China's chemicals sector: Back on track and reinvigorated by the sustainability agenda
Double-digit growth returned quickly to China's chemicals industry after the first signs of global recovery emerged in mid-2009. Buoyed by improved liquidity, major infrastructure investments and the need to restock inventory, the country's chemical sector has played a leading role in keeping China's economic recovery one step ahead the rest of the world. Demand for chemicals rose throughout 2009 and in the first half of 2010. Such growth is expected to continue, with the China Petroleum and Chemical Industry Association (CPCIA), predicting total petrochemicals output will hit RMB 8.57 trillion (USD 1.26 trillion) in 2010, up 29.3 percent from a year earlier.
With inventories now restocked, China is solidifying its position through a two-pronged strategy. It is collaborating with Middle Eastern companies as part of aims to become self sufficient in sourcing petrochemicals and raw materials. China continues to also partner with foreign multinationals in order to develop domestic technologies and move up the value chain. Chinese companies for example, have been involved in large-scale joint ventures for both upstream and downstream projects, increasing the country's connectivity to Western and Middle Eastern markets.
These trends are explored in a new KPMG report entitled A Vision for Sustainable Growth: The new factors driving growth in China's chemicals sector. "China is the world's second biggest consumer of chemicals, and chemical makers have long derived benefits from the low cost of labour, cheap infrastructure, favourable government policies and an immense market," says Norbert Meyring, Chemicals Leader with KPMG China. "The industry is now in a process of transition, reaching for new growth drivers. Part of this is developing capabilities in speciality chemicals and high-end polymers. In addition, a distinct shift is underway as governments and enterprises eye a green revolution. Chemical companies too are not averse to the demands created by sustainability and the urgent need for China to beef up research and development."
The global chemicals sector was hit hard during 2008 and the first quarter of 2009. The drop in production coincided with a slump in demand from key sectors such as housing, construction, automotive, electrical, furniture and paper. "While European producers are now recovering their footing as well, China has led the way," explains Mr. Meyring. "China's domestic demand has held up well. Many multinationals made dramatic layoffs in their North America and European facilities but have continued to invest in China."
One aspect explored in the new KPMG report concerns the role of chemicals in the renewable energy sector. "Chemicals companies are playing an unassuming yet ground-breaking role in developing materials that can bring down the cost of production," says Mr. Meyring. "The solar energy sector in China is an evolving case study that encompasses all these factors; it is a sector heavily backed by policy-makers, huge investments are being made to increase capacity, and the key raw material - polysilicon - is slowly being replaced by speciality chemicals. Solar companies across the world are saddled with unpredictable supply and prices of this basic raw material. Companies like BASF, Dow Chemicals and DuPont are all at the forefront of speciality chemicals used in solar technology and all have set up R&D bases in China."
The KPMG report also explores how the chemicals industry is supporting innovation and the development of more sustainable products in other key sectors such as automotive and construction. "A company with a green portfolio needs a market to survive. This is where China is in a position to make a difference, given its sheer volume and will to orient itself to a more sustainable mission," says Mr. Meyring.
|
