Renowned for its huge electronics business and as something of a hub of investment, gasworld explores the market dynamics of the North Pacific Rim.

Having previously benefited from the exploration of the Japanese gas market courtesy of the Gas Review’s Izumi Ohe, gasworld looks at the wider net of the North Pacific Rim and reveals a healthy hub for growth.

A recent report from The Freedonia Group had suggested that China would be set to surpass Japan as the world’s second largest market for industrial gas demand, as the developed Japanese market is apparently due to record below average growth in industrial gas.

A predicted compound annual growth rate (CAGR) of 7.4% for the period 2006-2011 by the Spiritus Group, when compared with 7.8% for the period 2001-2006, would appear to affirm a marginal decrease in growth for the region.

However, this is only a very slight difference and the overall outlook appears very promising for the North Pacific Rim, which is believed to account for around 20% of the entire global gases industry.

Revenues of approximately $9.5bn in 2005, expected to have reached $10.3bn in 2006, look set to increase to an estimated $11bn in 2007 and gain by a further $700m in the coming year (2008). This growth rate is expected to see revenues reach an estimated $14.6bn by 2011 according to Spiritus, with only the North American and Western Europe markets above this in the company’s evaluations.

Our Japan analysis documented ‘vigorous investments in electronics’ and this would seem to be a theme prevalent throughout the North Pacific, a theme that could ultimately benefit the region in the long term.

Global figures provided by Spiritus point to the electronics industry as the fastest growing end-use sector over the coming years with a CAGR of 10.5% for the five year period of 2006-2011 above chemicals (10%), refining (10%) and metallurgy (9%) – the next three biggest sectors.

Given that the North Pacific Rim is so renowned for its huge electronics business and hive of activity in this field, such figures could therefore suggest that the region is set to prosper from this growth and the demand it presents.

Is this already the case? Much activity is observed across the North Pacific, as highlighted by a number of announcements since autumn last year.

Korea & South Korea
In September 2007, Praxair revealed operations had began at its new air separation plant in South Korea to supply gases to Samsung Electronics’ production factory. The site has a capacity of 1,300tpd for nitrogen, oxygen and argon and Praxair will also supply helium and hydrogen by pipeline to the advanced thin-film-transistor, liquid crystal display (TFT-LCD) facility in Tangjeong.

When news of the development emerged, K.H. Lee, President of Praxair Korea, confirmed, “Praxair Korea has enjoyed a cooperative relationship with Samsung for over 15 years and supplies the company’s main manufacturing complexes in Gihueng, Hwasung and Tangjeong. We believe our world-class supply capability of on-site, bulk and process gases will only strengthen our future together.”

Production of NF3 is also set to expand in the area, after Air Products announced expansion of production at its plants in Schulfkill County and Korea. Nitrogen trifluoride (NF3) is used as an efficient cleaning agent in the manufacture of semiconductors and other electronics, and the company’s overall capacity is set to increase by 28% to 3,200 tpy by the first half of 2009. In Korea, Air Products will double production at its Ulsan plant to 1,000 tpy.

Hydrogen is also big in South Korea and an industry heading in the right direction.

November last year saw the opening of Air Products’ fifth hydrogen fuelling station in South Korea, located in the country’s capital Seoul.

The company’s stations are in place as part of an attempt by the Korean government to promote hydrogen as an alternative fuel for future transportation. As a result, the Korean market represents a large window of investment for Air Products.

K S Koh, Global Applications and Development Manager for Air Products Korea, commented, “Globally, we have placed more Air Products fuelling equipment in Korea than any country outside of the US.”

While hydrogen is a prominent business in South Korea then, this is also increasingly the case in Taiwan, though for a different purpose.
Caloric has been awarded the contract for a hydrogen generating plant, which uses methanol as feed stock, as part of a new industrial complex producing polysilicon. Following delivery in spring 2009, the 840Nm3/h capacity plant will be erected by the client and put into operation by Caloric’s specialists in the following autumn.

Taiwan has experienced something of a meteoric rise to industrial fame, boasting gas revenues of $812m in the industrial gases industry alone in 2006. This growth looks set to continue as Spiritus forecasts a CAGR of 7.4% for the whole North Pacific region for the period 2006-2011 and suggests that the country accounts for a market share of around 8% of the region’s industrial gas market – revenues of approximately $882m at present.

A prominent player in the globally recognised industry of hi-tech electronics in Taiwan, is BOC Lienhwa (BOCLH). The company has profited from healthy growth in the country and the rise in demand throughout the electronics sector, revealing in its December interview with gasworld magazine a consistently positive trend in progress.

Honorary Chairman John Miao explained, “Over the past 10 years BOCLH’s operation margin CAGR has been over 8% CAGR in comparison with a 4% GDP growth rate in Taiwan.”

