China's WPC firms see growth from Europe and China

SHENZHEN, CHINA (Nov. 24, 3:45 p.m. ET) -- China’s wood plastic composites industry is hoping that rising exports to Europe and a developing internal market will help it compensate for slumping demand from North America, previously its mainstay market.

For the time being, that is exactly what seems to be happening. While hard data is elusive, interviews with industry leaders at a recent conference suggests that demand from new markets has kept business at many of China’s biggest composite profile extruders solid through the worldwide economic slowdown.

“A lot of WPC plants, they have a really good export business and are not much impacted by the financial crisis,” said Toland Lam, president of the Wood Plastic Composites Committee of the Beijing-based China Plastics Processing Industry Association. “Most of them have more orders than they can produce, and a lot of them have to add capacity.”

Lam said his firm, Meixin Manufacturing Co. Ltd., has seen its output continue to rise this year, to 18,000 metric tons a year (39.7 million pounds), five times what it was two years ago. He spoke at the China Third International Forum of Wood Plastic Composites, held Nov. 19-20 in Shenzhen.

He said Meixin’s sales to North America have suffered, but European demand is picking up dramatically and sales to customers in China are growing and now account for about 20 percent of its production.

Europeans, previously slower to take up wood plastic composites products than North Americans, have now started to buy more, but Europe lacks enough of its own domestic factories to fill those orders, said Lam, who is chairman of the Huizhou-based Meixin.

“Even in the financial crisis, we have more orders than we can handle,” Lam said, a situation he said is similar to other large industry players.

Wayne Song, president of QC Future Plastics Machinery Co. Ltd., in Baoji, said the Chinese industry is seeing wood plastic composite demand rise worldwide, and still has a lot of potentially untapped markets, particularly in mainland China.

“I would say it’s the maturing acceptance of WPC around the world,” said Song, who is also president of Futuresoft Technologies Inc (USA) in Milburn, N.J. “Before, it was just the United States and Canada that accepted it, but now it’s the Europeans and the Middle Eastern countries who accept it.”

Song, also a member of CPPIA’s wood plastic composites committee, said that after the financial crisis, his feeling is that many firms, particularly in North America, became “locked down,” and that has created space for Chinese producers.

In addition, he said, Chinese-made products are “still relatively cheaper.”

Getting solid industry-wide facts to back up those assertions can be tough in China, but one estimate from the committee said that 60 percent of Chinese exports of wood-plastic products are now bound for Europe, a switch from the a few years ago when most of it went to North America.

China’s wood plastic composite production has roughly doubled in the last two years, to about 330 million pounds, and it remains very export-dependent.

At least 70 percent of the wood plastic composite products made in China are exported, although that has fallen from about 80 percent a year ago, as demand in China rises, according to committee statistics.

The fast expansion in recent years has also left the industry with significant excess capacity: the committee estimated that there is about 1.1 billion pounds of total capacity, suggesting capacity utilization is at a very low 30 percent.

That has left some companies really struggling for work, even as others are adding capacity to meet new demand and still others contemplate getting into the market on anticipation of future growth, Song said. “In China, if people see opportunity everybody jumps.”

Song said the profit margins of many Chinese firms remain low, and he suggested those that do a lot of business with the United States, like his firm, could be hurt if the Chinese yuan rises in value much more against the U.S. dollar.

Lam and others said the wood plastic composite investment follows the typical Chinese industrial pattern of massive growth leading to massive excess capacity, such as currently seen in solar power equipment, followed by rising demand that eventually catches up.

“This is a temporary overcapacity,” said Ji Jian Ren, an engineer with Meixin who gave a presentation on industry trends at the conference. “The domestic requirement for WPC is increasing rapidly.”

While growing, China’s wood plastic composite industry remains much smaller than in the United States, which has about five times the annual production of China.

Song, in a presentation at the conference, said China has very strong domestic potential.

He said his firm and several others have developed wood plastic composite/aluminum frame windows for China, and are targeting interior applications.

The market for windows and doors of all kinds is growing 11 percent a year in China, and the window, door and wall panel market in the country is the largest in the world, about four times that of Europe, he said.

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