China loses cost advantage for new plants – Celanese

HOUSTON (ICIS)–China has lost much of its previous cost advantage that attracted companies to build new chemical plants in the country, the CEO of US-based acetyls producer Celanese said on Friday.

“Not that many years ago, we would have said there was a large advantage to building in China, just from a speed of build and cost of build,” said Lori Ryerkerk, Celanese CEO. She made her comments during an earnings conference call.

“As China has developed a stronger working class, I would say that that advantage doesn’t exist anymore. Not in the same way,” she said. “That advantage of being in China, just as a place to be because of lower cost materials, doesn’t really exist anymore.”

She added, “Making things in China for export is not so attractive anymore.”

One reason is labour costs. Those costs have risen in China, and the advantage is no longer as large as it was in years past, Ryerkerk said.

China’s middle class has grown and average wages have increased, she said.

While productivity has increased, so have costs, and China is no longer an exceptionally low-cost producer, Rykerkerk said.

And while US labour costs are higher, the US has a bit more productivity, she said.

Another reason is the cost of raw materials. Steel costs in China were once lower than many parts of the world, likely due to some government support. “A lot of that is gone now,” Ryerkerk said.

In prepared remarks, Celanese provided more specific reasons for why China will unlikely see the same surge in new acetyl plants as it did in previous years.

The main raw materials for acetyls include carbon monoxide (CO) and methanol, the company said. These are less abundantly available than in the past, when China’s rapid industrialisation led to a surge in coal gasification and a rise in carbon monoxide supplies.

In addition, a limited number of Chinese producers are able to build world-scale acetyl plants using the most competitive process technology, Celanese said. Acetyl process technology has improved significantly over the years, and the underlying intellectual property has stronger protection.

Environmental regulations in China are stricter. Also financing large acetyls plants is more difficult because lenders are giving much less consideration to social and political motivations for new projects.

There are still good reasons for building new plants in China, Ryerkerk said.

“We are still bullish on China, and we’re still bullish about our operations there,” Ryerkerk said. China is the world’s second largest, economy, and it is attractive to build new plants that will serve the domestic market.

Companies with plants in China that are selling to customers in China avoid supply-chain issues, tariffs and other trade barriers, she said.

“It can still make sense to build in China,” Ryerkerk said. “But we would not see the advantage of building in China for something we’re going to export to some other part of the region or some other part of the world.”

Acetyls include acetic acid, vinyl acetate monomer (VAM) and acetate esters such as butyl acetate (butac). They are used in adhesives and paints and coatings.

Thumbnail shows smoke billowing from a chemical plant. Source: View China Photo/REX/Shutterstock