Plastic Resin Market in China

PRODUCT MARKET STUDY: PLASTIC RESINS MARKET IN CHINA

Date: December 2004

1. MARKET : MAINLAND CHINA

2. COVERAGE OF STUDY

The study covers seven products categorized under Plastic Resins.

Table 1: List of Products under Plastic Resins

HS CODE PRODUCT SPECIFICATION

39011000 Polyethylene (PE)39021000 Polypropylene (PP)39031100 Polystyrene (PS)39042100 Polyvinyl Chloride (PVC)39033000 Acrylonitrile-Butadiene-Styrene(ABS)39076011 Polyester (PET)39095000 Polyurethane (PU)

3. PURPOSE OF THE PMS

The purpose of this study is to facilitate Malaysian exporters of plastic resins to expand exports or to penetrate China’s market by providing market information and recommended measures to enter the market.

4. BACKGROUND OF PLASTIC RESINS INDUSTRY IN CHINA

For the 10th Five Year Plan (2001-2005), the annual growth rate of general synthetic resins is projected at 6.8% and engineering plastics materials is expected to register growth of 10%. However, the local output of plastics materials and resins can only fulfill 50% of market demand. As a result, China has to rely on imports of large quantities of plastics resins every year.

The local market requires imports of general-purpose thermoplastic resins, including polyethylene (LDPE and HDPE), polypropylene (PP), polystyrene (PS), acrylonitrile butadiene styrene (ABS), and polyvinyl chloride (PVC). This market is subject to fluctuation of up-stream supply and down-stream market demand.

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China ’ s imports of plastic resins are mainly from U.S.A., Japan, Korea, Taiwan, Germany. China needs to import large amounts of synthetic resins to meet local market demand. In 2003, for the first time China's imports of major GP plastics surpassed 10 million tons and reached 11.67 million tons, up 21% over those in 2002. It is estimated that China's imports of PVC will reach 3 million tonnes in 2003, and increase to 3.4 million tons in 2004. Meanwhile, China has become the largest importer of engineering plastics in the last three successive years. By 2005, the demand for the five major engineering plastics (PC, POM, PA, PBT and PPO) and ABS will increase to 590,000 tons per year in 2003 to 1.6 million tons per year in 2005.

China's accession to the WTO will provide significant benefits to foreign plastics and resins exporters. China will reduce average chemical tariffs by more than 50% by January 1, 2005. Specifically, the average rate will be reduced to a final average rate of 6.9%. Most quotas will be eliminated on virtually all chemical products upon accession. China has also agreed that any entity will be permitted to import most products, including plastics and resins, into China after a three-year phase-in period. Foreign companies operating in China will also be able to distribute plastics materials in China.

Table 2 – General Situation of Plastic Resins Statistics in ChinaThe following figures are calculated in US$ millions (1,000,000's)

TOTAL STATISTICS 2000 2001 2002Market Size 15,150 16,500 17,895

Local Production 6,000 6,000 6,420Exports 550 600 600Imports 9,700 11,100 12,075

At present, China’s plastic resins industry ranks fifth behind U.S.A., Japan, Germany and Korea. In 1999, the capacity of the five general plastic resins was 8.0344 million tons, among which PE was 2.8107 million tons, PP was 2.6466 million tons, PVC was 1.9068 million tons, PS was 550,000 tons and ABS was 120,300 tons. By the end of 2002, the capacity of China’s plastic resins had reached to 9 million tons of annual increase. The output of plastic resins has been increasing every year, but it is still in the tendency of demand exceeding supply, and the largest demand is packing materials. In 2003, the output of plastic resins cumulatively totaled 16.5053 m illion t ons and the output value reached 293.62 billion RMB / US$ 35.55 billion . I mports of plastic resins were more than 10 m illion t ons . Therefore, China has already become one of the biggest manufacturing and consuming countries of plastic resins in the world.

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5. BASIC SITUATION OF PLASTIC RESINS MANUFACTUR ING IN CHINA

5.1. Situation of the Industry

In 2002, the general capacity of the five general plastic resins reached 13.9440 million tons per year. In the period of the 10th Five Year Plan, China will plan and construct more petrochemical equipment.

In 2003, the output of polymers cumulatively reached 13.8891 million tons, increased of 7.8%; PVC was 4.0065 million tons, an increase of 18.2% as compared to the previous year; PE was 4.1296 million tons, increased 16.4%; PP was 4.2682 million tons, increase of 14.07%.

