The Chinese industrial gases market reached $1.7bn in 2005, an increase of 20 per cent over 2004. According to Spiritus Consulting\\$quot;s latest analysis of China gas demand has been particularly high in the steel and petrochemical sectors as well as in the fast growing electronics sector. The consultancy forecasts that the market will grow at 19 per cent a year for the next five years to reach $4bn by 2010.
However, valuing the Chinese market is very difficult due to four main factors: the number of joint ventures that exist between international and local Chinese gas companies and between international gas companies and end-users, the problem of local captive gas producers supplying surplus gases to the merchant market and the level of wholesaling that takes place in general.
John Raquet of Spiritus defines the industrial gas market as the supply of gas and services to the endusers. He says that this excludes any gas produced by
consumers for their own use, captive production. "We have recently analysed the last six years of demand in China and conclude that the true gas business in China has grown from $865m in 1999 to $1.7bn in 2005. This represents an average annual growth of 12.5 per cent.
"We have studied the size of the gases business and compared the business to the Gross Domestic Product (GDP), IPI (Industrial Production Index) and several sub-sectors that make up the IP Index. It is clear that the Chinese business has been over-valued in the past but re-assessment of those levels does not take away the fact that the market is a high growth market. In terms of gas intensity, we believe that it is currently standing at 1.0 (factor representing 1/1000th of GDP)."
International gas companies have been present in China for a number of years, but factors such as high industrial growth over the past 15 years, increased financial freedom and the opportunity to have 100 per cent controlled ventures has boosted the activities of such companies.
The Chinese Government\\$quot;s attempts to slow down the economy in general, and curb over-investment in the booming steel sector in particular, do not seem to
have impacted the growth of the industrial gas business in the country. The last 12 months have seen continued major investment activity in China by the industrial gas majors.
Size of market and share
As discussed, the Chinese market is valued at around $1.7bn. Figure 1 shows the perceived market share of the major players in China.
The chart also shows that the major international gas companies now account for 41 per cent of the total retail market in China and that BOC appears to have the largest market share, followed closely by Air Liquide, Praxair, Air Products and Messer. Other majors with a presence include Taiyo Nippon Sanso, Iwatani and Linde Gas.
What is noticeable is that the domestic producers and distributors account for 59 per cent of the value, which is not surprising when looking at the business
mix (supply mode) within China as shown in Figure 2. The figure also shows that the merchant gases business accounts for 81 per cent of the total retail market.
Major gas companies are focusing on the on-site business, bulk gases to a lesser degree and special gases. At present, the large number of players in the packaged gases business (cylinders) and the relatively fragmented state of standards actually applied to this supply mode does not attract the international gas companies.
Figure 3 provides the estimated breakdown of the Chinese industrial gases business by industry segment, showing that manufacturing is certainly the largest consuming sector for industrial gases supplied by gas companies. Over 80 per cent of the installed capacity to produce oxygen in China is still captively owned. In particular steel is the biggest consuming sector for gases overall and is increasing its outsourcing to the major industrial gas companies.
The major international industrial gas companies have continued with their large investment programme in the on-site business during 2005 and 2006. It is believed the next three years will see the trend for end-users to outsource their industrial gas requirements continue.
To keep pace with demand, the majors have committed further capital expenditure in China. The list below lists some of the major investments announced by the majors since over the last year, some of which are likely to be completed within the next 18 months.
Raquet, however, expects a signifi cant change in the ownership in China of gas assets following the recent offer by Linde to acquire BOC. He continued: "BOC has the largest presence in China but this is through two vehicles: directly as BOC Group and its associated joint ventures, and through its joint venture with Air Liquide in the south of the country in Guandong Province.
"It is clear that Linde will acquire the BOC business but Linde has been asked by the European Commission to unravel the BOC Air Liquide joint venture Hong Kong Oxygen. There is only speculation who will end up with the 100 per cent HKO business but it will mean that Linde becomes the largest player in China \\$quot;“ with
or without the HKO business."
BOC (pre Linde acquisition)
BOC announced in May this year that it had formed a joint venture with Shanghai Petrochemical (SPC) to supply the company and the local merchant market with gases. The business will invest $80m in acquiring four ASUs from SPC and in building a new, larger unit which will produce 1400tpd of oxygen. In total there will be over 5000tpd of products sold to SPC and third party consumers in the area.
BOC also announced that it would build Shanghai\\$quot;s first hydrogen filling station. The company, in combination with Tongli University, will build a filling station that will be completed at the end of this year and will have the capability to fill three buses and 20 cars simultaneously when operational. Shell is also involved in funding the project.
In June, BOC officially opened its largest commercial helium transfill facility in China, located in Shuzhou. According to BOC, the helium market was growing at 16 per cent a year and this facility was built to meet the ongoing growth in China and particularly in the Shanghai area.
Air Products announced in December that it had commissioned a new ASU on Tangshan, Hebei Province to supply Gui Feng and Fufeng Steelworks. The plant was also built with a 300tpd liquefi er to supply the local merchant market.
In July the company started up a new ASU project to supply Jushi Group in Tongxiang. Jushi is a fibreglass manufacturer and the tonnage oxygen will be used
in their process. A 300tpd liquefier was also piggybacked on the unit to supply the merchant gases market.
Praxair China announced another investment in the Guandong Province with an agreement to supply Lianzhong Stainless Steel with a new ASU that will produce over 2,000tpd of oxygen. This will be on top of the acquisition of the current ASU on-site, which is approximately 900tpd of capacity. This will be Praxair\\$quot;s
sixth operational ASU in the province when it is commissioned later this year.
In June Praxair China announced that it had been awarded a contract to supply Jinlong Copper of Anhui Province. Praxair will build three non-cryogenic VSA plants, which will have a total capacity of 500tpd of oxygen and are due to be operational in 2007.
Air Liquide announced in January that it would invest $25m in a new ASU to supply customers in the Hangzhou area. The plant will have a total capacity to produce 420tpd of liquid products (merchant plant).
The company also announced in March that it had signed a new long-term agreement with Tianjin LG Bohai to supply oxygen to the integrated EDC/PVC facility located at the Lingang Park. This investment amounts to $25m.
In July, Air Liquide announced a new jv with Tianjin Soda (Air Liquide 55%) to supply two ASUs, each with a capacity to produce 2,000tpd of oxygen. The plants
are due to be commissioned in 2008 and will supply Tianjin Soda and neighbouring customers. The application is for coal gasification.
Linde announced in April that it had reached an agreement with its joint venture partner Shanghai Coking & Chemical to build a new HYCO plant to supply Bayer Polyurethane. This is the second such contract that the joint venture has signed with Bayer. The first HYCO unit starts up later this year and is likely to be followed by a second unit to be completed in 2008.
Linde Gas has also completed its liquid helium transfill facility in Shenzen, next to the Siemans MRI factory. The company is now awaiting the full start-up
of its liquid helium facility in Algeria and the start-up of the Qatar helium plant to really ramp up supplies to China through Shenzen.
The company also officially opened a dedicated electronics and special gases facility in Suzhou in June. The facility will have clean room technology to
supply ultra high purity gases to the Chinese market.
Messer has retained its Chinese businesses following the divestments made in the US, Germany and the UK during 2004. The company has continued to expand its activities in China. In January, the company formed a joint venture with Hangzhou HangYang, the Chinese ASU manufacturer (Frankfurt-based Cryogenic Engineering) and in April Messer successfully commissioned its first joint project in the Serbian steel sector.