PU Flexible Foams

By Zhang Zhixiong

Fast growing output
The average annual growth in the output of PU (polyurethane)
flexible foams in China was more than 15% from 2000 to 2005. China
is a country with the most rapid output growth in the world. There
were more than 1 400 producers of PU flexible foams in China in
2004 and the output was 570 thousand tons, accounting for around
21% of the world total. The output in 2005 was more than 650
thousand tons.
   The consumption of PU flexible foams in China is mainly in
downstream processed products for export. The consumption in the
furniture sector was 450 thousand tons in 2004, accounting for
79% of the total. The consumption in the automobile sector in
2004 was 50 thousand tons, accounting for 9% of the total. The
consumption in other sector such as shoe materials, toys and
daily-use articles was 70 thousand tons in 2004, accounting for
12% of the total. The consumption in these 3 major sectors was
510 thousand tons, 60 thousand tons and 80 thousand tons
respectively in 2005. It is expected that the consumption of PU
flexible foams in China will reach over 1.0 million tons in 2010,
accounting for more than 35% of the world total and the
consumption in these 3 major sectors will respectively be 700
thousand tons, 150 thousand tons and 150 thousand tons.
   Private and foreign-funded producers of PU flexible foams
have recently sprung up in the Yangtze River Delta and the Pearl
River Delta, which are close to consumption market and raw
material supply. The capacity has expanded rapidly and the mode
of balanced regional and scale distribution formed according to
the planning of the state in the initial years has been toppled.
The capacity is distributed closer to consumption market. Quite
a few plants constructed by the top 5 producers of PU flexible
foams including Chiao Fu Enterprise Co., Ltd., Southeast Asia
Holding Co., Ltd., Sinomax (Holding) Group Ltd., Luen Tai
Industrial Co., Ltd. and Nantong Xinyuan Foam Co. Ltd. are all
located in the above regions.

Increasing raw material cost
The sustained price rise of crude oil has led to an increase in
the price of raw materials such as TDI (toluene diisocyanate)
and flexible foam polyether since 2003. The price growth of
downstream products lags behind the price growth of raw
materials. For example, the price of TDI, MDI (diphenylmethyl
diisocyanate) and PPG (polypropylene glycol) has increased from
US$1 450 per ton, US$1 300 per ton and US$750 per ton in 2003
to RMB2 050 per ton, US$3 500 per ton and US$1 800 per ton today
and the growth has reached 41%, 140% and 169% respectively. The
average price growth of PU flexible foam materials in the same
period is only 20-30% and the price of downstream products such
as automobiles and sofas has a drop of 10%-20%. A great pressure
has therefore been imposed to the PU flexible foam sector. The
profit rate in the sector has a drastic reduction and some
enterprises can only barely recover their production cost.
Besides, the production of main raw materials for PU flexible
foams is monopolized by a few multinationals. PU flexible foam
producers, however, are usually small enterprises with weak
ability to bear raw material price fluctuations and withstand
risks. In case of loss, it is hard for them to recover.

Unduly rapid expansion   
The PU flexible foam sector in China has expanded rapidly in
recent years. Although the market is already saturated,
production lines are being put up in various regions. The
intervention of the downstream sofa producers, in particular,
has led to a rapid capacity expansion much higher than the demand
growth. If such situation last for long, not only a great waste
would be caused to resources, but the market environment would
be aggravated as well. It is the most practical risk facing the
PU flexible foam sector today.

Development orientation
    (1) Environmental protection: Laws and regulations on
environmental protection have been improved in China and great
attention has to be paid to environmental protection in the
development of the PU flexible foam sector. Environmental
protection raw materials, catalysts and foaming agents should
be developed to reduce impacts on the environment. Outdated
manual foaming processes should be banned and research on
technologies for the recycle, decomposition, reduction and
reuse of leftovers and scrap sponge should be conducted. Impacts
of solid wastes on environment can be effectively reduced
through industrial distribution upgrading and technical
progress.
    (2) High-grade product: With the improvement of people's
living standards, sponge with low density will gradually be
eliminated and products with high quality and high added value
will become mainstream varieties. The PU flexible foam sector
must strengthen development and innovation to expand
application sectors. Without innovation, PU flexible foam
materials would likely be replaced by other materials in many
application sectors.
    (3) Large-scale production: The output in the top 5 American
PU flexible foam producers accounts for over 80% of the total
output in the United States. The output in the top 3 European
PU flexible foam producers accounts for over 60% of the total
output in Europe. The output in the top ten Chinese PU flexible
foam producers only accounts for less than 30% of the total
output in China. Due to high cost and fierce market competition,
the PU flexible foam sector has entered the period of thin profit.
Enterprises with small scale and outdated technology will
gradually phase out of the picture. Enterprises with
considerable strength will have new expansion opportunities. It
is expected that the number of PU flexible foam producers in
China will gradually reduce to around 500 in 2010, only being
one third of the producers today and the output in the top 10
producers will account for more than 50% of the national total.