Table 3 - Situation of Demand & Supply in 2003(10,000

tons)SPECIFICATION CAPACITY OUTPUT IMPORT EXPORT

PE 429.48 412.96 469.01 2.59PP 443.89 426.82 273.43 1.19

PVC 416.68 400.65 229.24 4.53PS 104.96 100.92 156.43 5.39

ABS 49.46 47.56 179.01 2.14Total 1,444.47 1,388.91 1,307.12 15.84

5.2. Challenges in Plastic Resins Industry in China

5.1.1 Lower overall equipment level and backward in technique

Although the plastic resins industry of China has been fastening its steps of technical innovations and, making replacement of equipments, except for tens of large-scale state-owned plastic resins enterprises and some foreign capital, joint-adventure and private enterprises, most of plastic resins enterprises are still using home equipments, of which 20% are the equipments of high energy consumption and low output capacity.

5.1.2 Irrational distribution of products

China’s plastic resins industry has a definite gap to those developed countries’. There are some obvious contradictions such as the relative excess capacity of some products and the irrational distribution of

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products. The main appearances are too many middle and low standard products and the lack of high-quality products.

The consumption distribution of plastic resins in percentage is: PE – 23.07% PP – 15.08% PS – 8.5% PVC – 24.6% ABS – 6.3%

5.1.3 Lack of large-scale plastic resins enterprises.

Although there are some enterprises which have the capacity of more than 10,000 tons per year and a few of them are represented of the highest level of the industry, most of them are still smaller than those foreign enterprises in their scales.

At present, there are more than 20 enterprises such as Foshan Plastic, Hebei Baoshuo, Changzhou Plastic, Zhejiang Great South-East, Zhongda Group, Yantai Wanhua, Wuhu Hailuo, Jiangsu Sanxiao, Dalian Shide, etc., occupying more than 20% of the general output value of the industry, but except for those large-scale enterprises such as Dalian Shide and Wuhu Hailuo, the others can not be comparative to those foreign enterprises.

5.1.4 Unbalanced development in different regions

The development of plastic resins industry is seriously unbalanced. The gap between South-Eastern coastal regions and South-Western and North-Western regions has been continuously expanded. Guangdong, Zhejiang, Jiangsu, Shandong, Fujian and Shanghai are the most developed regions in plastic resins industry. In 2003, the output of plastic resins was 9.493 million tons all together in Guangdong, Zhejiang and Jiangsu Provinces, which made up 57.5% of the total output in China. Guangdong Province’s output made up 25.5% of the total output in the country.

5.1.5 Lack of home raw materials, depending on large quantity of import.

In 1998, the outputs of the five plastic resins were 6.76 million tons and imports were 9.62 million tons. In 1999, the imports drastically increased to 11.19 million tons and in 2000, the outputs reached 10.8 million tons, an increase of 22% comparing with 1999 (8.42 million tons). The apparent consumption in 2000 was 21.96 million tons, an

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increase of 15% as compared to 1999. In 2002, the consumption of plastic resins in China totaled 25.2821 million tons.

In 2003, the output of the five general plastic resins were 13.8891 m illion t ons , imports totaled 13.0712 m illion t ons and exports were only 158,400 t ons .

Table 4 – Statistics of China’s plastic resins market in 2003 (10,000 tons)

SPECIFICATION OUTPUT IMPORT EXPORT APPARENT CONSUMPTION

IMPORT/APP. CONSUMP. %

PE 412.96 469.01 2.59 879.38 53.3PP 426.82 273.43 1.19 699.06 39.1

PVC 400.65 229.24 4.53 625.36 36.7PS 100.92 156.43 5.39 251.96 62.1

ABS 47.56 179.01 2.14 224.43 79.8TOTAL 1,388.91 1,307.12 15.84 2,680.19 48.8

Table 5 – Statistics of waste plastic resins in 1999-2003.

YEAR APPROVED QUANTITY (10,000t)

ACTUAL IMPORT (10,000t)

COMPARATIVE INCREASE (%)

2003 543.40 302.39 23.02002 387 245.8 10.32001 458 222.76 11.02000 323.8 200.7 44.61999 301.4 138.8 -

6. FORECAST OF DEMAND FOR PLASTIC RESINS IN CHINA MARKET

In the next decade, the plastic resins industry of China will be rapidly developed, and with the constructions of several large-scale ethylene projects, plastic resins consumption will be increased.

According to the statistics for the past recent years on the four major producers of plastic resins industry in the world namely the U.S.A., Japan, Germany and the United Kingdom, there was a correlation between GDP and the output and consumption of plastic resins. For these four producers that are categorized under developed countries, higher GDP is correlated with higher output and consumption of plastic resins.

