The China resin riddle is one that processors need to solve in order to do business in that growing nation.
``The business of resin supply works differently in China than it does in North America,'' Frances Moore-Jones said at the Plastics News China Forum, held Nov. 14-15 in Rosemont. ``Processors buy resin more frequently and they do so at spot prices. And two-thirds of all resin is sold through distributors and traders.''
The prominence of resin trading malls also sets China apart from other regions, according to Moore-Jones, who is vice president of products for Townsend Polymer Services & Information Inc., a Houston-based consulting firm.
Townsend has identified 27 such malls, serving 9,000 resin distributors and accounting for 25 percent of all Chinese resin sales. Some of the malls can resemble indoor flea markets, but others - such as the mammoth China Plastics City in Yuyao - are much more elaborate, Moore-Jones explained. China Plastics City covers 20 square city blocks and features resin from 500 distributors.
Wages at Chinese processing firms are, as expected, much lower than at their North American counterparts. Processing plant managers earn an average of $500 per month while the average plant worker makes less than $200 per month, according to recent Townsend research.
China also is home to a mind-boggling 72,000 plastic processing sites, with five Chinese provinces holding about 65 percent of that total - a number larger than the combined plastics processing bases of North America and Western Europe, Moore-Jones said.
And the market remains primed for more growth. Howard Rappaport, global thermoplastics leader for Houston's Chemical Market Associates Inc. consulting firm, anticipates that polyethylene demand in northeast Asia - including China - will grow at a rate of almost 7 percent between 2005 and 2010, and at almost 6 percent between 2010 and 2015. By comparison, PE growth in North America is expected to be around 3 percent and 2 percent in those periods.
Chinese resin capacities are growing to meet those needs, but the region will remain dependent on imports for the foreseeable future, Rappaport said. By 2010, Chinese resin makers Sinopec and PetroChina will rank among the world's 10 largest PE makers, combining for about 10 percent of global capacity.
These conditions likely will cause the $3 billion plastics trade deficit between the United States and China to grow, he added.
``North American processors have to ask where is the most cost-effective place to make their goods,'' Rappaport said. ``Because they're going to see continued cost pressure from imported finished goods.''
The Chinese government also is playing a role in the development of the country's resin industry, according to Xinyu Frank Zhao. Zhao recently left his job as a project manager with Chemical Market Resources Inc. in Houston to join specialty resins maker Ticona Engineering Polymers as a product development and compounding engineer in Florence, Ky.
China will increase its capacity for plastic feedstock ethylene to about 40 billion pounds by 2010. Current capacity for the material is less than 17 billion pounds, Zhao said. New regulations also will require ethylene crackers to have at least 1.7 billion pounds of annual capacity.
Other government policies should spur resin demand, such as a required increase of plastic pipe usage from its current 50 percent, to 70 percent by 2015. In door and window profiles, plastic uses, now at 25 percent, will be required to climb to 40 percent in that period. In roofing, plastics usage needs to make a mandated leap from 50 percent, to 80 percent, in the same period.
But in other areas, China's loosening of regulations has caused great overcapacity, Zhao explained. The country's PVC capacity has more than doubled since 2003, leading to low operating rates. China also is adding capacity for more than 2 million cars, even though it sold less than 75 percent of its current capacity in 2005.
Biaxially oriented polypropylene film also fell from profitable to unprofitable in China in just five years. Processors in China installed 70 new BOPP lines between 2001 and 2003. As a result, Zhao said, the country's capacity was twice as much as its demand by 2005.