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Volume 91 Issue 18 | pp. 22-23
Issue Date: May 6, 2013

‘Made In China’ Label For Facilities

Asian suppliers of plant parts and engineering are increasingly competitive on cost, schedule, and quality
Department: Business
Keywords: China, sourcing, engineering, ethylene, safety
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THE WHOLE WORKS
Asian companies are emerging as suppliers of chemical plant parts and engineering services. This cracking furnace is at a petrochemical plant that China’s Wison Engineering delivered to PetroChina in Xinjiang, in northwest China.
Credit: Wison
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THE WHOLE WORKS
Asian companies are emerging as suppliers of chemical plant parts and engineering services. This cracking furnace is at a petrochemical plant that China’s Wison Engineering delivered to PetroChina in Xinjiang, in northwest China.
Credit: Wison

Managers at BASF have come up with another way to take advantage of their firm’s deepening roots in Asia. The German chemical giant is establishing a new group staffed with hundreds of people who are tasked with procuring chemical plant parts and engineering services from Asian suppliers. The unit has already arranged the shipping of Asian plant parts to BASF manufacturing sites worldwide.

“We even ship equipment to Ludwigshafen; incredible, isn’t it?” observes Klaus Welsch, BASF’s Shanghai-based senior vice president for engineering and maintenance in Asia-Pacific. Germany is a major exporter of heavy equipment and BASF’s traditional source for most of its plant parts, especially for its German sites. Ludwigshafen, about 50 miles south of Frankfurt, is the location of BASF’s headquarters and its largest manufacturing base worldwide. “Asia has become very competitive for plant equipment,” Welsch notes.

One of the side effects of the fast growth of the chemical industry in Asia, and China in particular, is an improvement in local expertise in building chemical plants and manufacturing plant parts. Increasingly, chemical companies and engineering contractors worldwide are turning to China and neighboring Asian countries as sources of parts and engineering services.

Wison Engineering, a Shanghai-based contractor that builds chemical plants and refineries, is using its home base as a calling card for international expansion. “Our ability to competently source plant parts from Chinese suppliers is an obvious advantage for us when bidding on international tenders,” says Dechang Yang, general manager of procurement at Wison.

Wison has already built in Nanjing a synthesis gas plant, now operated by a Wison affiliate, that supplies an adjacent Celanese acetyl chemicals facility. And it will expand its syngas relationship with Celanese as the U.S. company moves into the ethanol business in China.

Although China offers low prices, sourcing plant parts and engineering services from the country does not simply translate into a lower construction bill for the buyer, Yang stresses. In fact, he says, Wison is not necessarily a lower bidder than its foreign competitors. “Depending on the situation, we can save our clients money by delivering the facilities faster, which reduces the capital cost, or finding in China suppliers who can produce longer-lasting plant parts.”

Aided by government incentives and the growth of the domestic chemical industry, China is rapidly expanding its ability to produce equipment for chemical plants, Yang notes. For example, the country now has the capacity to produce 15 million metric tons per year of ethylene, a key raw material used throughout the chemical industry. In 1985, China’s ethylene capacity was only about 1 million metric tons, according to Mitsubishi Chemical Techno-Research, a Japanese market research firm.

Nowadays, Yang says, about 80% of the parts and equipment used in a large chemical plant can be sourced from China. Twenty or so years ago, China had to import most key plant components such as reactors, pumps, and compressors, he recalls.

China’s emergence as an international supplier of chemical equipment and engineering services is occurring even though its chemical industry still has a relatively poor safety record. In a speech in Malaysia last month at a conference organized by the U.K.-based Institution of Chemical Engineers, Haoshui Wang, an official from China’s State Administration of Work Safety, acknowledged that too many chemical industry workers die in China every year. China’s safety record lags behind those of other countries, he said.

Yang insists that Wison can allay any safety concerns a potential buyer of Chinese equipment and engineering services might have. “It makes no sense for the client to pay less if the piece of equipment is not reliable,” he says.

Outside China, Wison works on projects either as a stand-alone contractor or as a partner to more established engineering firms. Either way, Yang says, clients aren’t left in doubt about the pedigree of equipment sourced from Chinese suppliers with unfamiliar names. “We’re able to explain who the supplier is, how many employees the company has, how long it’s been in business, the financial situation, and in which other plant the equipment is already in use,” he says.

BASF’s Welsch likewise stresses that monitoring the performance of equipment suppliers is an important focus of his team, which operates out of locations throughout Asia. BASF audits all suppliers before placing an order and tests the parts upon arrival.

“The more critical it is, the more we audit,” he says. “We might even watch them weld the parts together, if the equipment is very critical.” BASF’s guidelines for sourcing parts and engineering services from Asia are the same as they are for other parts of the world, he adds.

Already staffed with 200 people, Welsch’s team is the result of an evolution in corporate thought. BASF managers realized a few years back that the company had gained institutional expertise in sourcing parts and engineering services in Asia over two decades of plant construction, particularly in China and Malaysia. His procurement group was formally established two years ago so BASF could build on the knowledge it has acquired and apply it throughout the company worldwide.

For the time being, the main focus of Welsch’s team is BASF’s Asian projects. One of its first undertakings was supporting the construction of a plant in Nanjing, completed in December, that produces water treatment and paper chemicals. Most of the detailed engineering work for the plant was performed in Asia, Welsch says. “We met our cost targets and complied with a very aggressive construction timetable,” he says. The team is now in charge of managing a far larger project, a $500 million aroma chemicals complex in Malaysia that BASF announced recently (C&EN, April 29, page 14).

BASF is still in the early stages of fully exploiting Asia’s potential for supplying plant parts and engineering services. Welsch believes that with some external support more Asian companies could become global suppliers. “Like we do in the rest of the world, we can initiate supplier development programs in Asia,” he says. “Some Asian companies have the potential to raise their specifications for vessels, valves, and so on.”

The benefits of sourcing parts and services from Asia are attractive enough that all international chemical plant constructors are building up their procurement infrastructure in the region, Wison’s Yang says. For the time being, with 140 people in its procurement department, Wison maintains an advantage over its competitors in terms of its knowledge of Chinese suppliers, he believes.

Indeed, Yang says other engineering firms recognize Wison’s knowledge of the Chinese equipment and engineering landscape, something that helps Wison win contracts or be invited to cooperate on projects with international contractors. Wison is not willing, however, to advise other firms on how to deal with Chinese suppliers, even for a fee. “This is our core competency,” he says.

 
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