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Table 6 – Forecast of the demand for plastic resins in the future China market from 2005 to 2010

(10,000 tons)

YEAR

P. RESINS

ACTUAL OUTPUT

APPARENT DEMAND

APPARENT DEMAND

APPARENT DEMAND

1994 1999 2005 2010PE 281.1 566.3 948 1479PP 264.6 418.2 730 1176PS 93.3 360.3 361 530

PVC 190.7 371.2 611 978SBS 12 143.3 217 329

TOTAL 841.7 1,859.8 2,867 4,492Note: Apparent Demand = Output Home P. Resins + Imported P. Resins - Exports

Customs Tariffs has been reduced every yearSource: SINOPEC

Although the top three producers of petrochemical products in the world are U.S.A., Japan and Germany, analysts believe that China market currently ranks the fourth in 2003 has nearly the same capacity as Germany. The year 2004 is the third year of China’s joining WTO and China’s compliance to the WTO will further develop the plastic resins market. According to the rules of WTO, China has reduced the customs tariffs of plastic resins imports, the annual reduction will be about 1%, until the year of 2008 and the final tariff rate will be around 6.5%.

Table 7 – Customs tariffs for several imported plastic resins from 2003 to 2005.

HS CODE SPECIFICATION 2003 2004 200539011000 PE 12.9% 11.6% 10.3%39021000 PP 10% 10% 9.7%39031100 PS 11.8% 10.7% 9.7%39042100 PVC 11.8% 10.7% 9.7%39033000 ABS 11.8% 10.7% 9.7%39076011 PET 11.8% 10.7% 9.7%39095000 PU 11.8% 10.7% 9.7%

6.1 Specific Market of Plastic Resins in China

6.1.1 Polyethylene – PE HS Code: 39011000

The development of PE is very fast and the capacity has been in a tremendous rise. But, due to rapid increase in demand, supply can

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only cater for 43 percent of domestic market, hence heavy dependence on imports is unavoidable. Major import origins of the imported PE to China Mainland Market were mainly Asian countries or regions such as Japan, Korea, Saudi Arab, Taiwan, India, Malaysia, Thailand and Singapore.

The consumption distribution of LDPE (low density polyethylene) is still in priority of plastic film products, makes up for 76.7%; secondly is injected plastic products, makes up for 9.6%. The consumption distribution of HDPE (high density polyethylene) is in priority of blown plastic, films, yarn and injected plastic products, respectively makes up of the general consumption for 19.8%, 18.3%, 17.9% and 17.0%. In 2005, it is expected that the consumption distribution will not change significantly.

Table 8 – Import statistics of polyethylene in 2004 (by October 2004).

POLYETHYLENE SPECIFICATIONS

MONTHLY IMPORT (10,000 tons)

MONTHLY PRICE (USD/ton)

TOTAL ANNUAL IMPORT (10,000 tons)

LDPE 10.94 1,115.90 108.82HDPE 13.66 1,022.79 196.69LLDPE 7.14 1,006.09 97.38TOTAL 31.74 - 402.89

6.1.2. Polypropylene – PP HS Code: 39021000

According to the analysis of industrial experts, the demand for automobile industry to PP will be increased continuously. The main reason is that PP can be mixed up very well with various kinds of materials for manufacturing and, with its lower price it can stimulate the quality of ABS resins which has a higher price, so that PP has its large advantage in the competition with PVC, ABS and HDPE, etc.

Besides that reason, many automobile manufacturers prefer PP because it is easy to be recycled with the lower cost. It means that PP has a good comprehensive ability.

In 2003, under the influence of economic globalization, the price trend of PP in domestic market is linked closely with the prices in the international market. This has caused the domestic price of PP to be nearly the same as those of PE’s.

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In 2003, China surpassed U.S.A. to be the largest market of PP in the world, and the consumption was increased from 3.2 million tons in 1997 to 6.2 million tons in 2003. In 1997, the consumption of PP in China was just 60% of U.S.A.’s, but China’s consumption of PP had been increased two times of U.S.A., hence, till 2007, China’s PP market would be 20% more than that of the U.S.A. China’s and U.S.A.’s PP market capacities will be respectively 11 million tons and 8.2 million tons. By the end of 2002, there were 70 PP manufacturers in China, and the capacity of PP was 3.89 million tons per year. Shanghai Petro- Chemical Corp., Ltd. and Yangtze Petrochemical Corp., Ltd. both have the capacity of 400,000 tons/year, both of which are also the biggest PP manufacturers in China.

