Progress has been plentiful in the past year but is China ready to become the third largest gases market?

Whether in the public eye for the right or wrong reasons, China in 2008 is a country and economy that’s thriving.
The Chinese gas market is growing at a healthy rate and has been for sometime, with industry forecasts that this trend will continue for many years to come yet.

Back in September last year, gasworld posed the question whether China was about to become the third largest industrial gases market. It also questioned whether the growth was sustainable. Twelve months later and the answer appears equally optimistic.

Having reached a revenues value of around $2.3bn in 2006 and exhibited growth of 12% over 2005, the Chinese industrial gas market continued to grow in 2007 at a rate of around 10% to total gas revenues of just over $2.5bn.
Such a market value ensures China maintains its dominant position in the wider North Pacific Rim market, second only to Japan (60%) with a share of 23.3%.

Accelerating ahead
It had previously been suggested that China could overtake Germany as the third largest gases market in the world. Although progression has been strong, this still isn’t quite the case just yet.

Stable revenue rises in the German gases market have meant that this has remained ahead of China at a value of approx. $3.6bn for 2007. If above average growth rates continue in the People’s Republic however, we may soon be looking at China surging past Germany and into the top three players.

Figures from Spiritus Consulting had suggested a value of around the $2.5bn mark for 2007, but recently updated data anticipates this to be otherwise. Spiritus now sees the country’s gases market racing on towards $2.77bn and a growth rate of just over 20% for last year alone.

This would support the notion that China is rapidly emerging as a leading industrial gas power on the global stage, as well as in the regional North Pacific region.
So to the next question – is the growth sustainable? For the foreseeable future at least, it would appear so.

Driving development
The economic outlook after the recent devastating earthquake in the country is uncertain and clouded by the varying suggestions of analysts the world over. Some sources expect steep inflation following the earthquake, while others forecast a slowing economy, and some reports suggest that the pace of economic growth in China is unlikely to change at all.

As with Taiwan and the North Pacific Rim as a whole, China is likely to benefit from the boom in electronics over the next five years and beyond, while petrochemicals is also another prospering industry in the country.

Statistics suggest that manufacturing is still the largest growth driver, representing 43% of the end-user market breakdown, followed by metallurgy at 19% and chemicals, with a 10% share.

This would appear to be supported by information from other sources too, as the nascent chemicals industry is cited as a key factor for investment in China and steel seems to provide increased demand for industrial gases.

China is regarded in some quarters as the world’s most important and fastest growing polymers market, with Saudi Basic Industries Corporation (SABIC) for example, keen to invest and declaring a new Centre of Excellence at its China Technology Centre in Shanghai.

Reaffirming its commitment to the region, SABIC added significantly increased production capability to its Pudong, Shanghai facility and set out its bold aim to become one of the leading petrochemical companies over the next decade. This follows on from the signing of a Heads of Agreement with SINOPEC for the formation of a 50/50 joint venture to establish a 1 million tpy ethylene derivatives complex in Tianjin.

“Our expansions in China are a sign of the confidence that SABIC places in the economic opportunities in China and supports SABIC’s strategy of being among the world’s top three petrochemical companies by 2020,” commented SABIC Vice President of Polymers, Abdulsalam Al-Mazro.

Air Liquide is to benefit from the demand arising from petrochemicals too, revealing the start-up of a long term supply of industrial gases to Sinopec Tianjin Petroleum and Chemicals Corporation (TPCC) at an eventual investment of around €45m.

Building on its 50/50 joint venture company established in Tianjin with TPCC earlier this year (Air Liquide TPCC), Air Liquide is to construct a new 1,000 tpd ASU for the new TPCC refinery and cracker.

In April 2007, Air Liquide commissioned another new unit in Tianjin located in Tianjin Binhai New Development District to supply LG Bohai Chemical Co. Ltd, while its joint venture with Tianjin Soda (Air Liquide Yongli) is currently investing in two new ASU’s of 2,000 tpd each to supply oxygen and nitrogen to Tianjin Soda.

The units will start at the beginning of 2009, with a total investment in Tianjin estimated to have already reached more than €200m. The steel industry too, affords seemingly sustainable growth as Praxair China could testify.

The company announced a long term supply agreement with Nanjing-based Meishan Iron & Steel Co. Ltd for the construction of two new air separation plants to come on-stream in the fourth quarter of 2009 and third quarter of 2010. The new plants will supply oxygen, nitrogen and argon to meet growing demand as Meishan Steel increases production capacity.

