China's Market for Cryogenic Equipment: Trend, Drivers and Inhibitors
China’s market for cryogenic equipment is in its early stages of development, spurred on by investments in the country’s Liquid Natural Gas (LNG) handling capacity and the general expansion of its industrial base. While LNG is the most high profile application for cryogenic equipment, it is not the only one. A number of other markets, with wide customer bases, have also flourished in recent years.
By value, roughly 95 percent of cryogenic equipment falls under one of four product categories. The largest type by revenues are storage tanks, which are made from carbon steel, nickel alloy and pre-stressed concrete; second, cryogenic valves which are made from austenitic stainless steel and copper alloy; third, vaporizers, made from high-tensile stainless steel; and finally, pumps, which are typically centrifugal or reciprocating and are made of austenitic stainless steel and specialized plastic sealants. Other parts of a cryogenic system include the pipes and flanges. A typical system configuration for 200 cubic meters of LNG will have one tank, around 15 valves, one pump and one to two vaporizers.
The Market at a Glance
Total Revenues by Industry Segment
An estimated 11,000 cryogenic systems are currently installed in China, varying from the large LNG systems described above, to small tool treatment systems. In monetary terms, the petrochemicals and power sector makes up around 30 percent of total domestic demand for cryogenic equipment, estimated USD 650 million for 2010. Other markets include chemicals (where cryogens like nitrogen are used in fertilizer production) metallurgical applications, electronics and shipbuilding. Growth in these industries has been strong and is driving nominal expansion of around 10% per year for cryogenic equipment. The metallurgy sector, growing at around 30% per year, stands out as a key source of future opportunities.
These high growth rates also reflect the relative infancy of this market. A handful of State owned Enterprises (SOEs) and SOE spin-out companies which boast high volumes and uneven quality compete with foreign companies that occupy much of the high-end in China. Foreign companies are often the “go-to” parties for the high performance cryogenic equipment, particularly pumps and valves. But foreign and domestic products are not highly differentiated in the eyes of all customers. China’s regulators, anxious not to hurt nascent domestic players, have yet to enforce a universal set of product standards.
With just more than half of the market given to heavy industry, regulators, SOE suppliers and key customers often have close ties to each other. SOEs will design bidding documents and select suppliers based on government policy, funding and relationships with specific suppliers. As a result of this relationship marketing environment, the 20 largest companies in the market (out of around 170) control around 60 percent of the market by revenues.
This high level of state-ownership means that many foreign-invested companies find it easier to operate in joint ventures with local industrials that have access to SOE level buyers. In such partnerships, the foreign partner is typically the technology provider, while the domestic partner provides customer access. Care should be taken when choosing who to work with as some partners may be close to an unimpeachable state-owned entity.
Summary of Opportunities
Market Opportunities for Foreign / Quality Suppliers by Industry
In China, the best opportunities for the manufacturer of a given product are for sales to system integrators. These companies are building systems for companies like CNOOC in the petrochemicals industry, which by virtue of its size and product quality requirements, offers the best opportunities for foreign suppliers. Cryogenics are also important in processes where very low temperatures are required and therefore find application in fields such as pharmaceuticals, firefighting and electronics.
China’s cryogenic equipment market is in an emerging phase of development and growing quickly. Market share is concentrated between a few foreign and domestic suppliers and products run the gamut of pricing and quality. Strategic partnerships have been adopted to realize opportunities in the rapidly expanding energy and heavy industry sectors. In time, other applications will open up, changing this heavy reliance on SOEs.
This was originally published in Cryogas International, March 2011.
About GCiS China Strategic Research
GCiS (www.GCiS.com.cn) is a China-based market research and advisory firm focused on business to business markets. Since 1997, GCiS has been working with leading multinationals in sectors ranging from technology to industrial markets, medical, chemicals, resources, building and constructions and a few others.