Today I want to share with you downstream status of polyurethane industry according to the experiences which have been accumulated in practice for long time.
It has been more than 40 years since the appearance of polyurethane industry in China, and it is developing at full blast since 2000. At the very beginning of this period, most of the materials were used for adhesive production, notably in 1960s and 1970s, and total capacity in 1978 was yet 11 kt. While stepping into 1990s, polyurethane industry in China has been rocketing till now thanks to the awesome development of China economy. Initial polyurethane technologies were confined to those from Taiwan and other East Asia area. As regarding to the MDI production, there is no doubt that Yantai Wanhua is NO.1 in domestic market, however, all the homemade materials, in my opinion, still need improvement on quality to date. As the hot polyurethane market in China would persist in the 5 years ahead, quality materials will be crucial for the development of each enterprises to survive from the rigorous competition.
Another stimulation that boosting polyurethane industry in China is that more foreign investment pours into this field recently, which shows the key position of potential Chinese market. With the advancement of processing technology in China, the industry chain is becoming more and more complete, with efforts from both upstream and downstream enterprises. With businesses confined to manufacturing, most of which located in the coastal area, downstream of polyurethane, which suffered gravely from relative policy and costs, stagnates recently, therefore the manufacturing centre of the whole world is shifting to mainland China, or even to Vietnam. In my opinion, current status of MDI industry in China is abnormal, due to various impacts including relative policy. In addition, some phenomenon like smuggling also contribute more for the chaos of domestic TDI market.
As regarding to the application of polyurethane, CASE area, notably coatings and adhesive industries surged recently. But here I want to talk about TPU and spandex market. Rigid PPG industry is developing slowly, however, its outlook on construction application is way prosperous, leaving the more demand leverage for MDI industry. As for the spandex market which boomed from 2003 to 2004, the vicious competition appeared in this area inevitably, thus mainstream prices for spandex stumbled successively and stepped into downturn in 2005. Thanks to the anti-dumping measures, spandex industry buoyed gradually, surged to the record high, and decayed once again recently. Demand for TPU is about 180 kt in 2008, confronting such potential market, technology innovation should be once again highlighted for all the domestic manufacturers.
Both PU coatings and sole resin industry encounters bottleneck with overflowing capacity. In my opinion, the inferior processing technology generates more chances for enterprises to follow suit, therefore vicious competition is brought into domestic market, which stirs the whole market tremendously. On the other hand, domestic footwear industry also suffered extremely with poor margins, furthermore, anti-dumping measure had cracked down on this footwear industry greatly, therefore it is obviously that, only technology innovation could spare more possibilities for further development of those industries, especially under the condition that both policy and business climate are too feeble for domestic PU market to develop smoothly.
As regarding to the policy impacts, RMB reevaluation was the most influential factor. As a manufacturing giant, China suffered a lot from exchange rate fluctuation. On the other hand, in addition to the adjustment of tax rebate policy, the implementation of updated Labor Law of China accelerated those impacts. Furthermore, the tight financing policy and environmental protection made the whole development of downstream of polyurethane even worse. To date, the irresistible downturn is haunting polyurethane industry overwhelmingly, and once again, the best way to survive, or to win, is to do more on technology innovation.