Chinese plastics companies and Western suppliers in China are beefing up research and development spending there, particularly around applications, according to speakers at the recent Flexpo polyolefins conference in Shanghai.
ExxonMobil Chemical Co. of Houston opened a new technical center in Shanghai in March, its third-largest globally, with a focus on higher-value products such as metallocenes and specialty elastomers, said Dirk Michiels, Shanghai-based Asia technology manager for ExxonMobil.
“It's really built to support premium products,” Michiels said at the June 15-17 event. “There is very little work that will be done on commodity products.”
Midland, Mich.-based Dow Chemical Co., for example, has “built world-class R&D capacity in China” in recent years, going from a 50-person research staff in Shanghai five years ago to 500 today, said Xudong Huang, R&D elastomers director for Dow Chemical (China) Co. Ltd.
Flexpo co-organizer Chemical Market Resources Inc., said home- grown Asian R&D capabilities are growing quickly. That's partly why the last several Flexpos have been held in Asia, said the Houston-based consulting firm.
“There is no doubt in my mind that Asia still has a lot of catching up to do, but they are catching up much faster than one would have expected,” said J.N. Swamy, an analyst and CMR client services director. “Innovations have to follow demand and demand right now is in Asia.”
Many of the Flexpo presentations were from traditional Western or Japanese plastics market leaders who were updating developments or trying to sell technology licenses to firms from emerging Asian markets.
But the conference also included detailed updates on advanced research and products coming out of China's state-owned giants Sinopec and PetroChina, and from firms like Foshan Plastics Group Co. Ltd., one of China's largest plastics processors.
Foshan Plastics, based in Foshan, said it has been developing flexible pipe made of thermoplastic elastomers, overcoming TPE's thermal resistance problems in the application by using radiation from high-energy electron beams to cross-link the material.
The conference included updates from outside of China, as well: South Korea's SK Innovation Co. Ltd. said it is ready to commercialize a process to use carbon dioxide as a feedstock for plastics, and expects to decide on the size of its first commercial-scale factory by early next year.
The stepped-up R&D in Asia is designed to meet local demands, but will have global ripples, according to CMR's Swamy.
Over time, it's likely to quicken the pace of innovation worldwide, and speed how fast margins fall as today's higher-margin premium products become tomorrow's more price-oriented offerings, he said.
As an example, he pointed to Sinopec's claims at Flexpo that it will begin to commercialize some of its own grades of metallocenes. That market historically has been dominated by Dow, ExxonMobil and Tokyo's Mitsui Chemicals Inc., but as demand grows in emerging Asian markets, companies in South Korea, and now China, have been developing their own offerings.
“Margins will tighten in metallocenes as more Asian production and more Asian players potentially come in,” Swamy said in a speech at Flexpo.
“There is the potential for commoditization. That likely won't happen in the next 10 years; it will still be a premium market, but the substantial levels of premiums we have seen in the last five years is not something we'll see in the next 10 years.”
Other CMR analysts said products such as ethylene vinyl acetate copolymers and the PE-100 grade of polyethylene pipe resin could see the same margin pressures as more Asian firms enter the fray.
While China's profile in research is rising, one Chinese chemical industry executive at Flexpo bluntly said the industry still does not spend enough on R&D.
China's new five-year plan sets a general target for chemical industry R&D spending at 3 percent of revenues, and although even that would be low by international standards, it could be difficult to attain and would be a “great achievement” if adopted, said Qiu Tang Xu, president of the Shanghai Chemical Association.
Another Chinese analyst at Flexpo said the country's polyolefins industry is disadvantaged in world markets because its factories are smaller, with China's largest just one-fourth the size of the world's largest.
The domestic polyolefins industry also has a much narrower range of products, with only about 100 different grades of material, compared with thousands worldwide, said Vinh Fang, deputy managing director of the consulting department for China National Chemical Information Center in Beijing. CNCIC co-organized Flexpo with CMR.
The Chinese industry needs more consolidation, more innovation and fewer restrictions on foreign investment, he said.
For some Western firms, the country's rapid growth means that innovations are more readily accepted in the market.
ExxonMobil's Michiels said Asian firms can be more open to new ideas than those in other regions, because of the rapid pace at which the market is changing. About 60 percent of the petrochemical industry's growth in the next decade will come in Asia — about half of that in China — and customers there can be more receptive to ideas that improve their competitiveness, he said.
“While people in Europe and the U.S. are sometimes set in their ways, over here they are often willing to look at new approaches,” he said.