Evolution Of Converters / Downstream Industries In The ... - Singapore/CMAI...APIC Marketing Seminar by CMAI Singapore, May 27, 2008 Andrew Ho Director – Polyolefins, Asia ... Non

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APIC Marketing Seminar by CMAIAPIC Marketing Seminar by CMAISingapore, May 27, 2008Singapore, May 27, 2008

Andrew HoAndrew HoDirectorDirector –– PolyolefinsPolyolefins, Asia , Asia

[email protected]@cmaiglobal.com

Evolution Of Converters / Downstream Evolution Of Converters / Downstream Industries In The Middle East And AsiaIndustries In The Middle East And Asia

The plastics processing industry plays an important role in the supply chain and acts as the linkage between the oil & petrochemicals industry and the consumers. Plastic resins are processed and converted into a form which can be sold as primary or secondary products. China’s position as the factory for the world results in a huge appetite for energy, commodities and also for plastic resins. Plastics demand growth has been driven mainly by China and at the expense of other countries in the region. China’s successful formula lies in its huge pool of relatively low cost and highly productive labor; the focus on exports of finished goods and also the attraction of a large domestic market. The challenges ahead for China’s plastics processing industry is to move up the value chain to counter the effects of rising labor costs, business costs and appreciation of currency. The Middle East region and India have relatively smaller scale plastics processing industry than China, but both have great growth potential. India has been touted as the next China and the term “Chindia” was used to describe the next phase of economic cooperation between the two giants. India’s plastics processing industry intends to emulate the success of the industry in China. The Middle East region’s plastics processing industry will see a vast increase in supply of plastic resins over the next few years. Governments in the region are tapping the opportunity to encourage the growth of plastics processing industry via introduction of plastics processing zones. In the future, plastics exports will comprise of plastic resins and plastic products. Investments in engineering plastic resins production will widen the scope for the industry in terms of producing non-durables and durables goods. Due to the sheer size of the industry, China will continue to feature prominently in terms of plastics processing. However, the new frontiers like India and the Middle East region will enjoy double digit growth rates for plastics processing industry.

2008 APIC – CMAI Seminar2008 APIC – CMAI Seminar

What Is Exported From China, India And Middle East ?

What Is Exported From What Is Exported From China, India And Middle East ?China, India And Middle East ?

•• China makes for the worldChina makes for the world•• TextilesTextiles•• ToysToys•• ConsumablesConsumables•• White goods White goods –– VCR, refrigerator, TV, PC, etcVCR, refrigerator, TV, PC, etc

•• India connects the worldIndia connects the world•• IT (People)IT (People)•• BPOBPO•• Call CentreCall Centre

•• Middle East powers the worldMiddle East powers the world•• OilOil•• PetrochemicalsPetrochemicals


Who Has Been Receiving The Bulk of FDI ?

Who Has Been Receiving The Bulk Who Has Been Receiving The Bulk of FDI ?of FDI ?

ChinaChina Middle EastMiddle East IndiaIndia19951995 19961996 19971997 19981998 19991999 20002000 20012001 20022002 20032003 20042004 20052005 2006200600

2000020000

4000040000

6000060000

8000080000

100000100000

120000120000Million of U.S. DollarsMillion of U.S. Dollars

Source: World BankSource: World Bank


China And India Have Different Focus For Economic Development

China And India Have Different China And India Have Different Focus For Economic DevelopmentFocus For Economic Development

AGRICULTUREAGRICULTURE MANUFACTURINGMANUFACTURING SERVICESSERVICES

19901990 20002000 20062006 19901990 20002000 20062006 19901990 20002000 20062006ChinaChina IndiaIndia Middle EastMiddle East

00

1010

2020

3030

4040

5050

6060

7070

8080PercentPercent

Source : World BankSource : World Bank


Where’s The Growth Of Plastics Demand ?

WhereWhere’’s The Growth Of Plastics s The Growth Of Plastics Demand ?Demand ?

20002000 20012001 20022002 20032003 20042004 20052005 20062006 20072007 20082008 20092009 20102010 20112011 20122012

CHINACHINA

NEA ex CHINANEA ex CHINA

SEASEAINDIAINDIA

KSAKSA

ForecastForecast

00

55

1010

1515

2020

2525

3030

3535

4040Million Metric Tons, Million Metric Tons, PolyolefinsPolyolefins


What is China’s Plastics Processing Industry Producing ?

What is ChinaWhat is China’’s Plastics Processing s Plastics Processing Industry Producing ?Industry Producing ?

