Covestro sees a prosperous future in China

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GERMAN-BASED chemicals giant Covestro posted record high profit in the third quarter, bolstered by China’s surging demand.

Net income soared 89.6 percent year on year to 491 million euros (US$570 million) in the three months to September, with sales in China growing the fastest globally, said Bjoern Skogum, Covestro’s president for China.

Sales in China grew 9.7 percent year on year over the past three quarters, and jumped 10.1 percent annually during the third quarter alone — exceeding markets worldwide, Skogum said.

While a decade ago China contributed 10 percent to Covestro’s global sales — which was already a large figure — it now accounts for 21 percent of the company’s revenue on the back of the nation’s industrial and consumption upgrading.

High-tech industries such as car manufacturing, new energy and electric devices have become the main “drivers” of Covestro’s business in China.

Its polymer products have seen both price and sales growth boosted by China’s robust demand, and given the profit of China’s car-making industry grew 10.3 percent year on year from January to September while profits of electronic device manufacturers rose 17.6 percent from a year ago, according to the National Development and Reform Commission.

Covestro also expects high growth potential in wind power, furniture and sports business, as China has about half the world’s wind farms, while environmentally-friendly water-based coatings are expected to grow at least 20 percent year on year in sales in this country between 2015 and 2020 on the back of the consumers’ higher demand for furniture, Skogum said.

China’s sports markets also present new growth opportunities to Covestro with more and more young people becoming involved in sports and fitness, underpinned by government policies, he added.

China outpaces US

The company’s business in China moved past that in the United States in the third quarter with China reaping 788 million euros, compared with 681 million euros in sales in the US, “because US industries have been hit by recent hurricanes while China’s chemical prices and demand grew robustly,” Skogum said.

Prices in China for diphenyl-methane-diisocyanate, commonly used for water-proofing and heat-resistance, jumped 16.9 percent over the 90 days to November 1 to 29,275 yuan (US$4,410) per ton.

As one of the main producers in this market, Covestro said that has been driven by the surging demand, given China has posted continuous industrial expansion, with the official Purchasing Managers’ Index — a measure of the vitality of the manufacturing sector — hitting a two-year high in September after two months of growth.

Covestro has been focusing more and more on China — which produces one third of the world’s chemicals each year.

Asked about when he was asked to become the company’s president for China this year, Skogum said he “hesitated only two seconds.”

The nation’s chemical business is bolstered by the rising middle class in this region — which is astounding foreign producers by the speed of change, he said.

Skogum did not unveil details of expansion plans for the region, but said the company will add a 200,000-ton polycarbonate project in Shanghai to address the surging demand.

And it will enhance the development of its online business in China in line with the nation’s rapid cashless business development.

The changing behaviors of consumers with the development of applications such as Alipay and WeChat, which allow online payment, are also pushing companies in China to adapt their operations.

US-based Dow and German-based BASF are using supercomputers to help speed the development of products to cater to consumers’ changing requirements.

Covestro is at the vanguard, with its online purchasing platform connected to its rapid-response supply system to more quickly satisfy customer needs.

“We chemical producers should be able to choose products, pay orders and provide services through a unified platform,” Skogum said.

Green revolution

Covestro has sped up local innovation by enhancing collaboration with local research institutes such as Tongji University.

And the company and its partners have developed the first polyurethane-based 37.5-meter wind blade in China to tap the nation’s robust renewables development.

More than a decade since Skogum’s first stint in China during 2004-2006, he has seen the great potential of the nation’s growth, and today he is even more sure of focusing on this fast-changing market to win a bigger share.

As it updates new products and its operations, Covestro closely monitors changes in environmental laws and regulations and has been leading the chemical industry in reducing carbon emissions and cutting energy consumption.

While inefficient chemical companies have been phased out, especially in the first tier cities such as Shanghai, Covestro has been by contrast expanding in its Shanghai plant. It introduced gas phase technology in China, which helped it save 60 percent of energy and 80 percent of solvents required for production.

It also found a way to reuse saltwater in chemical reactions and has been awarded by the community and local government — such as the 2017 Sustainability Influence Award and the 2017 Sustainability Communications Award.

Covestro has gained reputation as an innovator for converting carbon dioxide into a raw material for foams and successfully scaling up production. Covestro is expected to bring advanced international technologies to contribute to the nation’s industrial upgrading.

While Chinese producers now produce chemical commodities efficiently and cheaply, they are still learning foreign technology to develop new materials and “greener” operations, said Paul Pang, vice president and Shanghai regional head at IHS Markit, a London-based industrial consultancy.

“Covestro is committed to leveraging China’s upgrading efforts and policies,” Skogum said. “What we’ve done and plan to do deeply echo the nation’s development plan and consumers’ needs.”

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