gasworld took an in-depth look at China’s gas markets in our September issue. But how does China’s success story in electronics, steel and chemicals growth fit into the bigger picture emerging in the North Pacific Rim nations?
East meets West
Following the merger with BOC, the Linde Group has the leading position in the North Pacific Rim region. According to Dr Aldo Belloni, a member of Linde’s Executive Board, the company is the market leader in China and Hong Kong, 2nd placed in Taiwan and 4th in South Korea.
“The Linde Group holds key strategic strengths in Asia: strong market positions and local knowledge in a strong set-up plus long-dating experience, reputation and customer relations,” Belloni says.
Murray Covello, president of Praxair Asia, commented on his expectations for growth in the region. “We foresee that the rate of growth for the industrial gas market will continue at a multiple of 1 to 1.5 of the overall growth rate of industrial production in each country.” Praxair’s interests in the region are located in South Korea (where they supply a range of gases and services, and claim to be the only multinational supplying carbon dioxide), Taiwan (delivering gases and systems for the semiconductors industry), Japan (concentrating on rare gases and helium) and China.
Air Products is strengthening its technical facilities in the region too. To complement its regional technology facilities in Japan, South Korea and Taiwan, it is expanding its China Technology Centre in Shanghai. The upgrade will add a high bay fitted out with 2 high-pressure polyurethane machines, plus 2 spray booths (aqueous and non-aqueous) for spray coating development and a general-purpose lab. Wilbur Mok, president of Air Products Asia, explained the thinking behind the investment as he said, “This latest step in strengthening our technology capabilities will support our fast-growing businesses in China and across the Asia region.”
The low economic growth in Japan during the last 10 years was reflected in slow business in the gas sector. But efficiency gains yielded by mergers and restructuring, coupled with demand both internally and from China to supply steel, shipbuilding and chemicals industries, have led to a resurgence in previously unimpressive gas industry profits. Japan saw gas revenues rise 6% to $6.3bn in 2006, and producers have also successfully increased prices. This growth rate looks set to continue for the next 5 years.
New separation technologies such as vacuum swing adsorption (VSU), hydrogen generation, nitriding treatment, carbon gas cleaning and lightweight LNG containers are growing in popularity in Japan. Gas companies are increasingly looking to high added-value sectors such as LCDs and precision machinery markets for further growth. Electronic gases make up around a fifth of the Japanese gas markets, but volume gains have recently been offset by lower prices in this sector.
Japan boasts around 350 gas companies and more than 1700 distributors, with large end users participating in joint ventures with gas companies to gain supply from purpose-built ASU’s. Indigenous companies Taiyo Nippon Sanso, Air Water and Iwatani hold the lion’s share of the Japanese gas market, with Taiyo Nippon Sanso increasingly making moves into overseas M&A (mergers and acquisitions), acquiring gas businesses in the US and Europe as well as investing elsewhere in Asia. The company aims to make sales of ¥450bn in 2008, rising to an ambitious long-term target of ¥500bn. Air Water’s key markets are chemical, medical and energy and the company has recently invested in the construction of a new research centre.
Linde no longer has any operations in Japan due to one of the conditions imposed by the European Commission at the time of the merger, that BOC divest its 45% holding in Japan Air Gases (JAG). Air Liquide now wholly owns this company and celebrated 100 years of operations in Japan in October. Its business in Japan has been undertaken in various guises, including as Air Liquide Japan, which through a merger with a BOC subsidiary Osaka Sanso Kogyo, became JAG. Sales in Japan now account for over half the company’s turnover in the Asia Pacific, its market share of 20% makes it the 3rd ranked industrial and medical gas business in Japan.
An impressive economic story of growth from handicrafts in the 1960’s to the world’s leading hub for cutting edge electronics today, Taiwan’s gas industry is shooting forward at an impressive rate, with $812m gas revenues in 2006 representing a 16% increase on the previous year.
Air Products has the largest presence of any gas major in Taiwan, followed by BOC, which is present via its indigenous joint venture partner Lien Hwa Industrial Corporation in the BOC Lienhwa Industrial Gases (BOCLH). BOCLH operates 5 ASU’s around the island and also has a role as a regional knowledge base for Linde’s expansions in the region following the recent Linde-BOC tie up. Air Liquide and Praxair are also present, as are regional players Iwatani and Taiyo Nippon Sanso.
As well as end users in electronics and IT, other key markets in Taiwan include bulk customers in the steel, glass, food petrochemical, and other heavy industries. The remainder comes from packaged gas, cylinder gas and healthcare products. The strength of small-to-medium sized industry in Taiwan means that demand for packaged gas remains strong in comparison with other countries in the region, says honorary chairman of Taiwan’s BOC Lienhwa, John Miao (see gasworld Interview of the Month on page 28).
South Korea is a major player in the North Pacific region in the electronics, chemicals and steel sectors. Electronics activities, in particular related to wafer fabrication and LCD & plasma TV screens, are a vital ingredient in current growth. South Korea’s gas industry reeled in $800m in revenues in 2006, representing an impressive growth rate of 16%.