In China market, the largest consumption field of PP is knitted bag, packing bag and packing strings, which makes up 50% to 60% of the total consumption of PP. The other consumption field is plastic films, making up 15% of PP, among which BOPP films are in priority. China has been an important importer of PP imports, because its domestic capacity is not able to meet the demand for domestic market. In 2002, the domestic consumption of PP was 6.171 million tons and the output was 3.742 million tons, since that the self-sufficiency has been risen from 49.2% in 1995 to 60.6% in 2002. The increase could also be attributed to the use of new equipments in the manufacturing in recent years.

From 2003 to 2005, there are several sets of PP new manufacturing equipment to be developed China. It is expected that the capacity of PP will be 5.4 million tons per year until 2005 and, the apparent consumption will be 8.4 million tons per year, which will be 12.8 million tons per year by 2010.

In October 2004, the monthly imports of PP in China were 215,200 tons, which was 9.2 percent less than the same month of last year. The cumulative imports from January to October 2004 were 2.4079 million tons, which was 8.54 percent more than the same period of last year.

Table 9 – Import statistics of Polypropylene in China (in November 2004) – Countries & Regions

NO. COUNTRY/REGION IMPORT (tons)1 Korea 78,231.992 Taiwan 38,142.313 U. S. A. 27,514.584 Singapore 24.211.84

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5 Thailand 19,194.356 Japan 18,152.247 India 13,605.838 Saudi Arab 9,558.869 Malaysia 7,762.8910 Belgium 5,340.44

TOTAL 217,528.541

6.1.3. Polystyrene – PS HS Code: 39031100

In China, the main usages of PS are manufactures of parts of house electrical appliances, electronics, electrical equipments and secondly are used to the PS foam products, which are mainly fast food boxes, packing materials, construction panels, the others are daily necessities, office appliances, toys and BOPS panels, etc.

China’s PS market has several characteristics:

a. Vigorous demands, increase of consumption and large potential market.

In 1999, the PS consumption of the whole country was 2.43 million tons, which was 10 times of the consumption in 1990 and posted 27.6 percent of annual increase rate. The growth of increase was just behind ABS within the five plastic resins, which was more than 6 times of world average increase in the same period. It is expected that China’s PS consumption will be increased steadily in the future, which is estimated at 3.17 to 3.3 million tons in 2005 and, 3.9 to 4.2 million tons in 2010.

b. Lack of capacity and too much dependency on import.

Comparing with the vigorous demands, although China’s PS capacity has been increased significantly, it still not able to meet the required demand, hence, it has to depend on large quantities of import. The increase of self-sufficiency has been slowed down to only 52.5% by the end of 2002. The dependency of import has exceeded more than 60%.

c. Foreign Capital Enterprises are important forces of PS manufacture.

Three of the five biggest PS manufacturers in China are foreign capital enterprises, namely Zhenjiang Qimei Chemical Co., Ltd. (300,000 tons/year), Yangtze BASF PS Co., Ltd. (142,000t/year)

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and LG Ningbo Yongxing Chemical Co., Ltd. (100,000t/year). In 1999, the capacities of the three enterprises totaled 542,000 tons, of which HIPS was 500,000 tons making up half the capacity of the whole country. In 2005, it is expected that the production capacity of foreign capital enterprises will be more than 1.4 million tons, which makes up almost 60% of the domestic capacity.

d. Electronics and electrical appliances are the most important field of PS consumption.

With the increase of demands, the distribution of consumption has been diversified , that is, the proportion of foam products will be reduced but the proportion of house electrical appliances and daily necessities will be increased. The field makes up 60% of total PS consumption. Meantime, due to China’s joining WTO, the outputs and exports of Chinese house electrical appliances such as television set will be in a tremendous rise in the future, which must cause the demands for PS to be increased steadily. The consumption distribution of EPS is mainly packing materials making up 76.8% and secondly is construction materials and thermal insulation materials. GPPS and HIPS are mainly used to the manufactures of electronic and electrical appliances and daily necessities, respectively making up 58% and 29.4%. It is expected that the consumption distribution will not be changed too much in 2005.

Table 10 - Import statistics of polystyrene in 2004(August, September and October 2004).

