Innovations Help Chemical Makers Improve Growing Potential

With overheated construction all over the country, China's GDP
continued its fast growth in the first half. After suffering an
explosion at a Jilin aniline facility, another explosion at
Cangzhou TDI and a big outbreak of water pollution at Wuxi, the
chemical raw materials and chemical manufacturing sectors are
getting strict supervision from the central government.
Nevertheless the industry sustained a growth rate as high as an
annualized 30% in the first five months this year (21.1% for the
first seven months), according to the National Bureau of
Statistics. Cumulative profits mounted up to RMB61.7 billion,
an increase of 63%. The sector does not include crude oil and
natural gas exploration, crude oil processing, chemical fibers,
plastic preparations and rubber preparations. The price
increase of crude oil had no further impact on chemical industry
costs, because slack demand has now become the main economic
factor. Statistics show a considerable growth rate of fixed
assets in the chemical industry in the first five months - around
20% annualized. The newly added production capacity will
continue to affect supply. Expanded capacity and slack demand
brought a decreasing price of chemicals in the short term, while
the reduction of export rebates narrowed the marketing channel
- two big headaches worries for those chemical makers who have
neither technical advantages nor low costs. Otherwise,
supported by firm costs and brisk demand in the long term, the
price of chemicals seems to have no opportunity to drop again;
in particular, the price increase that began with foods is
spreading towards other economic sectors.
   Viewing the new data for January-July, the total investment
of fixed assets in China was RMB5669.8 billion, up 26.6% - widely
agreed to be excessive, with double digit growth of facilities
for the production of many major chemicals. Fixed assets for
other industrial products including cars, sugar, steel,
aluminum, engines, refrigerator, air conditioners, computers,
etc. grew over 20%. Analysts project that the central government
will press new policies to control overheated investment on the
basis of the new data. On August 17th, PBC withdrew RMB100
billion of currency from circulation in order to reduce spending.
PBC announced on August 22nd to increase the deposit interest
by 0.27% for one year and the loan interest by 0.18% for one year
to 7.02%, this is the fourth increase this year. Can it eliminate
the foam in economy.   
   It has become obvious that China must shift from relying on
high energy consumption and high pollution and begin relying
much more heavily on innovation. Innovation by chemical makers
themselves is the only way to actualize an
energy/resource-saving type mode and increase the competitive
edge of the whole chemical industry.
   One analyst categorized innovation into four types: advanced
materials, new technologies, new energies and new modes. In the
new (advanced) chemical materials manufacturing segment, Yantai
Wanhua which owns patents for MDI production technology,
BlueStar Group and Zhejiang Xinan which focus on organosilicon
business, and Xinjiang Tianfu Thermoeletric Company which leads
in silicon carbide are all enjoying high margins. As for new
technologies, the coal gasification technology of Shell helped
many local companies cut costs in ammonia production. Developing
new energies moved to the leading position when it became a must.
The importance of new ways of doing business, including
creativity in marketing, services and management, is also
recognized by local chemical makers.


Zhong Weike
August 22nd, 2007