Feeding China's Fiber Industry

China's purified terephthalic acid (PTA) industry is about to experience some phenomenal growth. At the end of last year, China had annual PTA capacity of about 5 million metric tons and was importing almost that much. By 2010, it could be able to produce 10 million or even 15 million metric tons.

PTA is a key component of polyester fiber and polyethylene terephthalate, the polyester resin that soda bottles are made of. Chinese consumption of both products is booming. At the same time, Chinese exports of clothing are expanding rapidly. Between 2000 and 2005, China's polyester production will almost double, according to Dia Research Martech, a market research firm affiliated with Mitsubishi Chemical.

This year, international players in the PTA industry have announced several projects in China. Chinese players are also keen to build. There are about 20 Chinese PTA projects awaiting regulatory approval, according to P. C. Hwang, director of Asian synthetic fibers and intermediates at the Singapore office of market researcher Chemical Market Associates Inc. But most of these projects face an uncertain future, he adds, because authorities are likely to withhold approval in an effort to slow down the overheating Chinese economy.

Approval is essential to secure bank loans, Hwang explains. But companies with their own sources of capital often go ahead without official authorization. During a recent visit to Ningbo, Hwang saw that Hengsheng Chemical was completing construction of one of its two planned 530,000-metric-ton PTA plants, even though the project had never been officially approved.

Generally speaking, Hwang says that projects from companies with government backing are more likely to be implemented than those without. For this reason, he expects that a 1 million-metric-ton PTA plant by Yizheng Chemical Fibre will go forward, even though the firm, which is part of Sinopec, has just recently submitted the project for approval.

ONE REASON Chinese producers are able to build so many plants is that the structure of the international PTA industry has changed, explains Danley B. Wolfe, a Bangkok-based consultant with Chem-Energy Advisers. Until the early 1990s, the industry was dominated by Amoco (now BP), ICI, Mitsubishi Chemical, and Mitsui Chemicals. The four owned most PTA plants around the world and tended to license their technology only reluctantly. Before becoming part of BP, Amoco had licensed its process to four plants in China.

In the past few years, however, it has become much easier to obtain PTA technology. DuPont made ICI's technology widely available to others after it acquired the business in 1997. DuPont exited the PTA business when it sold its Invista unit to Koch Industries earlier this year; however, it is unclear whether Koch intends to continue to make the technology available. Other companies, such as Eastman Chemical, also have developed PTA processes that can be licensed.

Although it is relatively easy to license PTA technology, China is likely to remain an importer for at least a decade, an industry source explains. Outside China, there is much excess PTA capacity. Although shipping adds cost, PTA can be transported relatively easily, and in China, it is subject to an import duty of only 7%. Many importers are exempted from the import duty if they transform the PTA into a product that is exported.

Manufacturers still prefer to make PTA in China because of the freight savings. But the growth in demand is such that, even if producers were to build two worldscale PTA plants per year in China, it would only maintain the country's shortage of 5 million metric tons. And given how complicated it is to build large petrochemical plants anywhere in the world, managing to build two PTA plants every year would be an unprecedented feat. Despite the expansions planned, China's PTA deficit is more likely to increase than to shrink.