When we profiled the North Pacific industrial gases business last year, we noted how in 2016 the region had for the first time in history eclipsed the size of the European market to become the second-largest industrial gas market in the world, at a value of almost $18bn.
This had principally been due to the ongoing expansion of the Chinese market and relative strength of the Japanese Yen over the preceding 12 months. These trends have largely continued in the year since, with the Japan gases market stable and solid and China continuing to flourish. Added to which, the South Korean industrial gases market continues to expand in its own right.
The commercial industrial gases market in Japan is estimated to have generated revenues of $5.73bn in 2017. This is slightly up from 2016 (in current dollar terms) by 2.8%.
The Japanese industrial gas sector was dominated by three companies that between them controlled approximately two thirds (66%) of the market. The largest was Taiyo Nippon Sanso (TNSC), with the company commanding a 27% market share in its domestic market. This equated to $1.53bn in revenues for TNSC. They were followed by Air Water (22.9%) and Air Liquide (16.6%). Other companies with notable presences included Iwatani (6.2%) and Showa Denko (3.8%). The remainder of the gas market was made up of independent producers and distributors.
Air Products was involved in the country’s gases business until December 2015, when it divested its minority share of Daido Air Products Electronics, Inc.
The marketplace vies with China as the second or third-largest in the world, after the US. The main supply mode for industrial gas in Japan, in revenue terms, was packaged gas. This delivery method accounted for just over half of commercial revenue in the country (50.1%; $2873m in revenue terms), whilst bulk liquid supply modes accounted for 28.9% ($1.65bn in revenues). There was significant onsite supply infrastructure (16.2% of the market, $931m in revenue terms) for a variety of gases including nitrogen, oxygen, hydrogen and syngas. There is a large captive market in Japan, with potential revenues from this sector accounting for an estimated $3.53bn (if converted to onsite or bulk plants).
The merchant market, for its part, is by supply mode largely bulk-oriented in terms of volume, yet naturally packaged gases attract a higher price and, in the case of Japan, generate more revenue than bulk deliveries, as highlighted in the figures above. Four new facilities were commissioned in Japan in 2017 – two of these were onsite facilities for TNSC in Kurashiki (approx. 4,400 tpd each), replacing an older plant. The other two were merchant carbon dioxide (CO2) facilities for Nippon Etikan – a subsidiary of TNSC. One was based in Kurashiki (283 tpd), the other Kawasaki (250 tpd).
The Chinese industrial gases market was estimated to have generated revenues of just over $9.4bn in 2016, up from around $9.1bn in 2015 – and the market only continues to grow.
All the major industrial gas companies have set up operations in China through the years and the pending merger of Praxair and Linde is thought to have been a point of consternation in the country due to their projected combined position of leadership pre-divestments (22% approx.), but there are hundreds of independent producers and distributors active in China who make up over a third of gas sales – and it is these players in particular that point to current growth.
gasworld reported this autumn that four of China’s prominent industrial gas companies have reflected increasing industrial gas demand in their first-half 2018 results, while major Chinese gas separation plan manufacturers have also reported increased revenues and profits.
Suzhou Jinhong Gas reported total revenue of RMB 503.4m ($74.4m), an increase of 27.6% from the same period in 2017. The company explained the good performance was due to the raise in unit price of the gas products and the ability to negotiate price has improved. Moreover, the gas demands from the various downstream industries have increased.
Hunan Kaimeite Gases Co. Ltd reported total revenue has increased 35.8% to RMB 239.3m ($35.4m), compared with the same period in 2017, while Henan Xinlianxin Shenleng Energy Co. Ltd reported operating income for the first six months of RMB 289.8m ($42.8m), an increase of 358.5% over the same period last year. Operating profit was RMB 18.2m ($2.7m), representing a 201% increase over the same period last year. The company said the operating income has increased significantly because it has developed new businesses of dimethyl ether and oxygen. Profit has also increased substantially as the selling prices of natural gas and liquid products have gone up, among other factors.
Since the price of LNG has increased significantly and remains stable, the market for specialty gas products of the company has also grown, it explained, and the income from the CO2 business has lowered to less than 20% of the overall income – reducing any dependence.
For Xi’an Shaangu Power, a mixed set of results was observed for the first half of 2018. Six of the company’s 10 companies reported net profit while the others were in red. The overall net profit of its gas business for the first six months of 2018 is RMB 64.6m ($9.5m). At present, it has six ASU projects under construction.
gasworld understands there were also positive results across a number of smaller independents, with Yantai Mingju Gas reporting an increase of 32.5% in its operating income compared to the same period in 2017, Lanzhou Yulong Gas reporting an operating income increase of 31.6% from RMB 42.8m to RMB 56.3m ($8.3m), and Shenzhen Gaofa Gases also achieving a 70% increase in operating revenue compared with the same period last year. Operating profit increased 96.4% from the same period last year.
Among the equipment manufacturers, Hangzhou Hangyang reported that during the first half of 2018 it earned 26% more than it did in the same period in 2017. Operating profit for the first half of 2018 rose 282.7% over the same period last year, while net profit attributable to the shareholders of the listed company increased 243.8%. The company, China’s largest air separation equipment manufacturer, said that in spite of the complicated economic situations both domestically and abroad, it has overcome various difficulties and unfavourable factors and continued the development trend it enjoyed in 2017.
Another long-established ASU manufacturer, Suzhou Oxygen (Suyang), published a more than satisfactory interim report for 2018. Operating income for the first half of 2018 rose 96.9% to RMB 289.3m, compared to the same period in 2017, while operating profit had soared a stunning 5,900% to RMB 13.3m for the first half of 2018 from a loss of RMB 225,012 for the same period in 2017. Similarly, net profit attributable to shareholders of the listd company has substantially improved to RMB 10m, representing an increase of 1,547%. The ASU manufacturing business contributes RMB 198.5m to the operating income, representing a share of 68.6%.
The commercial industrial gas market in South Korea was estimated to have generated revenues of $1.82bn in 2017. This is up from 2016’s market size (by revenues) by 3% year-on-year (YoY).
The largest industrial gas company in South Korea was Air Products, which commanded a market share of 24% (equating to revenues of $441m). The company operated a number of major facilities in Ulsan, which were focused on petrochemical and steel end-users. Domestic player, Daesung Industrial Gases, was the second-largest company in the country (22%), generating revenues of just over $406m. Praxair commanded a market share of 18%, whilst Linde, Air Liquide and Taiyo Nippon Sanso (TNSC) accounted for market shares of 13%, 13% and 3%, respectively. The remainder of the market was serviced by a number of independent producers and distributors.
The supply of industrial gas through onsite methods accounted for the largest share of revenue in South Korea, at approximately $685m. This was due to large volumes of nitrogen and oxygen being produced on a supply scheme basis in South Korea. The sale of packaged gas generated $574m, with bulk liquid sales accounting for a further $485m. We estimate that potential revenues that could be generated from captive plants, if converted to onsite projects, would be approximately $1bn. New project activity has been somewhat slow over the past 12 months; only one new facility was commissioned in South Korea in 2017, an onsite plant in Tangjeong for Samsung, owned by Praxair (estimated 940 tpd).
In summary, further robust growth across the North Pacific region can be expected over the next five years, assuming no major event or economic correction of any kind occurs.
While in Japan we will likely see modest growth in this period, both the Korean and Chinese markets will continue to grow at a much higher rate, particularly so in China where growth has been voracious in the last decade.