A contract has been inked with Zhenshi Group Eastern Special Steel Co. Ltd too, agreed for the supply of oxygen, nitrogen and argon for its 500,000 tonne stainless steel project facility in northern China. As well as building an ASU in Jiaxing with a capacity of 400 tpd (scheduled for start-up in mid 2009), Praxair will produce by-product liquids to meet the growing demand of neighbouring markets.

Enveloping electronics
Perhaps surprising is the level of drive provided from the electronics sector, estimated at just 8% by Spiritus.
Such a percentage is likely to rise drastically in the coming years as China, like Taiwan and the North Pacific market as a whole, benefits from the electronics boom over the next five year period.

Global forecasts from Spiritus suggest the electronics industry will provide a robust growth driver during the period of 2006-2011, demonstrating a CAGR of 10.5% as an end-use segment for the industrial gases business.

In the North Pacific, this is probably where the boom will be felt the greatest of all, and China should certainly be a beneficiary. It’s perhaps not unrealistic to expect this to play a significant role in China’s surface to the forefront of the global gas market.

Gases cleaning up in China
Working towards sustainability and the fight against pollution appears to be something of a trend in China at present, as water treatment services afford increasing industrial gas demand.

Both Messer and Praxair China have capitalised on intensifying requirements in this area and feel this could become a key new growth driver in future.

Praxair announced in March this year that it would be the exclusive supplier of oxygen to three wastewater treatment plants that will supply the Beijing Games. The supply contract signed between Beijing Praxair Inc. and the Beijing Drainage Group Co. Ltd will see oxygen delivered to plants located in the Qinghe, Beixiaohe, and Jiuxianqiao sections of the city for treatment processes.

Just one month later and the company revealed further agreements with Beijing No.3 Water Works and Tiancunshan Water Works, affiliated to the Beijing Waterworks Group Co. Ltd, for oxygen supply to their plants.

Since August of last year, the Changsha waterworks in China’s southern province of Hunan has been using oxygen supplied by Messer to treat drinking water, with capacity of the waterworks to be doubled and eventually trebled in coming years.

The oxygen is used in an ozone generator for the production of ozone, which efficiently removes organic and inorganic substances, such as iron and manganese. As a strong oxidant and antiseptic, the gas is also capable of eliminating the odours and water discolouration caused by organic substances.

In addition, ozone promotes flocculation in water, thus enhancing the degradability of the organic contaminants, and even in small doses helps to accelerate sterilisation. At the same time, ozone does not produce any waste products, as is the case when disinfecting with halogens (such as chlorine).

Key Players
With the Chinese industrial gas market rising at such a rapid pace, it’s no surprise that so many of the major gas companies are keen to invest and take a slice of the action.

Most are merely building on an already well established platform in both the country and the wider region.
Spiritus figures denote that Linde, Praxair, Air Products and Air Liquide lead the way in the Chinese market, with shares ranging closely between 8% and 6% of the region’s revenues respectively.

Distributors are believed to account for an immense 43% of the market and revenues of approximately $1.2bn but of the gas majors, Linde boast revenues of around $233m and Praxair appear to run an incredibly tight second place with $232m.

With a 7% share, Air Products is believed to operate revenues in the region of around $190m while, Air Liquide trail marginally behind with just under $167m.

In a market so full of promise it seems to be the independent producers and distributors that lead the way and for the time being at least, leave the gas majors playing catch-up. Independent producers account for a 21% share of the Chinese market at revenues of around the $573m mark, while as mentioned earlier, distributors make up 43% of the market and comprise revenues of $1.2bn.

So the questions of twelve months ago still remained and despite a growth rate of around 20% in 2007, the answer remains the same too. If such growth persists and the optimism for region is as strong as expected, there’s no doubt China will soon emerge as the third largest industrial gases power and next year alone, should break through the $3bn revenues barrier.

Traditional growth drivers are still prevalent and as is abundantly clear, the electronics sector is likely to generate huge growth in both China and the wider North Pacific Rim region. Other aspects such as increasing environmental applications, think wastewater treatment, appear set to spur industrial gas growth and the strident steel industry offers much opportunity.

We may find that the same questions persist in another year’s time but soon enough it seems we’ll see the anticipated answers coming forward.