CHONGQING, CHINA (June 4, 1:45 p.m. ET) — China's plastic pipe industry expects, for the most part, to shrug off the effects of the cooling in the country's real estate sector and grow from just under 10 million metric tons production last year to 13.2 million metric tons by 2015.
That's because the other major drivers for sales of pipe — China's urbanization and related spending on infrastructure like water and sewer systems — continue and in some cases are accelerating, pushed by spending in the country's 12th Five Year plan, industry officials said at a recent conference in China.
But while the big picture may look good, the perspective for individual companies can be quite different.
The industry continues to be plagued with excess capacity, which seems likely to intensify price competition and could lead to additional consolidation, executives said at the annual meeting of the China Plastic Piping Association, held May 24-25 in Chongqing.
The industry last year had an official production capacity of more than 15 million metric tons, 50 percent more than demand, with significant additional capacity coming on line. CPPA said China's pipe industry is the largest in the world, and some industry executives said actual capacity could be higher.
Chen Li Hui, a director of the Beijing-based CPPA, said in a speech at the conference that the fierce competition is leading some large firms to expand and causing economic problems for some smaller players.
Chen's firm, Fujian Aton Advanced Materials Technology Co. Ltd., is one of those expanding. It's building three new pipe extrusion plants in China's west and southwest this year that will expand its capacity by 25 percent, in a bid to capture additional growth there.
In a presentation designed to detail the state of the industry, Chen said that Chinese companies are closing the gap with Western firms with better home-grown technology, and there is additional interest from foreign firms in investing in China's pipe market.
But he also said that problems remain with low-quality and fake products, and that industry should work to address that.
Wang Zhan Jie, secretary general of the CPPA, said in an interview at the Chongqing conference that the quality issues are probably the biggest challenge facing the industry.
Most products have good qualify but poor products from some companies are leaving customers confused about plastic piping, Wang said.
An official from the China Urban Natural Gas Association, for example, used a speech to the roughly 400 conference attendees to warn that the use of low-quality materials in natural gas plastic piping is a significant problem.
As well, some customers and the media don't understand the industry and think, for example, that all PVC pipe is toxic, Wang said.
CPPA officials said they work regularly with associations in related industries, including natural gas, to educate the industry about quality standards.
Any quality concerns, however, don't seem to have put much of a dent in industry growth, judging by CPPA figures. China's plastic pipe production grew 20 percent in 2011, although CPPA projects the growth rate will slow to less than 10 percent a year by 2014.
CPPA figures show that China's plastic pipe industry nearly tripled in capacity during the 11th Five Year plan, going from 2.9 million metric tons of production in 2006 to 8.4 million tons in 2010.
The continued demand is coming in part from migration from China's countryside to its cities, with 15 million to 20 million people a year moving to cities, according to government figures presented at the conference.
That is pushing the percentage of China's residents who live in cities from 47.5 percent in 2010 to a projected 51.5 percent in 2015.
The country's 12th Five Year Plan, which started last year, is also allocating significantly more government funding to water infrastructure, according to Wang Lan, vice secretary of the China City and Town Water and Wastewater Supply Association.
She told the attendees that there will be a big demand for plastic pipe as the country looks to build more wastewater treatment plants and cover 85 percent of the urban population with treatment plants by 2015.
Wang also told the industry that more capacity for plastic pipe production is needed in China's Southwest region.
Demand for higher quality pipe in the country seems to be providing some foreign companies with increased business, although foreign firms remain a relatively small part of China's plastic pipe market.
Dutch pipe maker Wavin NV, Europe's largest pipe producer, cannot keep up with demand at its small factory in Foshan, Guangdong province, where it makes up-market piping and related products mostly for the new buildings, said Julia He, Beijing-based China business development manager for the company.
“Even though the property market is slowing down, our business is going up,” said He. “Our manufacturing, our extruders and extrusion tools, cannot satisfy the demand of the sales people. It's very busy.”
As well, Battenfeld-Cincinnati (Foshan) Extrusion Systems Ltd. said demands for better quality among local customers is sending sales up.
A group of five gas utilities in Southern China, for example, have teamed up to develop a rigorous inspection and certification program for their plastic pipe suppliers, requiring them to use world-class equipment and monitoring their plastic material closely, said Mark Feng, general manager of the factory, which is a unit of Battenfeld-Cincinnati Austria GmbH.
That's creating more demand for the kind of equipment Battenfeld-Cincinnati makes, he said: “We only need to concentrate on the higher-end of the market.”