POLYSTYRENEMONTH

MONTHLY IMPORT (10,000t)

MONTHLY PRICE (USD/ton)

TOTAL ANNUAL IMPORT (10,000t)

August 1.5993 950 -September 1.6453 1,020 -

October 1.5299 980 15.0172TOTAL 4.7745 - 15.0172

6.1.4. Polyvinyl Chloride – PVCHS Code: 39042100

For the period of the 9th Five Year Plan of China, the equipment scale of PVC resins has been increased rapidly. In 1999, the capacity of China’s PVC was 1.9754 million tons, increased at 23.54% as compared to the same period of last year, which was ranked third in the world. The capacity of PVC was 3.2 million tons by the end of 2000, increased 11.7% comparing with 1999. At present, there are more than 70 PVC

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manufacturers in China, of which there are three enterprises having the annual capacity of 200,000 tons, namely, Shanghai Chloride Alkali Chemical Corp., Ltd. (300,000 tons), Cangzhou Chemical Industrial Corp., Ltd. Group (290,000 tons) and Qilu Petrochemical (230,000 tons). From January to September of 2000, the output of PVC in the whole country was 1.72 million tons.

In 2002, the capacity of China’s PVC reached 4.759 million tons per year, increased at 8.1%; the output of PVC was 3.389 million tons per year, increased by 17.8%. The overall consumption was 5.603 million tons, increased at 4.8%. The import of PVC was 2.2514 million tons, reduced by 10.2%. The consumption of PVC was mainly for hardware products, making up 54%, which include variety of construction materials, pipes, hard panels and bottles; soft products making up 46%, which mainly include electric wire, electric cable, synthetic, plastic shoes, artificial carpet, weave coating and various kinds of soft pipes, etc.

In recent year, the distribution of PVC consumption has been changed much. The proportion of hard products has been risen constantly, especially the chemical construction materials such as plastic pipes and special type construction materials, of which the development has brought along the increase of domestic PVC demands in China.

In 2005, the capacity of PVC is expected to reach 7 million tons per year and, the demand is estimated at 7.06 million tons.

With regard to the import of PVC, by September 2004, imported raw materials of PVC into China has reached 1.295283 million tons, the cumulative amount of imports was US$ 997.9083 million and the average price per ton was US$ 770.

Table 11 – Import statistics of polyvinyl chloride in 2004 – Countries& Regions. (Jan-Sept., 2004)

NO. COUNTRY/REGION IMPORT (US$ ‘000)1 Taiwan 55,935.7252 Japan 40,453.6863 Korea 17,653.8724 U. S. A. 16,559.3355 Thailand 8,586.8436 Indonesia 6,003.0257 Hong Kong 1,960.6908 Malaysia 1,725.0809 Russia 1,420.00010 France 1,165.906

TOTAL 151,464.162

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6.1.5. Acrylonitrile-Butadiene-Styrene – ABS HS Code: 39033000

The growth of China’s ABS market reached 30 percent in 2003, which has become the fastest growing and focused market of ABS in the world. At present, the consumption of ABS in China has made up more than 33 percent of the global consumption. In view of this situation, the Society of Plastic Engineers (SPE) has already decided to admit China to be formal state member.

On the other hand, the proportion of domestic ABS manufacturing is very low so as to be less than 15% of the market demand, and the imports make up more than 85% of the market demand. Comparing with the world market, the capacity of China’s ABS is just less than 6% and the output is just less than 4%. The most important point is to solve the problems on technology of plastic resins engineering, which is partly caused by the absence of state-owned large-scale enterprises such as China Petro. and Sinopec. Secondly is to speed up the construction of standardization for ABS resins. Thirdly is to improve the practical technology of ABS.

In 1999, there were only 7 ABS manufacturers in China mainland, which were Lanzhou Petrochemical (20,000 tons capacity), Jilin Chemical (100,000 tons), Daqing Petrochemical Factory (50,000t), Panjin Ethylene Industrial Co., Ltd. (50,000t), Ningbo Yongxing Chemical Factory (50,000t), Zhenjiang Guoheng Co., Ltd. (40,000t) and Gaoqiao Petrochemical Co., Ltd. (20,000t). In recent years, more and more foreign capital or enterprises have ventured into manufacturing in China mainland, which were mostly from such countries or regions as South Korea, Japan, Germany and Chinese Taipei (Taiwan).

Table 12 – Statistics of ABS in China Mainland(Tons)

YEAR CAPACITY OUTPUT APPARENT CONSUMPTION

2015 - - 2,050,0002010 - - 1,800,0002005 - - 1,600,0002001 660,000 - 1,500,0001999 330,000 120,000 1,433,000

During the past several years, imports of ABS resins have been increasing constantly. The main import sources were Taiwan Province of China, Japan and Korea, in which Taiwan was the biggest supplier making up 45% and all together made up more than 80% of the total imports. Share of imports by Japan and U.S.A. has declined every year, on the other

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hand., share of imports from South Korea and Thailand have been increasing. The main one of the import regions in China is Guangdong Province, which makes up more than 80%, Zhejiang, Shanghai and Fujian’s imports have been raised speedily.