Plastics FilmPlastics Film Extrusion ProfilesExtrusion Profiles Plastic PipesPlastic PipesPlastics Woven ProductsPlastics Woven Products Synthetic LeatherSynthetic Leather PU FoamPU FoamPlastic Boxes and ContainersPlastic Boxes and Containers Daily Use Plastics ProductsDaily Use Plastics Products OthersOthers

20002000 20012001 20022002 20032003 20042004 20052005 20062006 2007200700

55

1010

1515

2020

2525

3030

3535Million Metric TonsMillion Metric Tons

Source : CPPIA Source : CPPIA


Plastics Demand Is Not Just For ChinaPlastics Demand Is Not Just For ChinaPlastics Demand Is Not Just For China

20002000 20012001 20022002 20032003 20042004 20052005 20062006 20072007--2020

--1010

00

1010

2020

3030


Domestic Demand (Resins)Domestic Demand (Resins)Exports (Plastic Products)Exports (Plastic Products)

Domestic Demand (Plastic Products)Domestic Demand (Plastic Products)


The Converting Industry In Middle East/India – The Next China

The Converting Industry In Middle The Converting Industry In Middle East/India East/India –– The Next ChinaThe Next China

They are two of the fastest growing They are two of the fastest growing converting industries worldwide at converting industries worldwide at 1212--15 percent per annum15 percent per annum

There will be a huge increase in There will be a huge increase in domestic supplies of polyolefin resindomestic supplies of polyolefin resin

Middle East is striving for higher value Middle East is striving for higher value added production for domestic added production for domestic markets and foreign exportsmarkets and foreign exports

India has a rapidly expanding domestic India has a rapidly expanding domestic finished goods market, low labor finished goods market, low labor costs and a desire to become more costs and a desire to become more selfself--sufficientsufficient


Middle East & India PO Demand Growth

Middle East & India PO Demand Middle East & India PO Demand GrowthGrowth

HDPEHDPE LLDPELLDPE LDPELDPE PPPP

20022002 20032003 20042004 20052005 20062006 20072007 20082008 20092009 20102010 20112011 2012201200

22

44

66

88

1010

1212


2008 APIC – CMAI Seminar2008 APIC – CMAI SeminarPE ExportsPE Exports PP ExportsPP Exports Polyolefins Consumption Polyolefins Consumption

Middle East Still Relies Heavily On Export Despite Strong Growth Of Domestic

Consumption

Middle East Still Relies Heavily On Export Middle East Still Relies Heavily On Export Despite Strong Growth Of Domestic Despite Strong Growth Of Domestic

Consumption Consumption

20032003 20042004 20052005 20062006 20072007 20082008 20092009 20102010 20112011 2012201200

55

1010

1515



China’s Plastics Processing Industries To Focus On Higher Value Products

ChinaChina’’s Plastics Processing Industries s Plastics Processing Industries To Focus On Higher Value ProductsTo Focus On Higher Value Products

During the During the ““1111thth FiveFive--year Planyear Plan”” period, the demand of four industries including packaging; period, the demand of four industries including packaging; autos; chemical building material and electronic/electrical applautos; chemical building material and electronic/electrical appliancesiances……will drive the growth of will drive the growth of plastics demand. plastics demand. –– Dr Hong DY, Science Committee, Sinopec Corporation. Dr Hong DY, Science Committee, Sinopec Corporation.

19921992 19991999 20002000 20012001 20022002 20032003 20042004 20052005 20062006 20072007

Domestic ManufacturersDomestic ManufacturersDongfengDongfeng Motor CorporationMotor CorporationGreat Wall MotorsGreat Wall MotorsGuangzhou Automobile Industry GroupGuangzhou Automobile Industry GroupShanghai Automobile Industry CorporationShanghai Automobile Industry CorporationChang'anChang'an MotorsMotorsFirst Automobile WorksFirst Automobile WorksCheryChery AutomobileAutomobileGeelyGeely AutomobileAutomobileBrilliance China AutoBrilliance China Auto

Joint Venture ManufacturersJoint Venture ManufacturersToyotaToyotaNissanNissanHondaHondaSuzukiSuzukiMazdaMazdaDaihatsuDaihatsuMitsubishiMitsubishiFIATFIAT

IsuzuIsuzuFordFord

GMGMPSA PeugeotPSA Peugeot--CitroenCitroen

VWVW

00112233445566778899

1010Million UnitsMillion Units


India’s Plastics Processing Industries Learn From Their

Chinese Counterparts

IndiaIndia’’s Plastics Processing s Plastics Processing Industries Learn From Their Industries Learn From Their