The country is not alone in the region as a major consumer of specialty gases such as NF3 for LCD screens, which has seen a recent jump in demand fuelled by next year’s Beijing Olympics. However, with several new plants scheduled for completion, CEO and vice chairman of Daesung Industrial Gases, Moo Ryong Son warns against the hazards of market oversupply, “In Korea, unlike in Japan and Taiwan, numerous suppliers are congesting the market with the number of consumers limited to a few companies…”
The result? The price of NF3 has dropped two thirds compared to last year, hitting profits and causing a knock-on effect of lower prices for LCD products.
International gas majors have entered the market through the acquisition door. Air Products is the market leader taking around half of the non-captive market, and signed a long-term contract this September to supply the world’s leading memory chip manufacturer with nitrogen. The plant at Hynix Semiconductor Inc. is expected to come on-stream in mid-2008.
Paul Huck, Air Products’ chief financial officer, noted in an interview with Reuters, “Our electronics and performance materials business would be a prime area, where we are looking for acquisitions to broaden the product (offering) and markets, which we serve.”
Air Products is currently constructing its nitrogen trifluoride plant in Ulsan, South Korea to cater for semiconductor and LCD markets, expected on-stream in March or April 2008.
Air Liquide, Linde’s BOC and Praxair all have a significant presence. Taiyo Nippon Sanso’s Asian investments include its construction of the largest special gas filling station in Asia in Korea. The company recently joined forces with Korean chemical giant SKC to establish a joint venture company producing air-separated gases in Ulsan. The proposed ASU is set to produce nitrogen and argon by the end of 2008, supplying customers in Ulsan, Busan and the Gyeongnum areas, as well as SKC itself.
South Korea’s first hydrogen fuelling station opened in August 2006 at the Korea Institute of Energy Research in Daejeon. The latest station was opened in the capital Seoul in September, as refiner GS Caltex held a ceremony for the completion of its hydrogen fuel station – where hydrogen is produced, stored and used for fuel cell motor vehicles.
There are reports that the country plans to put a dozen more hydrogen stations into operation on a trial basis until the end of 2007.
Still very much a stepping stone into China, Hong Kong gas revenues have stuck at $35m during 2006. Linde purchased Air Liquide’s interests in Hong Kong Oxygen & Acetylene as part of an Asian business swap, to gain European Commission approval for Linde’s deal with BOC.
Air Liquide moved into the region in July to takeover Celki International, a Hong Kong industrial and medical gases manufacturer and developer, to create a base for expansion in China’s newly emerging homecare markets.
The $2.3bn Chinese gas market certainly dwarfs other regional markets, swelling by 12% during 2006 alone.
Messer conducts its business through 15 separate companies in the region, some of which are wholly owned and some joint ventures. The newest of these is Zhangjiagang Messer (ZhMG), located on the Yangtze river, 150km northwest of Shanghai. ZhMG started operations in April 2007 with an air separation unit and hydrogen-producing facilities (see photograph).
Helmut Schneider, CEO of Messer’s Chinese operations, explained the company’s growth strategy, “Messer in China is looking to grow in its core regions and alongside its key customers. Most of these customers tend to be Chinese companies, but there are an increasing number of international companies investing.” Schneider went on to say, “Our key market is steel, where we have quite a few onsite plants. This is bound to remain a large part of our business. The other major industries we serve are chemicals, electronics, glass-making and food.” Messer is not looking to participate in areas such as gasification due to the large scale of investment required.
Schneider identified the steel and chemical industries as the key markets in China at the moment, but sees potential in 3 other areas in particular: electronics, water treatment and gasification.
It is gasification that Praxair’s Murray Covello thinks is the key opportunity in today’s market. Gasification involves pyrolysis of carbon compounds, such as coal, to create syn gas (carbon monoxide and hydrogen). He commented, “The demand for industrial feedstocks and more efficient energy generation combined with the supply of low-grade carbon sources is driving this process.” A recent example of this trend is the contract that Praxair has signed with Jiangsu SOPO to supply industrial gases to their acetic acid plant. The air separation unit (ASU) will have a capacity of 3000 tpd of oxygen, making it the largest single-train ASU built in Asia when it comes on-stream in 2009. “Beyond that, customers are now talking about the need for 10-20,000 tonnes of O2 per day,” Covello told gasworld.
The electronics industry is growing as firms move into China and the indigenous industry expands. An agreement between Praxair and Semiconductor Manufacturing International Corporation signed earlier this year exemplifies the growth of local manufacturers. Praxair will upgrade the existing plant to supply ultra-high-purity N2, O2, Ar, H2 and He to a new 300mm wafer production facility and will also build and operate the purification and gas-monitoring systems built on the site in Shanghai.
Water treatment will become more of a priority, Covello suggests, as China becomes wealthier and the pressure for environmental improvement increases. This will present opportunities in both drinking water purification and wastewater treatment.
To date, Praxair’s geographical presence in China has matched the growth in the economy, remaining predominantly along the coast up until now, but Murray Covello anticipates it moving westwards as the Chinese Government tries to stimulate economic growth more widely. Japan’s Taiyo Nippon Sanso is involved in plans to develop China’s North east coastal economic belt in Liaoning Province for instance, where it has signed an agreement to supply industrial gases to shipbuilding and petrochemical industries, at the Dalian Changxing Island Harbor Industrial Zone.
With the region as a whole growing by 8%, there’s certainly money to be made around the North Pacific. Riding the waves of unpredictable demand in the electronics industry and cashing in on emerging markets in China, as well as other high-tech avenues in established markets, will no doubt mean that all eyes will be to the East for some time yet.