Table 13 – Imports of ABS to China Mainland (1997- October 2004)

YEAR IMPORT (milliont) AMOUNT (million usd)2004 1.63831 1,858.40772001 1.3514 -1999 1.334 -1998 1.071 -1997 1.031 -

In future, the biggest consumer of ABS will be still the electronic and electrical appliances industry, which makes up more than 80% of the total consumption. Toys and another light industrial products also serve as important consumers of ABS resins, but automobile industry is expected to be fast becoming the biggest beneficiary of ABS market in China. The central Government has chosen automobile industry to be one of the priority sectors that will contribute to the country’s steady economic growth. By 2010, the annual output of automobile industry is predicted to reach 6 million vehicles, and the growth will assure steady growth in ABS resins industry.

According to industry analysis, the five-year period from 2001 to 2005 will witness a changing trend of ABS consumption distribution. It is expected that consumption in the large-scale house electrical appliances to be reduced and consumption in small-scale house electrical appliances and transportation vehicles will increase rapidly. The consumption in other light industrial products is expected to register steady growth.

After China’s entry into the WTO, foreign companies are required to sell ABS products directly into China domestic market, which means to cut down the cost of marketing and gives more pressure to domestic enterprises. To be competitive in the market, manufacturers are pressured to offer high quality and lower cost, and also to offer special traits of products with high technology such as heat-retardant, fire-retardant, high impact resistance and corrosion retardant, etc.

6.1.6. Polyester - PET HS Code: 390760**

a. Problems of PET industry in China Market.

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The PET industry of China has undergone rapid growth since 2002. The main reasons were that both Sinopec Group and China Textile Institute had at that time created much cheaper home PET equipments, which has reduced manufacturing cost. Secondly, some of private enterprises in Jiangsu and Zhejiang Provinces had already been able to invest in the PET industry during the period. By the end of 2003, the capacity of PET in China mainland has reached 12.6 million tons and by the end of October 2004, the capacity of PET has been expanded to 15.8 million tons.

On the other hand, the down-stream product manufacturing enterprises were able to consume 12 million tons of PET and, in fact the consumption of PET were only 11 million tons, so that there were more than 3 million tons as the surplus output, which made up 25% to 30% of the total capacity. The situation had caused more drastic market competition, the price deviated from the cost and, the serious lack of raw materials such as PTA and MEG.

The prices of international crude oil also influenced on the PET industry in China market. Since the price of crude oil has been raised constantly, prices of important raw materials of PET, PTA and MEG have also increased constantly. Moreover, since China’s PET market is mainly in civil use, as the replacement of PET products, cotton and viscose also will influence on the market, which means the market of PET in China now is in a very serious situation under both pressures.

Due to the above problems, especially by the end of 2006, the capacity of PET in China will be 17 million tons, exceeding the demand by 40%. With current development in textile industry and market development of PTA and MEG, within the coming two years, 2005 and 2006, China’s PET market condition will be worsened.

b. Rapid Increase in PET capacity

In 1997, the capacity of PET was only 2.59 million tons per year, but in 2002, the capacity increased to 10.7 million tons per year. The annual increase rate is 33% and especially after 2000, the annual increase had been kept in more than 2 million tons per year. In 2002, all the PET equipment used in the newly manufacturing were invested by private capitals. In recent years, enterprises from Japan, Korea and Taiwan Province have been increasing their investments into China’s PET market. By the year of 2002, in China’s PET industry, the proportions of State-Owned, Foreign Capital and Domestic Private were respectively 4:2:4.

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Table 14 – Top Ten PET Manufacturers in China Market

NO. NAME OF MANUFACTURER ANNUAL CAPACITY(10,000t)

SPECIFICATION

1 Sinopec Yizheng Chemical Fiber 117.2 Fi/B/Film

2 Shanghai Petrochemical Corp. Ltd.

42.2 Fiber

3 Shanghai Far East Textile Fiber 40.0 Fiber/Bottle

4 Kaiping Polyester Fiber 40.0 Fiber/Bottle

5 Zhejiang Shaoxing Far East 36.0 Fiber

6 Xiamen Xianglu Chemical Fiber 32.0 Fiber

7 Chinapetro Liaoyang Petrochemical Fiber

30.0 Fiber

8 Sinopec Tianjin 29.8 Fiber

9 Zhuhai Yuhua Polyester Chips Factory

25.0 Fiber/Bottle

c. Higher demand for PET in China market

Table 15 – Supply and Demand for PET in China Mainland.