Chinese CounterpartsChinese Counterparts

ChinaplasChinaplas 2007 2007 -- 11stst ChinaChina--India Plastics Industry Summit India Plastics Industry Summit

PlastIndiaPlastIndia 2009 2009 –– 22ndnd ChinaChina--India Plastics Industry SummitIndia Plastics Industry Summit


New Industrial Park in Saudi ArabiaNew Industrial Park in Saudi ArabiaNew Industrial Park in Saudi Arabia

Rabigh Conversion Industrial ParkRabigh Conversion Industrial Park

CompetitivelyCompetitively--priced resins priced resins suppliedsuppliedElectricity at government Electricity at government pricespricesIncentives provided by Incentives provided by governmentgovernment110 miles from Jeddah port110 miles from Jeddah port10 Miles from King Abdullah 10 Miles from King Abdullah Economic CityEconomic CityAccess to multiple marketsAccess to multiple markets


End-to-End Investment in UAEEndEnd--toto--End Investment in UAEEnd Investment in UAE

Industry & Value chain organizations

Shared services & facilities

Material and application R&D

Academic polymer science education and R&D

Abu Dhabi Basic Industries Corporation

UAE providing infrastructure and technical supportEmployment opportunities for local work force is also important

UAE providing UAE providing infrastructure and infrastructure and technical supporttechnical supportEmployment Employment opportunities for opportunities for local work force local work force is also importantis also important


Development Of Plastics IndustryDevelopment Of Plastics IndustryDevelopment Of Plastics Industry

Higher Value AddedHigher Value AddedLower Value AddedLower Value Added

Low

er P

last

ics

Con

tent

Hig

her P

last

ics

Con

tent



Local MarketsLocal MarketsRegional/Global MarketsRegional/Global Markets

Low unit freight costsLow unit freight costs High unit freight costsHigh unit freight costs

Hig

h La

bor r

equi

red

Hig

h La

bor r

equi

red

Low

Lab

or re

quire

dLo

w L

abor

requ

ired



Commodity PlasticsCommodity Plastics Engineering PlasticsEngineering Plastics

Hig

her

com

plex

ity o

f H

ighe

r co

mpl

exity

of

supp

ort i

ndus

try

need

edsu

ppor

t ind

ustr

y ne

eded

Low

er c

ompl

exity

of

Low

er c

ompl

exity

of

supp

ort i

ndus

try

need

edsu

ppor

t ind

ustr

y ne

eded

Tooling, Tooling, MouldingMoulding Making, Precision EngineeringMaking, Precision Engineering


Plastics Processing In China Plastics Processing In China Is Labor IntensiveIs Labor Intensive

11

1010

100100

10001000

1000010000

100000100000

20002000 20012001 20022002 20032003 20042004 20052005Plastics Demand '000 Tons/YearPlastics Demand '000 Tons/Year Average No. of Workers '000Average No. of Workers '000Output per worker Tons/WorkerOutput per worker Tons/Worker


China’s Manufacturing Industries Are Faced With Rising Costs

ChinaChina’’s Manufacturing Industries s Manufacturing Industries Are Faced With Rising CostsAre Faced With Rising Costs

Increase of between Increase of between RMB300RMB300--RMB500 per RMB500 per month per workermonth per worker

15001500--2000200012001200--15001500Labor Labor cost(RMBcost(RMB/month)/month)

Loss of 6% of duty Loss of 6% of duty drawbackdrawback

551111Drawback for export, %Drawback for export, %

Rise in interests costsRise in interests costs7.027.026.126.12Bank Lending Rates, %Bank Lending Rates, %

Appreciation of RMBAppreciation of RMB7.07.07.97.9Exchange Rate, RMB/US$Exchange Rate, RMB/US$

RemarksRemarks2008200820062006


Where To Find US$2/Day LaborWhere To Find US$2/Day Labor

South AsiaSouth AsiaEast AsiaEast AsiaSub Saharan AfricaSub Saharan Africa

SouthEastSouthEast Asia & PacificAsia & PacificLatin America & CaribbeanLatin America & CaribbeanCentral & South Eastern Europe (non EU) & CISCentral & South Eastern Europe (non EU) & CIS

North AfricaNorth AfricaMiddle EastMiddle East

19971997 20022002 2007200700

100100

200200

300300

400400

500500

600600MILLIONMILLION

Source : ILOSource : ILO


US$2 A Day Working Poor US$2 A Day Working Poor ––Percent Of Total Employment Percent Of Total Employment

