BASF and Sinopec Celebrate Opening

There were balloons, confetti, dragon dances, bottles of wine, press conferences, and many speeches. The official inauguration last month of the $2.9 billion complex built by BASF and China Petroleum & Chemical Corp. (Sinopec) in Nanjing, China, meant a lot to the German chemical giant. To celebrate in style, BASF invited hundreds of dignitaries and journalists from China and the rest of the world.

Today's event not only celebrates the official opening of our first Verbund site in China, but also highlights our long-term commitment to Asia, and China in particular, BASF Chairman Jrgen Hambrecht said. Verbund refers to BASF's engineering principle of high integration at its chemical complexes. The Nanjing project, built next to Sinopec's Yangzi Petrochemical subsidiary, is BASF's largest investment outside Germany.

Hambrecht has closely monitored the progress of the project since its inception in the mid-1990s. The hard-driving executive was living in Hong Kong and heading BASF's operations in Asia when the company and Sinopec signed the initial letter of intent for Nanjing in 1996. That the complex is coming on-line at a time when Chinese demand for basic chemicals continues to be strong further vindicates BASF's commitment to the Nanjing project.

As initially conceived, the project would also have featured a major polyurethane production center; BASF is now building that facility in Shanghai's Caojing district instead. BASF also envisaged completing construction in Nanjing in 2002 according to a fixed schedule. But talks between the partners stalled in 1998 and 1999 when the Chinese side got cold feet during the Asian financial crisis.

Hambrecht instead saw the Asian financial crisis as a source of opportunities. One of these was to purchase at a discount ethylene production equipment that Stone & Webster had custom-built for a customer in Indonesia that went bankrupt before taking delivery. The 600,000-metric-ton-per-year cracker that BASF and Sinopec have set up in Nanjing came from this deal.

For more than a decade, BASF's top management has believed that the company's best growth prospects lie in Asia, and particularly in China. BASF has a corporate goal to derive 20% of its global sales from Asia by 2010-up from 14% in 2004-and to manufacture in the region 70% of the materials it sells there. Heinz Mller, an analyst at DZ Bank in Germany, recently ranked BASF as the European chemical company-among the ones he looked at-best positioned to take advantage of developments in the Chinese market.

BASF expects to spend $1.2 billion in Asian capital expenditures in the next four years, and Nanjing is a prime candidate to receive some of this money. A tour of the site revealed that some land between plants has been left conspicuously empty.

Andreas Kreimeyer, a BASF board member with overall responsibility for Asia, said that once the new facilities are operating smoothly, the joint venture will build additional plants and expand the capacities of existing ones. Sinopec President Wang Tianpu added that it is unacceptable that China relies on imports for about 50% of the chemicals it uses.

Effusive at the event, Hambrecht said Nanjing is the best location in China to set up large chemical plants. He insisted that government officials in the city of Nanjing and the province of Jiangsu are the best in China. Nanjing features China's largest chemical industry park and provides numerous opportunities for integration with other Sinopec facilities nearby.

Since the mid-1990s, foreign companies have discussed or implemented several major joint-venture projects with major Chinese oil and petrochemical firms. But the latter no longer resemble the companies that they were 10 years ago. Sinopec used to be cash poor, severely overstaffed, and painfully aware of its technological shortcomings.

Nowadays, China's oil giants are listed on international stock markets, their balance sheets are flush with cash, and their technological proficiency has improved following years of interaction with international firms. When asked if his company would continue to team up with foreign partners, Sinopec's Wang simply noted that Sinopec has progressed considerably in the past few years.

Hambrecht agrees that the conditions that led foreign and Chinese companies to set up joint ventures have indeed changed. But he told C&EN that Sinopec and other Chinese firms still lack the technological proficiency that BASF has attained in the manufacturing of downstream petrochemicals such as propionic acid or acrylic esters. This is one of the reasons he thinks China's oil and petrochemical firms will continue to seek foreign partners.