(10,000 tons)

YEAR OUTPUT IMPORT EXPORT APPARENT CONSUMPTION

1997 252.0 37.4 7.0 282.4

1998 285.6 28.1 7.2 306.5

1999 392.6 34.4 2.1 424.9

2000 550.5 33.5 0.3 583.7

2001 590.5 24.5 0.8 614.2

2002 783.0 26.5 9.5 800.0

Note: Since 1997 to 2002, the annual average increase rate of PET apparent consumption was 23%.

With the constant rise of self-sufficiency in China Mainland, and after reaching the peak in 1999, the import of PET has been significantly declined. In 2002, the net import of PET to China mainland was only 170,000 tons, which was the lowest point of the recent years. The countries and regions around China Mainland are still main import resources such as Japan, Korea and Taiwan Province, which made up 89% of the total import. The imported PET materials are concentrated in

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those provinces of PET manufacture and consumption, for instance, Zhejiang, Jiangsu, Guangdong, Fujian and Shanghai.

Table 16 – Distribution of PET consumption in China Mainland in 2002

NO. FIELDS OF USE CONSUMPTION AMOUT (10,000t)

PROPORTION (%)

1 Polyester fiber 704 88

2 PET bottle 82 10

3 PET film 12 2

4 PET engineering plastic 2 0

Total 800 100

d. Prospect of the PET industry in China Market

In 2005, the capacity of PET in China Mainland is expected to reach 16.2 million tons per year and by 2010, the capacity will reach 20 million tons per year. The newly constructed PET enterprises will be located in Jiangsu and Zhejiang Provinces, which are invested by private capitals, and the equipment of PET are mostly in manufacturing fiber-state products.

With regard to the demand, polyester fiber industry will keep on increasing steadily, the demand for bottle-state PET will be increased quickly. Concerning the discount of the down-stream products, in 2005 the output of PET will reach about 10.3 to 11.1 million tons and by 2010, the output of PET will reach about 13.9 million tons.

In view of the above sectors, the newly increased capacity of PET in China Market are mainly in PET fiber-state products, which will directly cause stiff competition in the market, and this will require manufacturers and importers to pay more attention to PET bottle-state products such as PET bottle chips.

6.1.7. Polyurethane – PU HS Code: 39095000

a. Prospects PU Market in China

In general, PU makes up 20% of plastic resins in automobile manufacturing, and the average quantity used for each car is 18 kg, which is mostly adopted the series of products based on MDI, but there are still

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more than 50% car seat-matt in use of TDI materials. The use of PU materials in automobile industry has been gradually expanded. In 2005, the demand for PU from automobile industry in China Mainland will reach 44,100 tons, among which cars and jeeps will consume 30,400 tons, heavy buses will consume 3,000t, light vehicles will consume 7,200tand mini-vehicle will consume 500t. The average consumption for each car will be 14.71 kg.

In China Market, there are hundreds of automobile enterprises, but of which there are only few large-scale enterprises such as First Automobile Volkswagen (in Changchun, Jilin), Shanghai Volkswagen, Tianjin First Automobile, Dragon Citroen-Peugeot (in Wuhan, Hubei), Beijing Hyundai, Huachen BMW (in Qingdao, Shandong), Beijing Benz-Jeep, Nanjing FIAT (in Nanjing, Jiangsu), Chang’an Ford (in Chongqing) and Guangzhou Honda, etc. The others are just small-scale automobile enterprises, of which most even only manufacture thousands of vehicles. In principle, those large-scale enterprises usually manufacture their vehicles with the PU materials offered directly by their foreign parties’ exporters. For instance, First Automobile Volkswagen is a joint-adventure between China and Germany. Normally, the factory uses the PU materials imported from Germany. As the above situation, it is a little bit difficult to export PU to the large-scale automobile enterprises in China, but exports to niche market of small-scale enterprises are possible.

In China, there is a special phenomenon in automobile industry, that is, as the biggest consumer of PU, the automobile mould enterprises are mainly concentrated in East and South China, namely, in Zhejiang, Shanghai and Guangdong. There are several automobile mould industrial parks already been in manufacturing or being constructed in China, such as Chongqing Automobile & Motorcycle Mould Industrial Park in Chongqing City, which has been constructed with investments from some large-scale mould enterprises from Zhejiang and Shanghai. Those automobile mould industrial parks will be the major consumers of PU materials in China in the future.

b. Current situation of PU Market

With the rapid increase of PU market in the world, the growth of PU market in China is also expected to post steady annual rate of 10 percent. As the most important raw material, TDI has already been in the serious state of lack of competitiveness. In China Mainland market, TDI prices have been high for quite a long time. The price of mainly imported TDI is around 20,000 RMB/ton (2,000 EURO/ton). The price of bottled home TDI is about 19,800 to 20,000 RMB/ton; the price of bulk home TDI is about 19,400 to 19,600 RMB/ton.