“Technology in Taiwan changes and improves daily. In our opinion, photovoltaics will continue strong growth over the next five years. By 2015, hydrogen has a good opportunity to be a major energy gas,” he added.

Solar energy and photovoltaics (PV) are indeed moving into a new phase in Taiwan, heralded by the start-up of the country’s first large scale thin film solar cell manufacturing plant in Taiching. The NexPower plant is expected to have started operations by mid 2008 and BOCLH has been selected to supply a wide range of high purity gases used in the manufacturing process.

Other developments in Taiwan have included two contract awards for Air Liquide to supply ultra pure gases to new fab projects likely to be underway in the coming years. In 2007, Taiwan became the world’s leading manufacturer of flat panel displays and accounted for around 45% of global production, with further growth expected on the island in the next year. Air Liquide is capitalising with supply agreements signed with InnoLux Display Corporation and ChiMei Optoelectronics (CMO).

As mentioned previously, the Japanese market is noted for its vigorous investment in electronics too, with the Japanese industrial gas industry moving steadily along.

A recent report by the Semiconductor Equipment and Materials International (SEMI) industry association, noted that while the semiconductor industry grew just 3% in 2007 to reach $256bn, the global market for semiconductor materials grew by 14% to amass $42bn. Japan continues to dominate this area, with a 22% share of the global semiconductor materials consumption thanks to its wafer fab and packaging base.

Such demand drives the requirement for industrial gases as part of the materials supply.

Another company to prosper from the growing semiconductor and electronics market is Japan’s Showa Denko K.K, as recently as February announcing an 11.6% increase in consolidated operating income for the twelve months of 2007.

The company, involved in the production and supply of specialty gases and high purity ammonia gas, reported consolidated operating income of ¥76.67m and net income of ¥33.06m – up 14.7%.

As well as close involvement with the electronics industries, Showa Denko has a hand in petrochemicals and recently modified its ethylene plant at the Oita Petrochemical Complex to improve its efficiency and cost-competitiveness. Work is due to be completed in 2010.

While a positive picture emerges, a cautious outlook from April forward is also observed, with price revisions underway across the country and the global economic climate taking slight effect. With rises in the price of fuel, materials, non-ferrous metals and coal, it is expected that the profits of gas companies will not continue in the same vein of form in 2009 as previously anticipated for 2008.

As a result, Izumi Ohe notes, companies have been raising gas prices by around 10-15% to combat this and whether this will ultimately affect business results, we are yet to see.

The People’s Republic of China has quite clearly been in the news for all the wrong reasons of late, following the devastating earthquake which rocked the Sichuan Province and the wider country as a result.

The economic outlook after such a natural disaster 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.

As the world’s most important and fastest growing polymers market, Saudi Basic Industries Corporation (SABIC) is keen to invest in the People’s Republic and in April (2008) announced 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.

Jean-Pierre Duprieu, Senior Vice-President in charge of Asia Pacific and member of Air Liquide’s Executive Committee, commented, “We are very pleased to start this new operation in Tianjin with TPCC, which has decided to outsource its industrial gas needs. It opens new possibilities for Air Liquide to cooperate further with Sinopec.”

Perhaps one of the bigger growth drivers for industrial gas in China in recent months has been the Olympic Games in Beijing, a subject of much controversy due to the country’s high pollution problem.

In the past six months Praxair had announced not one but two significant contracts for water treatment works in Beijing, through its Praxair China subsidiary. In March it was revealed that the company would be the exclusive supplier of oxygen to three wastewater treatment plants in the Qinghe, Beixiaohe and Jiuxianqiao areas.

This was followed by the April announcement of another exclusive oxygen supply contract with Beijing No.3 Water Works for the provision of fresh drinking water at the Olympic Games.

Working towards sustainability and the fight against pollution appears to be where the real trend is in China at the moment. More specifically, water treatment seems to be affording more and more demand for the industrial gas business, with both Messer and Praxair heavily involved here.

Since August 2007, the Changsha Waterworks in China’s southern province of Hunan has been using oxygen supplied by Messer to treat drinking water. Currently the waterworks purifies up to 100,000 tonnes of water daily, a consumption of around 1.4 million cubic metres of liquid oxygen annually. This capacity is set to be doubled and eventually trebled over the next five years, however.

Meanwhile, this sector is not something new for Praxair China and not just spurred on by the Olympics. In recent years, the treatment of drinking water has grown into one of the company’s key market sectors and with over 20 locations in the country, the company expects to build on its strong position in this field.

A recent conference in London, UK addressed China’s growing interest in a sustainable future and underlined the potential on offer.

China will need to draw extensively on Western expertise and technology as it enters the next phase of economic development to grow more sustainably, presenting opportunities in both waste management and environmental technology – according to the main outcome of the China-Britain Business Council Conference, titled ‘China & UK: Partners in Sustainability’ and held on 15th April 2008.

Steel in China
Steel is another area of key demand for Praxair China, with the company announcing 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.