The automotive sector has become the largest and fastest-growing end market for thermoplastic elastomers in China, creating strong momentum for domestic and multinational compounders, said a recent report.
Automakers consume 22 percent of the TPE compounds in China and demand is expected to grow, on average, 21 percent per year from 2005-10, according to the report ``Specialty Thermoplastic Elastomers: Markets, Economics, Intermaterials Competition, and Industry Structure in China,'' by Robert Eller Associates Inc. of Akron, Ohio.
In contrast to the stagnating auto markets in the West, China's auto industry is booming. The number of passenger cars has quadrupled in the past six years. By 2010, the auto sector will represent 30 percent of the TPE demand in China, or about 96,000 pounds.
Among different types of TPEs, the study projects that olefinic thermoplastic vulcanizates will show the greatest growth. Driven by automotive applications, demand for O-TPVs will soar 27 percent annually from 2005-10, according to the report.
ExxonMobil Chemical Co. dominates the O-TPV market in China, representing nearly half of the market share. But Exxon and other global O-TPV leaders have not established local compounding capacity there, nor do they have apparent plans to do so, according to the report. That creates opportunities for local Chinese competitors - small compounders with small market shares - that can meet quality requirements.
Chinese TPE compounders, in general, are less capital-intensive and more domestically focused and have a cost advantage of about 30 percent over Western compounders' operating in China, according to the report.
As the overall TPE demand is expected to increase from almost 565,000 pounds in 2005 to 1.07 million pounds in 2010, averaging 14 percent annual growth, the growth of the thermoplastic urethane sector is slowing to nearly 9 percent.
TPUs currently represent the largest share of TPE demand in China, at 40 percent, but commodity TPOs will overtake it by 2010, according to the report.
The Chinese domestic TPE industry features more than 100 suppliers with small plants, and five to six new compounders emerge every year. Many have underutilized capacity by Western standards, the report said. Also, as the global overcapacity continues, price pressure limits profitability.
It is likely that the Chinese TPE compounding industry will consolidate as it did in the United States in the early 1980s, according to the report. Currently, there are about 30 TPE compounders in North America and 35 in Europe, it said.
The report recommends that Western compounders adapt quality standards suitable for the domestic Chinese market and not apply Western quality standards at higher prices. It also advises rebranding to keep from undercutting the prices and brand image of premium quality products.
The report also compared the Indian and Chinese markets. Although India has great potential in competing with China, the report said, India has substantially smaller TPE demand.
Other market obstacles for Western compounders in India include relatively high import tariffs, difficult internal shipping conditions and a relatively smaller auto sector.