SHANGHAI (April 25, 2:50 p.m. ET) — Expecting growth in China and southeast Asia is business as usual, but resin making joint venture Borouge sees the market shifting.
“I believe China will change from being very export-oriented to be clearly much more internal consumption oriented, and that will change the business model for companies like ourselves,” said Wim Roels, CEO of the sales and marketing unit, Borouge Pte. Ltd., during an April 18 press briefing at Chinaplas in Shanghai.
“What that means is that business for ourselves will move from the dollar business model — which is very much oriented to the export business model — to very much an RMB business, which is focused on local consumption and local demands.”
So molders buying Borouge compounds in Shanghai will shift their accounting and tax standards to reflect an all-domestic business, and will require Borouge to account for those changes as well.
“Typically today, many imports of polyolefins, for example, are sold in dollars. Say that people buy polypropylene to make vacuum cleaners and ship them to the U.S. or to Europe. That business, we believe, will decline and our customers will focus more on buying material directly from us in RMB and we will take care of all the custom duties and taxes and sell to them directly in RMB for internal consumption.”
Borouge, an Abu Dhabi-based joint venture of Austria's Borealis AG and Abu Dhabi National Oil Co. in the United Arab Emirates, has invested $5 billion on increased production of its raw materials in Abu Dhabi to keep up with increasing demand, especially in Asia.
Borouge's Shanghai compounding plant has seen a $60 million investment to increase capacity to 80,000 metric tons per year from 50,000 and already accounts for about a third of the capacity from Abu Dhabi.
The company is in final stages of planning its second compounding facility in China and considering future growth.
“We are evaluating how would be the best way to develop our business further to the west in provinces like Sichuan, for example,” Roels said. “Being close to our customers is important for our business model, so if these customers are migrating more toward central China and western China, we will follow.”
The auto market is Borouge's largest customer in China, and with production expected to continue its growth — although at a slightly slower growth rate.
“We have become used to very high, very fast growth of 10 to 15 percent in China,” he said. “Now we're talking about growth of 8 percent or 8.1 percent.”
That kind of expansion is one that almost any other region would envy, he pointed out — plus it is built on a much larger base than existed in China just three or four years ago. So a smaller growth rate still means the same sheer volume of business expansion.
China is already the world's single largest vehicle market, with 18 million sales in 2011. Some forecasters see the potential for annual sales to hit 30 million vehicles by the end of this decade.
Borouge is in a good position to tap into that growth as international automakers put an emphasis on buying from suppliers who can deliver from any region through connections with parent company Borealis. Borouge recently landed its first global car platform contract and will supply the same resin across multiple continents for an upcoming vehicle.
Beyond the car business, though, Roels said the company is positioning itself in Asia for more sales in packaging and in infrastructure improvements as China builds up its electric grid. Borouge resins are used in the insulation for high power transmission lines that carry power from remote wind farms and hydroelectric dams to cities.
Borouge has expanded its China research and development operations in Shanghai — originally established for the auto industry — to develop new uses in cable and plastic pipe.