Why Is the Capacity of Polyurethane Raw Materials in Surplus?   
By Lu Lizhu    

The polyurethane sector in China has developed rapidly in the past decade and the average annual growth is around 20%. The output of polyurethane products had already reached 4.50 million tons in 2008. A complete production and market system has been formed. Polyurethane is used in every aspect of the national economy. It has been especially significant in the development of the automotive, furniture, household electric appliance, shoe, construction, textile, clothing and packaging sectors, as well as in the improvement of product quality. The global financial crisis has affected the export of shoes, clothes and toys, so the growth of the polyurethane sector has slowed since the second half of 2008. Nevertheless, the injection of RMB4 000 billion by the state to stimulate domestic demand and the implementation of favorable sales policies in rural areas will have positive effects on the sector. Judging from the demand, both the output and the export of refrigerators in China have increased remarkably in recent years. It is expected that the demand for refrigerators will continue to grow steadily in the next few years. The requirement on energy conservation in the building sector will promote the development of new waterproofing and insulating materials. Applications of polyurethane in superfine fibers, superior simulated leathers, polyurethane simulated wood materials, water-based polyurethane coatings and polyurethane adhesives/sealants are also expanding constantly. The development prospect of the polyurethane sector is therefore still bright.
   Driven by the future prospects of polyurethane and the ongoing development of applications in new sectors, the expansion of capacity to make polyurethane raw materials has been accelerated in the last 2-3 years. Many aniline, toluene, propylene oxide (PO), polyether polyol (PPG), diphenylmethane diisocyanate (MDI), toluene diisocyanate (TDI), 1,4-butanediol (BDO), dimethyl formamide (DMF) and polytetramethylene ether glycol (PTMEG) projects have been completed and gone online. The capacity of quite a few products has grown rapidly in the past 3-4 years. Aniline, BDO, adipic acid (AA), TDI, MDI and DMF are already in serious oversupply.

1. Lack of government supervision

In the 21st century, only major sectors related to the national economy and the people's livelihood still have development programmed by the government, and programs for ordinary sectors and their product development are no longer formulated by centralized authorities. The National Development and Reform Commission has not assigned particular agencies to regularly release information that could enable enterprises to know present developments and problems in such sectors and give timely warnings to avoid blind development and especially low-level redundant construction. Some industrial associations have done some work, but these have no particular authority, so enterprises do not have to obey. Aniline capacity has expanded rapidly in recent years. It has more than doubled in the past two years. Despite many experts' warnings of surplus capacity, construction and expansion projects are still being launched.

2. Rampant construction of industrial parks

To promote GDP growth, local governments have always been crazy about constructing more industrial parks and chemical industry parks. No matter whether there are sufficient conditions or favorable prospects, a group of industrial parks and chemical industry parks in prefecture-level cities, county-level cities, townships and towns ceaselessly promote new projects both at home and abroad. For example, Jiangsu is the province with the highest gross production value of industry and the highest production value of the petroleum and chemical industry. It has constructed 136 industrial parks and 16 of them are chemical industry parks. Some of these parks have certain special features, but most of them are similar.
   The planned area of chemical industrial parks is often 10 square kilometers to 20 square kilometers. Nevertheless, a 1.0 million t/a ethylene plant with an investment of RMB20 billion-30 billion needs an area of only 1.2-1.5 square kilometers. Several dozen downstream processing and fine chemical units can be constructed in an area of 1.0 square kilometers. For example, a 70 000 t/a AA project with an investment of around RMB450 million needs an area of 15 000-20 000 square meters - only 1.5%-2.0% of 1.0 square kilometers. It is therefore very difficult for an industrial park of several dozen square kilometers to conduct successful project promotion. There is still an upsurge in the construction of such industrial parks today. For example, centering on MDI and TDI projects, Chongqing Chemical Industry Park has planned a large group of polyurethane raw material and downstream processing units such as PO, PPG, AA, BDO, DMF and PTMEG. However, in the western region people's standard of living is still quite low, so the demand for polyurethane there is small.

3. Pursuit of short-term gains

Many private enterprises have entered the polyurethane raw material sector blindly. They seldom make painstaking market surveys and forecasts before they start projects. They do not really understand the production, consumption and development trends of products in domestic and overseas markets. They do not analyze strengths and weaknesses of projects they intend to launch. They lack information about their future position and their main competitors. More often than not, they care only for the present market demand and today's profitability of products, with the consequence that capacity has grown willy-nilly and become much higher than the demand in downstream sectors.
   The development of polyurethane raw materials in China has already slowed down today. Growth was 8%-9% last year and is estimated to be no faster than that this year. Needless to say, the global financial crisis is the main culprit. The base number is however also larger. The development speed of traditional application sectors is slower. Some new application sectors are being developed and disseminated. As a result of the above, only after environmental protection and energy conservation have taken root, the people's living standard has improved further and downstream sectors are further developed - such as building energy conservation, water-based polyurethane, thermoplastic polyurethane, adhesives and sealants - can the demand for polyurethane raw materials increase drastically. Failing this, the surplus capacity for polyurethane raw materials will sit idle for many years.