Biaxially oriented film line supplier DMT Technology GmbH has set up its first plant in China, an expansion the firm hopes will let it take a leadership position in what is the world's largest market for the equipment.
Salzburg, Austria-based DMT said it wants to use the 54,000-square-foot factory in Guangzhou to challenge the position of German firm Bruckner Maschinenbau GmbH, the current market leader in biaxially oriented film equipment in China.
``Our target here in China, of course, is to become No. 1,'' said Peter Oswald, managing director of DMT Guangzhou Machinery Co. Ltd. China. ``It is a clear aim.''
Historically, DMT has not paid as much attention to the Chinese market, Oswald said in an Aug. 18 interview in Guangzhou. But after an ownership change and cash injection in 2004, the company began looking more seriously at China. In 2004, DMT converted a Guangzhou sales office into a full trading company and began planning for a Guangzhou factory, to better serve what is a very price-sensitive market, he said.
``It was clear that we needed a workshop in China, because if you want to offer a competitive price, you have do some parts in China, like frames and insulation panels and so on,'' he said. ``The price pressure here is very high.''
The company said the Guangzhou factory mainly will serve the Chinese market and not function as a cheaper base for producing and shipping back to Europe or elsewhere, Oswald said. The plant employs about70 to manufacture film stretching lines, and offers turnkey factory designs. Key components still will be imported to Guangzhou.
If a customer elsewhere in the world is comfortable with a Chinese-made machine, DMT will sell them, he said. But many customers prefer to buy European-made equipment from the company's factory in Le Bourget-du-Lac, France, with components sourced from Europe and the U.S., he said. But, he added, DMT's Chinese-made machines, with many parts sourced from China, are the same quality as the firm's European lines.
``In the long term, China will be the single-biggest market for [biaxially oriented polypropylene film] or biax equipment, that is for sure,'' Oswald said. ``They will be the workshop of the world for flexible packaging materials. All this installed capacity is installed in the coastal region [and] consumed by maybe 20 percent of the population, so there is a lot of room to grow.''
Oswald estimates that DMT had about 20 percent of the Chinese market last year, with a much larger share going to Siegsdorf, Germany-based Bruckner.
At the moment, he said biaxially oriented film equipment in China is in a down year, part of its traditional four-to-five-year cycle of boom and bust, as companies add production all at once and then pause to absorb overcapacity. The market's nameplate capacity is now about 5.5 billion pounds, with another 660 million to 1.1 billion pounds being added this year, according to DMT.
When the market again returns to a period of heavy capital investment, possibly in 2011, DMT would like to be the biggest-selling biaxially oriented film line supplier in the country, Oswald said.
Also, the firm's local production site will allow Chinese customers to purchase equipment in Chinese currency and without a need for import licenses, he said. Guangzhou will operate as a ``self-supporting'' company under license from DMT in Europe.
The Guangzhou plant also gives the company some insurance against possible changes in Chinese tax policies that might make it more difficult to qualify for exemptions from import and value-added taxes for imported equipment which could add 30 percent to the cost of machinery shipped to China, Oswald said.
While the BOPP industry finished a strong cycle of capital investment in 2007, it is currently in a less settled position. The market has seen capital spending slow as a result of the Chinese government tightening credit policies. And, the past few weeks have seen BOPP film makers shut down significant capacity in China, possibly as much as 40 percent, as companies guessed wrong about oil prices, he said.
Many had assumed oil prices would keep rising and push up resin prices, and therefore bought several months worth of raw material ahead of schedule and stockpiled film, he said. But when oil prices dipped unexpectedly, many companies in the industry found themselves with excess supply that will take time to correct, Oswald said.
The other historically strong foreign competitor in extrusion equipment in China had been Mitsubishi Heavy Industries Ltd., he said, but MHI sold its biaxially oriented film equipment business to Japan Steel Works Ltd. in 2006. Tokyo-based JSW is starting to reappear in the China market, Oswald said.