Bayer announces expansion plans in Asia

Following the opening ceremony of their new toluene diisocyanate (TDI) production facility outside of Shanghai on Wednesday, Bayer unveiled an extensive investment plan in Asia, aiming to increase sales in the region by 60%, reaching €11bn by 2015.

The news conference, titled “Prospective Growth in Asia” was held in Shanghai but included audiences in Vietnam, Indonesia and India through a satellite feed. All of these countries, said Marijin Dekkers, the chairman of the Board of Managers at Bayer, are experiencing levels of growth that industrialized countries “only know from history”.

Dekkers introduced the investment plan, which spanned from increasing production and improving distribution to investment in downstream support and research facilities. Between the company’s healthcare, crop science, and materials science sections, Bayer expects a capital expenditure of €1.8bn by 2015 and will continue to increase its workforce in the region. In the last 12 months, the company has expanded its employee numbers by 8%.

“We have made capital expenditures of €3.4bn over the past 10 years, creating a basis for outperforming market growth in this region,” said Dekkers.

Mainland China, Dekkers said, is a cornerstone of this plan. Over the past decade, Bayer has consistently expanded by more than 9% annually in the country. In 2010, Asia sales reached €6.9bn, and made up 20% of the Group’s global sales. In the first nine months of 2011, China sales reached €2.2bn and Bayer Material Science accounted for 59% of those revenues.

“The demand for MDI (in China), for example, is expected to increase by 40% through 2015, to some 6.4 million tons globally,” Dekkers said.

Bayer intends to expand its MDI capacity at the Shanghai site to reach 1 million tons annually. Included in the €1bn investment, the company plans to increase its polycarbonate capacity to 500,000 tons annually and build a new HDI line that will raise annual capacity by 50,000 tons.

TDI Plant

Bayer’s TDI plant is the first of its kind in the world, relying on a gas-phase phosgenation process technology that reduces solvent consumption by around 80% and cutting energy use by up to 60%. Compared to production facilities of a similar size, the carbon dioxide emissions at the Shanghai location can be cut by around 60,000 tonnes a year.

“We finished the plan on time and within our budget,” said Johannes M. Dietsch, president of Bayer Greater China Group. If the Shanghai plant is considered a third generation plant, he said, then the Shanghai plant also equals a 20% savings in investment compared to the previous generation. Bayer now plans to build a similar plant in Germany, he said.

While the new technology will save on energy and solvent, “the price of the material is set by the market”, Dietsch said. “And we are in a very competitive market.”

The production facility is opening at a time of falling demand and increasing capacity in China. In the third quarter of 2011, Dekkers said, “In Materials Science there was an interesting phenomenon—the demand for polyurethane used in building and construction decreased year over year.”

“This is definitely a trend that we can see,” he said. “The sensitivity of Bayer to variations in demand depends on the different businesses—in healthcare and Crop Science, we see relatively little effect.” Materials Science, he said, is different. “We are selling products used in building and automotive applications,” he said.

Looking at the continuing crisis in Europe and the US Dekkers said he expected a corresponding slowdown in western markets, although it would be “nothing close to what we saw in ‘08.”

“It would help if political parties in Europe and the United States would put a really solid plan together,” Dekkers said. “The economy is stronger but is being pulled down by political uncertainty.”

According to Dietch, however, the story in China and the rest of Asia, is still one of growth. “TDI is always a cyclic business,” he said. “The expected figure in 2015 is €6bn and Bayer Material Science is expected have €3bn of that.”