South AsiaSouth Asia Sub Saharan AfricaSub Saharan AfricaSouthSouth--East Asia & PacificEast Asia & Pacific East AsiaEast AsiaNorth AfricaNorth Africa Latin America & CaribbeanLatin America & CaribbeanCentral & Central & SoutSout--Eastern (non EU) & CISEastern (non EU) & CIS Middle EastMiddle East Source : ILOSource : ILO

00101020203030404050506060707080809090

100100

19971997 20022002 20072007

PercentPercent


Automation Is Not A Priority When Low Costs Labor Readily Available

Automation Is Not A Priority When Low Automation Is Not A Priority When Low Costs Labor Readily AvailableCosts Labor Readily Available


Other Factors That Can InfluenceOther Factors That Can InfluenceBusiness Business Decisions By EnterprisesDecisions By Enterprises

0.000.00

1.001.00

2.002.00

3.003.00

4.004.00

5.005.00

6.006.00

Nonwage labor costsNonwage labor costs(% of Salary)(% of Salary)

Costs to exportCosts to export(US$ per container)(US$ per container)

Total tax rate Total tax rate (% of profit)(% of profit)

ChinaChina IndiaIndia Saudi ArabiaSaudi Arabia SingaporeSingaporeSource : World Bank/IFCSource : World Bank/IFC


Development of Plastics IndustryDevelopment of Plastics IndustryDevelopment of Plastics Industry

Non Durables / Non Durables / ConsumablesConsumables

DurablesDurables

Low

Lab

or re

quire

dLo

w L

abor

requ

ired

Hig

h La

bor C

osts

Hig

h La

bor C

osts

Hig

h La

bor r

equi

red

Hig

h La

bor r

equi

red

Low

Lab

or C

osts

Low

Lab

or C

osts

MADE IN CHINAMADE IN CHINAChallenges Challenges –– Rising Energy & Labor Costs; Exchange rate; High dependence on Rising Energy & Labor Costs; Exchange rate; High dependence on tradetrade

CHINA PLUS ONECHINA PLUS ONEChinese Processor sets up factory Chinese Processor sets up factory

outside Chinaoutside ChinaMADE IN INDIAMADE IN INDIA

Need to catch up with ChinaNeed to catch up with ChinaChallenges Challenges –– Labor productivity; Develop export businessLabor productivity; Develop export business

MADE IN MIDDLE EASTMADE IN MIDDLE EASTEncourage development Encourage development of plastics processing of plastics processing

Challenges Challenges -- Automate where possible Automate where possible and import labor if required.and import labor if required.

MADE IN MADE IN AFRICAAFRICAA FutureA FuturePossibility ?Possibility ?

Diversify and/or attract Diversify and/or attract companies to invest companies to invest

in production of capital goods in production of capital goods ((egeg. Cars, consumer electronics, . Cars, consumer electronics, consumer home appliances, etc..)consumer home appliances, etc..)


Concluding RemarksConcluding RemarksConcluding RemarksChina – The next phase of development of plastics processing industries will focus on moving up the value chain to higher value added products in packaging; automobile; chemical building material and electronics/electrical appliances.

India – The plastics industry in India will tapped on the experience and knowledge from their Chinese counterparts in order to hasten the development of the industry.

Middle East – The Middle East region’s plastics processing industry will be spurred on by Government led programs and also by the growth of supply of plastics resins.

China China –– The next phase of The next phase of development of plastics processing development of plastics processing industries will focus on moving up the industries will focus on moving up the value chain to higher value added value chain to higher value added products in packaging; automobile; products in packaging; automobile; chemical building material and chemical building material and electronics/electrical appliances.electronics/electrical appliances.

India India –– The plastics industry in India The plastics industry in India will tapped on the experience and will tapped on the experience and knowledge from their Chinese knowledge from their Chinese counterparts in order to hasten the counterparts in order to hasten the development of the industry. development of the industry.

Middle East Middle East –– The Middle East The Middle East regionregion’’s plastics processing industry s plastics processing industry will be spurred on by Government led will be spurred on by Government led programs and also by the growth of programs and also by the growth of supply of plastics resins. supply of plastics resins.

Documents

Evolution Of Converters / Downstream Industries In The ... - Singapore/CMAI...APIC Marketing Seminar by CMAI Singapore, May 27, 2008 Andrew Ho Director – Polyolefins, Asia ... Non