BASF switches to China with Verbund project

Source: ECN

2018/07/13

The world’s largest chemical company chose China over the US for a project which will be its third-largest site globally

BASF is looking to tempting industrial and consumer growth in China’s Guangdong province, where the market for chemicals is currently undersupplied.

Not so long ago, the company appeared to be following the feedstock and was preparing to invest a significant sum in the US to improve its propylene supply.

A methanol-to-propylene (MTP) plant would capitalise on abundant propane from shale gas and help balance out the company’s demand for the C3 olefin. This would have been the company’s most significant investment to date.

But now BASF has broadened its horizons and clinched a tempting memorandum of understanding (MoU) for further, significant investment in China which currently commands about 40% of all global chemicals production.

Guangdong province is an attractive prospect for any chemical company. But if you can persuade provincial and national politicians that you are a worthy investor and they offer the prospect of you assuming full operating control, then it is particularly tempting.

Guangdong’s GDP growth currently is 7%/year. It is estimated at 6%/year out to 2035. Big local industries are expanding fast – automobile at 18%/year, electronics at 11%/year. Then there is demand growth for chemicals used in transportation and in household and personal care.

BASF makes intermediates and other products for all these industries and sectors of the economy. Its big joint venture “verbund” site in Nanjing has performed well, it says.

BASF’s concept of integration, or verbund, extends from manufacturing to research, even to the running of the company itself.

The future at this complex will be based very much on “smart manufacturing”. You can expect BASF to apply the latest industry 4.0 thinking as it maps out integration from the lab bench through its logistics chain to the customer in its most modern array of production facilities. Those will follow the usual blueprint, with a 1m tonne/year cracker at their heart.

BASF is highly integrated from olefins through critical intermediates into a range of more specialised products such as surfactants, amines, super absorbent polymers, dispersions, polyols and performance polymers.

An investment of up to $10bn is expected. A pre-feasibility study comes next, with the first plants starting up around 2026 and the complete complex ready around 2030. The advance of BASF’s verbund manufacturing sites has largely followed market growth and the global expansion of the company. In Europe, the company has its Ludwigshafen and Antwerp cracker-based verbund sites. In the US, there are verbund complexes in Freeport, Texas, and Geismar, Louisiana.

BASF has a hugely important and well-established joint venture verbund site in Nanjing, China, while recently it has expanded at Kuantan, Malaysia. Whichever way you look at it, nowhere other than China offers the potential for demand growth for the type of chemical intermediates that BASF makes. The company must also be keen to cement its relationships with China’s big automakers and electronic goods manufacturers.

It is telling that the MoU was signed in Berlin on 9 July by BASF CEO Martin Brudermuller and the executive vice governor of Guangdong province, in the presence of German Chancellor Angela Merkel and Chinese Premier Li Keqiang.

The unveiling of the investment plan comes at a critical time, as global commerce is rocked by the simmering trade war between the US and China and as China assumes growing global economic and strategic influence.

Against this shifting trade and geopolitical backdrop, chemical companies are likely to move beyond their own export-led model to increasingly make investments – if they are able – as close as possible to customers in fast-growing downstream markets. In such an environment, and in a more circular economy, it is just-in-time manufacturing and logistics capabilities that assume greater importance while raw feedstock advantages are relatively diminished.