PU: New Opportunity in Low Carbon Drive   

By Zhang Jie, School of Materials Science and Engineering, East China University of Science and Technology

Raw materials: rising capacity, narrowing production/demand gap

China's propylene oxide (PO) production capacity rose to 1.565 million t/a when the 280 000 t/a world's class PO joint venture plant by Sinopec Corp and Lyondell Chemical Co Ltd came into operation in 2009. With more projects starting production, China's PO output may reach 1.2 million tons in 2010, as the supply/demand gap keeps narrowing. At present, China's PPG (polypropylene glycol) capacity has reached 2.17 million t/a, while annual demand is about 1.326 million tons. In the coming couple of years, another wave of project expansion is expected in China. PPG capacity is expected to reach 2.6 million t/a in 2011, against the domestic market demand of about 1.457 million tons.
   In 2000-2009, both China's pure MDI (diphenylmethane diisocyanate) and polymeric MDI consumption maintained an annual growth rate of more than 20%. Consumption for pure MDI rose from 60 000 tons in 2000 to 330 000 tons in 2009 while that for polymeric MDI jumped from 100 000 tons to 630 000 tons during the same period, representing an average annual growth rate of 22.14% and 23.9% respectively.
   As of the end of 2010, the domestic MDI capacity by Yantai Wanhua Polyurethanes Co Ltd stood at 800 000 t/a, making it the largest MDI supplier in Asia. By comparison, China's total MDI capacity also reached 1.39 million t/a at the same time. It is expected China's MDI capacity may reach 2.25 million t/a by 2015 with several large MDI facilities already in the pipeline.
   The TDI (toulene di-isocyanate) capacity in China was 440 000 t/a in 2010, while output was 353 000 tons. Domestic consumption stood at 478 000 tons, implying a supply gap of 125 000 tons. China's TDI capacity is expected to reach 840 000 t/a while output to hit 650 000 tons by 2015 with a number of new or expansion projects coming on line including the 250 000 t/a facility by Bayer MaterialScience in Shanghai and the 100 000 t/a plant by Cangzhou Dahua Co Ltd. Supply and demand will be basically balanced at that time.

PU: a boost for high performance materials

Export-oriented industries such as toy, textile, furniture, synthetic leather and shoes have suffered from the financial crisis from the second half of 2008 to the first half of 2009. China's consumption for polyurethane (PU) products was about 4.86 million tons in 2008, with annual growth rate falling to 6.9%. However, thanks to the government's RMB4 trillion infrastructure-focused stimulus package and related incentive policies, the profit in the PU flexible and rigid foam and machinery sectors which supply the auto and home appliance industries had greatly rebounded in mid-2009. China's PU product consumption rose 11.4% from a year earlier to 5.42 million tons, making the sector the first to get out of the financial meltdown. China's PU product consumption rose to 5.994 million tons in 2010 from 4.552 million tons in 2007, representing an average annual growth rate of 7.2% (table 1), thanks to the wide application of high performance PU products in fields ranging from transport, construction, entertainment, sport and PU films. Among them, flexible PU foam, rigid foam, water-resistant and paving materials as well as spandex led the growth.

Layout: Industry layout basically formed

After nearly 10 years of high speed development, the layout of China's PU industry has been basically formed. The Yangtze River Delta region, with Shanghai being the center, and the Bohai Ring area (including Tianjin, Hebei, Shandong and Liaoning provinces) with Yantai being the center are two most advanced regions for the production of PU raw materials in China. The PU industry in Bohai Rim will lead the development of the whole northeast China region. Also, the Pearl River Delta region, led by Guangzhou, is China's export hub with huge demand for PU products and has become the most advanced area for product development and application.
   The further expansion of the TDI project in Gansu Juyin Chemical Industry Co Ltd and the inauguration of TDI, PTMEG and large scale propylene oxide facilities in Shanxi province, the development and application of PU will be greatly bolstered in northwest China. Also, a PU industry zone in southwest China, with Chongqing as the center, will be formed with the launch of BASF's 400 000 t/a MDI facility there. This will boost the application and development of PU in that region.

Future: Low carbon economy creates new opportunities

As the third largest economy, China's GDP growth is still expected to stay at around 10% in the coming years. China's urban population will rise to 350 million in 15 years with the fast pace in urbanization. Economic growth and higher level of living standards will see PU-related industries such as infrastructure, construction, and transport keeping rising. The rise of other sectors such as high-speed railway, urban rail, lightweight electric cars and solar and wind power will also trigger demand. China's demand for PU products is expected to maintain a growth rate of about 10% in the future.
   Low carbon economy will become a main theme of China's economy development in the future, creating business opportunities for the PU industry. Today, the building sector consumes about 40% of the energy worldwide, and accounts for a third of the world's greenhouse gases emission. In China, buildings account for about 30% of its total energy use, and the energy consumption for heating per unit of building area in China is three times that of developed nations. During the average life of a building, 1 ton of PU insulation materials could translate into a reduction of 0.755 ton of CO2 emission, 35.665 ton of standard coal, 27.1 m3 of natural gas and 29.13 kWh of electricity. In the transport industry, the use of 1 kg of PU materials could save 6 - 12kg of CO2 emission of the lifespan of a vehicle.
   Developing a low carbon economy will greatly promote the use of PU for insulation, energy saving and emission reduction.

Challenges: fierce competition, environmental and safety concerns

China's economy has entered a period of stable development after experiencing the global financial crisis. However, the nation is still facing challenges of the appreciating RMB, rising CPI and inflationary pressures. Rapid economic growth will trigger a capital influx into the promising PU industry, bringing more competition in this sector.
   In addition, as the industry scale keeps expanding, safety and environmental issues have become the main hurdle for the development of the PU industry and drawn attention from the industry and the public. PU materials can be an ideal solution, both safe and environmental friendly, to existing issues such as the alternate technology targeting greenhouse effect, the recycling of renewable resources, flameproof low-smoke insulation materials and solvent-based PU resins. While companies in the industry are strengthening self-regulation with the advance in technology, corresponding safety and health standards and stricter government regulations are also needed to ensure the healthy development of the PU industry.

Direction: optimize industry setting, enhance technology innovation

The future PU industry should focus on low carbon economy and ecology, with higher concentration ratio, unique features, new technology and more detailed market segmentation, so that it can be more competitive in the global market; the industry layout should be further improved, with more presence being built up in central, west, and northeast China; the nation should also continue to develop new