At the recent groundbreaking ceremony of its polyurethanes systems house and eco-commercial building in the costal city of Qingdao, Bayer MaterialScience AG elaborated on its aggressive investment and expansion plans. The Leverkusen, Germany-based firm also discussed its mission to help improve life quality and environmental sustainability under China's 12th five-year plan.
The high-profile event took place just days after the company announced plans to build a systems house and a polycarbonate color competence and design center in the western Chinese city of Chongqing.
The 66 million-pound-per-year systems house in Qingdao is scheduled to start production by 2012 and is set up for an expansion if needed, said Azita Owlia, BMS senior vice president of polyurethanes for Asia-Pacific.
“There is significant manufacturing activity in northern China and the new systems house will provide greater proximity to our customers,” she said.
The Qingdao site will enable the firm to meet China's PU demand, which is expected to grow 7-10 percent yearly until 2014, she said. It will serve local appliance makers like Haier, shipping container makers including China International Marine Containers and Maersk, as well as the booming construction sector.
During the next five years, BMS will focus on helping China to improve life quality, conserve and generate energy, reduce emissions, and develop highly efficient modern buildings.
For instance, only 15 percent of perishable food in China is refrigerated or frozen during transportation, compared to 90 percent or higher in developed countries, creating challenges to food safety and prices, consumers' discretionary spending, as well as land, water, and energy resources.
Refrigerated trucks and shipping containers can help bring fresh food to tables with less food preservatives, save energy, and raise farmers' income, Owlia said. Refrigerators in China alone are a 1.2 billion-pound-per-year market for PU.
Bayer also is making its own production facilities more sustainable. Its upcoming Shanghai toluene diisocyanate plant on gas-phase phosgenation, the first of its kind in the world, uses 80 percent less solvent, 60 percent less energy, and 132 million pounds less of carbon dioxide per year.
Industry stats show that buildings are responsible for 40 percent of energy use and almost one-third of greenhouse gas emissions worldwide.
With the real-estate boom in recent years and construction expenditures rising at 9.1 percent per annum, the Chinese government is aiming to reduce energy consumption in new buildings by 65 percent by 2020. However, PU represents a mere 2 percent of the building insulation in the country.
Meanwhile, fires caused by misapplication or quality issues of insulation materials are increasingly raising public concern. To solve the program, the industry needs to learn to “use the right products in the right places.”
“We need to work with the government, either as an individual company or with industry associations, to make sure that we have the proper codes and the proper enforcement in place,” Owlia said.
Education and management also play important roles. Bayer believes that the government will benefit from learning best practices from the rest of the world and developing effective management programs.
Bayer's first eco-commercial building in China, under construction in Qingdao, will showcase wall-insulation systems, roofing-insulation systems, polycarbonate sheets as well as interior products by its partners. The company calls the 11,000-square-foot office complex a milestone of sustainable construction in China and hopes to replicate its materials solutions across China.
To capture the growth opportunities, the company has already invested 2.1 billion euros ($3.1 billion) in China, with another 1 billion euros ($1.5 billion) to follow by 2016.
Specifically, BMS plans to increase PC capacity to 1.1 billion pounds, and expand hexamethylene diisocyanate capacity to 176 million pounds per year, including a new HDI plant producing 110 million pounds per year.
Having previously unveiled plans to expand its methylene diphenyl diisocyanate annual capacity in China to 2.2 billion pounds by 2016, BMS recently shared more details of the expansion in Qingdao. According to Owlia, the existing MDI plant in Caojing, China, will raise its capacity from 771 million pounds to 1.1 billion pounds by 2012/2013. Another half-a-million-ton MDI plant will be added in Caojing by 2016, she said.
The company also plans to invest 110 million euros ($161 million) in downstream facilities by 2012 to increase proximity to customers, including systems houses, PC capacity, and a color and design center.
In addition to capacity hikes, BMS also is investing heavily in innovation, including further expanding its research and development base in Shanghai to meet market needs. The company also is moving its global headquarters of the PC business to Shanghai.
With 11 percent compounded annual growth rate during the past five years, China now is the second-largest market in the world for BMS, which recorded 10.2 billion euros ($15 billion) in 2010 global sales.
Bayer hopes to grow its China sales from 2.9 billion euros ($4 billion)to 5 billion euros ($7 billion) by 2015. It is currently the largest foreign invested firm in Shanghai.
BMS claims 22 percent of the global PU market, which Owlia expects to remain tight in the next few years.
While its competitors — BASF SE, Wanhua Industrial Group, and Huntsman Corp. — are building large-scale plants, the additional capacity won't come on stream until 2014/2015.
Because prices were depressed for a while, some of the expansions were delayed, contributing to the current shortage, Owlia said. On a global basis, the industry needs 881 million pounds of capacity to come on line every year to be able to support the demand growth. Therefore, the upcoming additional capacity would be absorbed very quickly.
“Would there be a short-term overcapacity? Perhaps, depending on how the market develops. But I foresee the next few years to be a very tight market,” Owlia said.
Combining the supply-demand situation with the volatility of raw material [benzene] prices, “we need to establish prices to pay for raw materials and upcoming investments.”
Just like BMS' other 30 systems houses worldwide, the Qingdao facility also will position itself on a global basis and export to other regions when needed, she added.