Last month\\$quot;s edition of gasworld (issue 17) provided a detailed breakdown of the Chinese industrial gases market, which was valued at $1.7 Bn in 2005 and is forecast to grow at 18 per cent per annum over the next five years. There is no doubt that electronics, steel and chemicals are driving demand for gases in China but what is happening in the three other major countries that make up the region?
Japan \\$quot;“ changing supply structure
For over a decade, the industrial gases business in Japan has been relatively stagnant, reflecting the low growth of the economy. The country has some 350 gas companies and over 1700 gas distributors. There were some international major players present such as Air Liquide and BOC but others like Air Products, Praxair and Linde had only established technology and specialised relationships with gas companies operating in the market and never a significant presence in the largest market outside of the United States.
A complex supply structure exists right across the supply channel in Japan. Large gas end-users such as Nippon Steel and Mitsubishi actively participate in joint ventures with gas companies to build air separation plants to supply their needs. Alongside this there is a multi-layered structure for distributing cylinders through over 1700 distributors, some of which are have a turnover less than $1 million.
The profitability of companies operating in this market was very much lower than other regions in the world. Major international companies such as Air Liquide and BOC experienced this. Over the past three to four years there have been some significant changes in the supply structure in Japan. Companies have looked at re-structuring, merging and acquiring in order to improve profitability and to achieve some revenue growth in a relatively dormant economy.
BOC and Air Liquide were two such companies to realise the benefits of merging, forming Japan Gases (JAG) in 2003. JAG\\$quot;s performance is much stronger now compared to three years ago. The largest player in the Japanese market, Nippon Sanso, also saw the light and merged with another important player, Taiyo Toyo, completed in late 2004.
Since these \\$quot;˜big name\\$quot; activities, several more merger consolidations have been taking place in the Japanese gases business. The structure is changing, to the benefit of the industry and ultimately to the end-user as well.
So what is happening with the Japanese industrial gases market? Spiritus Consulting valued the Japanese market at $5.8 Bn in 2005, an increase of three per cent over 2004. Although this was a low growth rate when compared with the global rate of nine per cent, it was good for Japan.
The major Tier 1 gas companies (including Taiyo Nippon Sanso) account for only 41 per cent of the market. Electronics is an important sector for Japan but the country still has a very high manufacturing component even though there has been some migration of such manufacturing to China. Japan continues to be a major steel producer and gas demand in this sector continues to grow. Spiritus forecasts that the Japanese gas business will grow at six per cent over the next five years \\$quot;“ double that of the past five years. The main drivers to growth will be gas demand increasing in core sectors such as steel, chemicals and electronics but also a high degree of restructuring that will lead to captive production moving to on-sites.
South Korea - strong growth in all sectors
South Korea is the third largest market after Japan and China and has very important industry sectors in electronics, steel manufacturing and chemicals. Electronics accounts for almost 45 per cent of the total value of the Korean market, which reached $715m in 2005. The Korean gases business grew by nine per cent in 2005. This was related to the increase in electronics activity, especially in LCD and plasma TV screens and the basic fab manufacturing business.
Korea does have an important steel sector but much of the major capacity - linked to Posteel - is captive and is not included in the market data. The major international gas companies have penetrated the Korean gases market through acquisitions over the past decade - Air Products and Korean Industrial Gases Co., for example - to account for 75 per cent of the total market. Certainly Air Products is number one in the market, followed by BOC and then Praxair. Air Liquide has a direct presence as well as a stake in Daesung Gases. In addition, we understand that there are over a hundred independent distributors of gas operating in Korea.
Electronics will be leading the growth in gases over the next five years. Spiritus expects Korea to maintain a growth of 13 per cent per annum. It will be interesting to see if Posteel decide to maintain ownership of their industrial gas production facilities as the world of steel will need to look at efficiency if there is a correction in demand at any stage in the next five years.
Taiwan - business as usual
Taiwan has had one of the fastest growing gas markets in recent years and 2005 was no different. Taiwan\\$quot;s gas business grew by 12 per cent in 2005 to reach almost $700m.
The Taiwanese market is more fragmented than that of South Korea, with the major gas companies accounting for 56 per cent of the overall market. A major player not included in this is BOC LienHwa which is only 40 per cent owned by BOC. The LienHwa Group also has a major distributorship separate to the joint venture. Air Liquide also has a presence in Taiwan, namely Air Liquide Far East Co.
The number one player in Taiwan is Air Products, BOC LienHwa is number two and Air Liquide is third. Praxair has an important business in Taiwan, albeit smaller than its peer group. The company has particularly focused on the electronics industry. Iwatani and Taiyo Nippon Sanso also have a small presence in the market.
Interestingly, the future growth in Taiwan is not expected to be as high as that seen in South Korea. Spiritus forecasts that growth will be around eight per cent per annum over the next five years, driven by electronics.