Basell NV is doubling the size of its polypropylene compounding plant in China, spurred by faster-than-expected growth in its core automotive and appliance markets there.
The Hoofddorp, Netherlands-based company plans to boost capacity at its Suzhou plant to 60 million pounds by September, about a year ahead of schedule, said Theo Zwygers, senior vice president for advanced polyolefins with Basell's international division. He spoke during a May 12 interview at the company's Hong Kong office.
Basell, the world's largest PP compounder and resin maker, opened the plant in January 2005 with a capacity of 26 million pounds, but it filled that capacity and started turning a profit within six months, he said.
The company also is opening a compounding technical center this year at the Suzhou site, rather than next year as initially planned, with research and development capabilities and testing equipment, he said.
While the Suzhou operation is growing quickly, it remains a relatively small part of the company's global compounding footprint of more than 1.76 billion pounds at 14 plants, he said.
The company expects about 110 million pounds of compounding capacity at Suzhou by the end of the decade, with the possibility of going up to a total of 150 million pounds later and adding a second facility, according to Zwygers.
Most of the firm's business in China is with foreign multinationals, while local manufacturers remain more difficult to crack because they are very price conscious, he said. The company focuses on higher-end compounds, he said.
In the auto market, for example, China has more than 30 local carmakers, in addition to foreign firms, so competition is particularly fierce, and the quality requirements among local carmakers lag, in general, he said.
``This industry [automotive] has to go through a very serious rationalization,'' he added.
Still, Basell needs to be well-positioned in China's booming car market, he said.
In time, China's car industry will start designing its own models, exporting them and seeing its designs made in other countries, Zwygers said.
``We have to have a solid presence to protect our business elsewhere in the world,'' he said.
While the company is boosting its compounding investment in Suzhou and is bullish on the market in the long term, it's also taking a somewhat cautious approach, given the competitive market conditions, company officials said.
``We don't say, `We have 50 percent of the market in Europe, and we want 50 percent in China.' That won't work here,'' said Frank Noeltgen, Hong Kong-based business unit manager for automotive in the Asia-Pacific region.
``We could build it, and we could probably fill such a plant, but the question at the end of the day is, what can you provide to the shareholder?''
Beyond the Suzhou investment, the company handles sales and marketing for the initial phase of the polyolefin joint venture between China National Offshore Oil Corp. and Shell Petrochemicals Co. Ltd., which produces 1.5 billion pounds per year of polyethylene and PP in Huizhou, about 50 miles from Hong Kong.
The $4.3 billion joint venture, one of the largest Sino-foreign operations in China, started production in January, using Basell technology. Basell has licensed its technology to more than 20 firms in China, Zwygers said.
He said Basell is evaluating resin production in China, but company officials also have said they see the Middle East as the dominant new production region for resin.
The company announced May 11, for example, that it is building two PE plants in Saudi Arabia in a joint venture with Tasnee & Sahara Olefins Co.