The global economic crisis is hitting home and in some cases, hitting hard. A number of project delays are thought to be in the pipeline in China, as the gas companies and their clients feel the pinch.
So what’s going on with the local gas companies as 2009 unfolds?
With the statement from the President Hu Jin Tao that China would endeavor to maintain a GDP growth of 8% and increase government spending to approx. $586.5bn, will the industrial gas sector be relieved?
Under the influence of the global financial situation, the major ASU manufacturers in China are facing harsh market situations. China now has more than 18 ASU manufacturers, large and small, and with the drastic drop in market demand, these equipment manufacturers have to find their way to survive until the economic situation returns to a healthy status.
It is said that there are tens of ASU projects either put on hold or postponed.
Hangyang for example, the largest local ASU manufacturer in China, expressed that none of its orders had been cancelled by clients, though there were several orders for which the clients had asked to postpone the delivery.
The number of orders that Hangyang received in 2008 is a record high and will be enough for the company to enter 2009 with no major problems. Hangyang is now moving its manufacturing site to Lin An Economic Development Zone, expected to be finished by July this year, a bigger site that will enable more space for research & development as well as production. Besides its equipment manufacturing business, Hangyang has now also invested in three major gas companies.
The ASU manufacturing industry in China relies heavily on the steel and metallurgy industry.
Around 70% of total capacity is for the steel industry and in view of the unfavourable business environment, the development of the steel industry is bound to come to a standstill.
At a recent conference it was reported that the total profit of the whole steel industry in 2008 is $12.38bn, 43.7% less than last year. The direct export of steel products has also suffered and in 2008, the quantity of export steel was around 59.23 million tonnes, which was 3.42 million tonnes less than 2007. It is expected that export this year will further decrease to around 30-35 million tonnes.
The direct and indirect export of steel and related products accounts for 23% of the total steel production, which is nearly 600 million tonnes. It has always been said that the steel industry has too much excess capacity, up to 100 million tonnes. Therefore, it would really take some time for the
In view of the declining market conditions, China National Air Separation Plant Corporation (CNASPC) is reportedly anxious that 2009 will be the most difficult year for the company.
CNASPC was once the only official company that arranged and managed the transactions of air separation plants, while it was also the only company that handled the export of air separation plants overseas.
The company’s role has changed to a service company, providing project management, package supply and more. It is also involved in other fields such as environmental protection, but since October last year business has shown a significant downfall.
A similar situation occurred with another large ASU manufacturer, Kaifeng. Acquired by the Yong Mei Group in 2007, Kaifeng returned to its state-owned-enterprise status and parent company Yong Mei Group diversified its business structure, including coal chemistry.
The new production site for air separation equipment and chemical process equipment costs around $416mn and construction will be completed by mid 2010, with sales revenue expected to be boosted to around $1.07bn.
Several projects undertaken by Kaifeng have been put on hold or postponed however, and the company shares the same belief as Hangyang, that if the global economic situation does not improve in the short term, 2010 could be a difficult year too.
So how do the gas companies plan to manage through the cold winter ahead?
The major local ASU manufacturers say that they should first improve their own operations and hold firm together to survive the difficult times, with more resources set to be put into research to provide quality products.
This collective of manufacturers believes that they should look for an orderly market competition instead of carrying on with the price war among themselves - the concern is that the fight among themselves could be paving the way for overseas companies to take advantage.
Therefore, it is thought that they want to explore how they can all work together, although it’s expected that there will definitely be some casualties along the way.
In addition, further cooperation with the companies manufacturing the accessories is cited, to develop better products and reduce reliance on imported products.