Plastics firms boost R&D spending in China

2011-6-26 11:29:45

Chinese plastics companies and Western suppliers in China are beefing up their research and development spending in the country, particularly around application development, according to speakers at the recent Flexpo conference in Shanghai.

Dow Chemical Co., for example, has “built world-class R&D capacity in China” in recent years, going from 50 research staff in Shanghai five years ago to 500 today, said Xudong Huang, research and development director for elastomers for Dow Chemical (China) Co. Ltd.

ExxonMobil Chemical, as well, opened a new technical center in Shanghai in March, its third-largest globally, with a focus on higher-value products like metallocenes and specialty elastomers, said Dirk Michiels, the Shanghai-based Asia technology manager for ExxonMobil Asia Pacific Research & Development Co.

“It’s really built to support premium products,” he said. “There is very little work that will be done on commodity products.”

One of the organizers of the Flexpo conference, Houston-based consulting firm Chemical Market Resources Inc., said home-grown Asian research and development capabilities are also growing quickly.

That’s part of the reason the company has held the last several Flexpo conferences in Asia, CMR said.

“There is no doubt in my mind that Asia still has a lot of catching up to do but they are catching up much faster than one would have expected,” said J.N. Swamy, an analyst and director of client services for CMR. “Innovations have to follow demand and demand right now is in Asia.”

Many of the presentations at Flexpo were from the traditional Western or Japanese plastics market leaders, updating their developments or trying to sell technology licenses to companies from some of Asia’s emerging markets.

But the conference also included detailed talks updating products coming from research advancements at China’s state-owned giants Sinopec and PetroChina, and from companies like Foshan Plastics Group Co. Ltd., one of China’s largest plastics processors.

Foshan Plastics, based in Foshan, Guangdong province, said it has been developing flexible pipe made from thermoplastic elastomers, overcoming problems with the thermal resistance of TPE in the applications by using radiation from high-energy electron beams to cross-link the material.

From outside of China, the conference included an update from South Korea’s SK Innovation Co. Ltd., which said it was ready to commercialize its process to use carbon dioxide as a feedstock for plastics, and expects to make a decision on the size of its first commercial scale factory by early next year.

The stepped-up research and development in Asia is designed to meet local demands, but will have global ripples, according to CMR’s Swamy.

Over time, it’s likely to quicken the pace of innovation worldwide, and speed up how quickly today’s higher-margin premium products become tomorrow’s more price-oriented offerings, and margins fall, he said.

As an example, he pointed to statements at Flexpo from Sinopec that it would begin to commercialize some of its own grades of metallocenes.

That market has historically been dominated by Dow, ExxonMobil and Japan’s Mitsui Chemicals, but as demand grows in emerging markets in Asia, companies in South Korea and now China have been developing their own offerings.

“Margins will tighten in metallocenes as more Asian production and more Asian players potentially come in,” he said in a Flexpo speech. “There is the potential for commoditization. That likely won’t happen in the next 10 years, it will still be a premium market, but the substantial levels of premiums we have seen in the last five years is not something we’ll see in the next 10 years.”

Other CMR analysts said products such as EVA copolymers and the PE-100 grade of polyethylene pipe resin could see the same margin pressures as more Asian firms develop offerings.

While China’s profile in research is rising, one Chinese chemical industry executive at Flexpo said bluntly that the industry still does not spend enough on R&D.

China’s new five-year plan sets a general target for chemical industry R&D spending at three percent of revenues, and while even that would be low by international standards, it could be difficult to achieve and would be a “great achievement” if adopted, said Qiu Tang Xu, president of the Shanghai Chemical Association.

As well, another Chinese analyst at Flexpo said the country’s polyolefins industry is disadvantaged in world markets because its factories are smaller, with the largest just one-fourth the size of the world’s biggest.

The domestic PO industry also has a much narrower range of products, with only about a hundred different grades of material, compared with thousands worldwide, said Vinh Fang, deputy managing director of the consulting department for China National Chemical Information Center in Beijing. CNCIC co-organized Flexpo with CMR.

The Chinese industry needs to consolidate, focus more on innovation and do more to lessen restrictions on foreign investment, he said in a speech at Flexpo.

For some Western firms in China, the country’s rapid growth means that innovations are more readily accepted in the market.

ExxonMobil’s Michiels said many Asian companies are more open to new ideas than companies in other regions, because of the pace at which the market is changing, he said.

About 60 percent of the petrochemical industry’s growth in the next decade will come in Asia, with about half of that in China, and customers there can be more receptive to ideas which improve their competitiveness, he said.

“That’s a very positive development in China,” he said. “While people in Europe and the U.S. are sometimes set in their ways, over here they are often willing to look at new approaches.”

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