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Table 17 – Import statistics of MDI (PU) in China Mainland in 2004.HS Code: 29291030

POLYURETHANEMONTH

MONTHLY IMPORT (ton)

MONTHLY PRICE (USD/ton)

TOTAL ANNUAL IMPORT (10,000 tons)

July 8,762.686 2,280August 8,970.455 2,390 -

September 14,188.731 2,510 -October 10,812.258 2,650 215,961.56TOTAL 42,734.13 - 215,961.56

Table 18 – Import statistics of MDI (PU) in China Mainland in 2004 – Countries/Regions.

NO. COUNTRY/REGION IMPORT1 Japan 10,339.8032 Korea 7,119.6693 U. S. A. 5,527.930

TOTAL 22,987.402

7. OPPORTUNITIES AND CHALLENGES FOR MALAYSIAN EXPORTERS OF PLASTIC RESINS

The current trend of plastic resins’ imports in China assures ample opportunities for Malaysia exporters to penetrate the market. This can also attribute the following factors:

a. The Ministry of Commerce (MOFCOM) of China has recently abolished the Ministry’s authorized-importers system, in which in the past foreign exporters of plastic resins must establish their export business with Chinese importers appointed by MOFCOM. Foreign exporters can now establish their business of plastic resins with any one of Chinese companies, importers or consumers, but their Chinese partners still have to apply for the quota approval from relevant administrations of the Government before importation.

b. The customs tariffs have been reduced gradually every year, and by the year of 2008, the tariff will reach its lowest point of 6.5% to 6.9%.

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c. China has now closer relations with ASEAN in political and economic affairs, and this should pave away for more promotion of Malaysian exports of plastic resins to China mainland.

d. In the current market, except for PET materials, the five other general plastic resins are still facing shortage of supply, especially in the market of ABS and PU, which is caused by the change of international oil market and China is currently not able to meet its own demand for plastic resins materials with its domestic capacity.

Despite opportunities that are available for plastic resins market in China, Malaysian exporters should also be alert of challenges posed by the market, including the following aspects:

a. When a Malaysia exporter of plastic resins starts a business with its Chinese partner, the exporter must pay attention to the current change of price in the contract, because the prices of plastic resins are often changing in China Market.

b. Although the Ministry of Commerce has released the limitation of appointed importers, plastic resins are still under the supervision of trade quota approval system. Therefore, before closing any business deals, Malaysian exporters of plastic resins should thoroughly evaluate orders from China mainland. Firstly, they must verify or authenticate the existence and reliability of their Chinese partners and subsequently seek verification on the quota approval authorized by relevant Government departments and agencies.

8. MAJOR IN TERNATIONAL EXHIBITIONS OF PLASTIC RESINS IN CHINA MAINLAND IN 2005

1. 6th South China International Plastic & Rubber Industry ExhibitionDate: 9th to 12th of March 2005.Venue: Exhibition Center of Shenzhen Hi-Tech. Fair, Shenzhen, Guangdong Province.

2. 13th International Plastic, Rubber & Packing ExhibitionDate: 16th to 19th of March 2005.Venue: Changping Convention & Exhibition Center, Changping,

Dongguan, Guangdong Province.

3. 3rd China Wuhan International Plastic & Rubber Industry ExhibitionDate: 11th to 13th of April 2005.Venue: Wuhan International Convention & Exhibition Center, Wuhan,

Hubei Province.

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4. Tianjin International Plastic & Rubber Industry ExhibitionDate: April 2005 (to be confirmed).Venue: Tianjin International Economic & Trading Exhibition Center.

5. 19th China International Plastic & Rubber Industry ExhibitionDate: 21st to 24th of June 2005.Venue: Guangzhou International Convention & Exhibition Center,

Guangzhou, Guangdong Province.6. 8th Asia-Pacific Plastic & Rubber Industry Exhibition (APPLAS)

4th China International Engineering Plastic Industry Exhibition (ENGPLAST)Date: 13th to 16th of July 2005.Venue: Shanghai New International Exposition Center, Shanghai.Website: www.applas.com.cn

7. 2005 Dalian International Plastic & Rubber Industry ExhibitionDate: July 2005 (to be confirmed)Venue: Dalian Xinghai Convention & Exhibition Center, Dalian, Liaoning Province.

8. 5th China Plastic Resins FairDate: September 2005 (to be confirmed)Venue: Taizhou International Convention & Exhibition Center, Taizhou,

Zhejiang Province.

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