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 22 billion pounds of production last year to 29 billion pounds 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. For one, the plastic pipe 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 Plastics Piping Association, held May 24-25 in Chongqing.
The plastics pipe industry last year had an official production capacity of more than 33 billion pounds, 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. The company is 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 market growth there.
In a presentation designed to detail the state of the industry, Chen said Chinese companies are closing the gap with Western firms with better home-grown technology, though foreign firms are also showing more interest in investing in China's pipe market.
But problems remain with low-quality and fake products, he said, and the industry should work to address that.
Wang Zhan Jie, CPPA secretary general, said in an interview that quality issues are probably the biggest challenge facing the pipe industry.
Most Chinese products have good quality, Wang said, but poor products from some companies are leaving customers confused about plastic piping.
In his talk, an official from the China Urban Natural Gas Association warned the roughly 400 conference attendees that the use of low-quality materials in natural gas plastic piping is a significant problem. Complicating the issue, Wang said, is that some customers and media organizations, for lack of knowledge, think all PVC pipe is toxic.
CPPA officials said they work regularly with associations in related industries, including natural gas, to educate them 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, though CPPA projects that rate will slow to less than 10 percent a year by 2014.
According to government data, continued demand is coming, in part, from the migration of 15 million to 20 million people a year who are moving from China's countryside to its cities. That is pushing the percentage of China's residents who live in cities — 47.5 percent in 2010 to a projected 51.5 percent in 2015.
Plastic pipe demand will increase as the country looks to build more waste-water treatment plants, in an attempt to provide for 85 percent of its urban population by 2015, said Wang Lan, vice secretary of the China City and Town Water and Wastewater Supply Association. The country's latest five-year plan, launched last year, allocates significantly more government funding to water infrastructure, she said.
More production capacity is needed in China's southwest region, Wang added.
Demand for higher-quality pipe in the country seems to be giving some foreign companies more business, even though foreign companies remain a relatively small part of China's plastic pipe market.
Dutch company Wavin NV, Europe's largest pipe producer, cannot keep up with demand at its small factory in Foshan, China, where it manufactures high-end piping and related products mostly for the new buildings, according to Julia He, the Beijing-based China business development manager for Wavin of Zwolle, Netherlands.
“Even though the property market is slowing down, our business is going up,” He said.
“Our manufacturing, our extruders and extrusion tools cannot satisfy the demand of the sales people. It's very busy.”
Also, an official with Battenfeld-Cincinnati (Foshan) Extrusion Systems Ltd. said demands for better quality among local customers is sending that firm's equipment sales up.
A group of five gas utilities in South 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, according to 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,” Feng said.