saving evaluation" before being suspended, Caixin writes. The Beijing headquarters is currently pressuring local governments in the provinces to respect the previously set caps on energy consumption, the report says. This is happening "in the wake of ambitious national carbon dioxide pledges", Caixin writes. "Large-scale coal chemical projects are thus becoming subject to increasingly stringent energy controls."

China's state and party leader Xi Jinping had promised last autumn that China's carbon dioxide emissions would peak by 2030 and that the country's entire economy would become climate-neutral by 2060. Coal chemistry has now come under the scrutiny of Chinese climate change activists mainly because of the intensity of CO2 emissions in the processes of converting coal into chemicals. Caixin writes. "In principle, no new modern coal chemical projects will be approved anymore."

In addition to those in the coal chemical industry, the first major projects in the petrochemical industry have already been suspended. China's leading refiner Sinopec has cancelled the planned expansion of its Maoming site in the southern province of Guangdong, the consulting agency JLC reported at the end of June.

From now on, large-scale chemical projects in particular – both coal- and oil-based – will obviously find it much more difficult than before to obtain the necessary permits in China. Or companies will have to prepare to at least reduce the volume of their planned chemical factories.

4. China is Upgrading: Plans for Domestic Specialty Chemicals

Specific development plans for specialty chemicals have been layout out in several Chinese provinces. The detailed plans for provinces and locations such as Guangdong, Fujian, or Shanghai add up to nothing less than an attempt to launch an entire industry. If they succeed, this will mark the birth of Chinese specialty chemicals as a leading player on the world market.

Specialty chemicals currently account for only 8.7 percent of Chinese chemical production. Specialty fibers produced in the People's Republic have a global market share of less than ten percent. There are also more than 130 new materials that "cannot yet be produced independently of other countries," the Chemical Newspaper quotes a spokesman for the China Petroleum and Chemical Industry Association.

The ambitious plan: Within the next five years, a self-sufficiency rate of 75 percent with the most important specialty chemical products is to be achieved, and the share of specialty chemicals in the total production of the chemical industry in China will exceed by ten percent. The aim is to build a new materials industry commensurate with China's status as a major petrochemical nation, writes the Chemical Newspaper.

Guangdong Province is, therefore, to focus from now on, among other things, on engineering plastics, chemicals for the electronics industry, functional membrane materials and high-performance fibers. Shanghai is now expected to produce more high-performance polyolefins, engineering plastics, specialty synthetic rubber, specialty adhesives and other advanced polymers, as well as materials such as specialty surfactants, electronic chemicals and pharmaceutical intermediates. Industrial parks and individual companies in Shanghai are also expected to take the lead in this national race to catch up in high-temperature superconductors, graphene and materials for 3D printing.

Individual materials mentioned so far are also to be increasingly developed and produced in the coastal province of Fujian, in addition to ultra-high molecular weight polyethylene, aramid fibers and new ceramic-based composites, to name just a few examples. Research & development in the field of specialty chemicals is not merely to be strengthened in general, but is currently being distributed among very specific projects at the provincial level.

5. How the Chinese Chemical Industry wants to Profit from the 5G Boom

China is currently investing more in the rollout of its 5G network than anywhere else around the globe. This 5G boom, which has just begun, opens up extraordinary development opportunities for the 5G materials market in China, reports PROCESS (China).

In China's chemical industry, market observers therefore see new growth opportunities for highly efficient plastic materials such as polycarbonate materials or dual-injection rubber coatings that can cope with the new 5G requirements. The trade portal China Plas Online sees BASF, Dupont, Sabic, Covestro, Sumitomo Chemical, Lotte, Fanuc, as well as the chemical groups Haitian International, Guangdong Yizumi, Chen Hsong and Changzhou Jwell as being ideally positioned in this market.

One example of the new ‘5G materials’ is polytetrafluoroethylene (PTFE), which some Chinese engineers call the "king of all plastic materials". It is predicted to experience a boom in demand in China. "PTFE will gain new market opportunities thanks to its outstanding physical and chemical properties and bring growth to its manufacturers as the 5G industry develops," writes the Chinese trade medium CN Chemicals.

At present, China already produces 40 per cent of the world's PTFE, but it’s relatively of low quality. The market leader in China, the Dongyue Chem Group, alone has a market share of one third, writes the Qianzhan Institute for Industrial Research in Beijing. High-quality PTFE for special applications, on the other hand, is still imported. Last year, 160,000 tons of PTFE were produced in China, the Qianzhan study continues. "The demand for PTFE will continue to increase in the future," the Qianzhan analysts predict.

* Henrik Bork, former China correspondent of the German Süddeutsche Zeitung and the Frankfurter Rundschau, is Managing Director at Asia Waypoint, a Beijing-based consulting agency. ‘China Market Insider’ is a joint project of the Vogel Communications Group, Würzburg, and Jigong Vogel Media Advertising in Beijing.

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