BEIJING (Reuters) - Chemical giant BASF (BASFn.DE) said on Monday it had signed a memorandum of understanding (MoU) with China’s Sinopec Corp (600028.SS) to build a steam cracker in east China, the second major investment pledged by the German firm in four months.
China, the world’s top chemicals consumer, is allowing greater access by global majors and local independents to its massive chemicals market to feed plastics, coatings and adhesives to the fast-growing consumer electronics and automotive sectors, as well as polyesters for clothing.
According to the MoU, BASF-YPC, the German group’s joint venture with Sinopec in Nanjing, will invest in a 50 percent stake in the new cracker. SINOPEC Yangtzi Petrochemical (YPC) will take the other 50 percent.
“This additional investment into a new steam cracker and the expansion of our BASF-YPC joint venture in Nanjing underline the strong partnership between Sinopec and BASF and the commitment to our customers in China,” BASF Chief Executive Martin Brudermueller said.
BASF said the new steam cracker will have an annual capacity of one million tonnes of ethylene, a building block for plastics, rubber and synthetic fibre. The group declined to disclose financial details.
A joint venture consisting of French oil group Total (TOTF.PA), Borealis [BESGR.UL] and NOVA Chemicals [INPTVN.UL] last year said it would spend $1.7 billion on an ethane steam cracker at Port Arthur, Texas, with a similar capacity.
In July, BASF landed a preliminary deal to build China’s first wholly foreign-owned chemicals complex in Guangdong, worth some $10 billion in investment to 2030, aided in part by trade tensions between Beijing and Washington.
The German group made 22 percent of sales in the Asia-Pacific region last year, its annual report shows. It does not break out Chinese numbers.
BASF said a joint pre-feasibility study on the cracker will be completed by the end of 2018.
Zhong Jian, chief analyst with consultancy JLC, said global chemicals firms have been encouraged by China’s top leaders, who have repeatedly expressed support this year for foreign investment in the petrochemicals sector.
“The companies are more ambitious than just building ethylene plants. They are aiming for a bigger market share in the whole supply chain and the ethylene complex might just be their first step,” said Zhong.
BASF and Sinopec will also explore new business opportunities in China’s fast-growing battery materials market, they said. Founded in 2000, BASF-YPC has spent approximately $5.2 billion in China.
“The rising importance of alternative energy in China, especially in the automotive industry, has led to a surge in demand for innovative battery materials for a range of applications,” the groups said in a joint statement.
Following on from BASF’s July deal, U.S. energy titan Exxon Mobil Corp (XOM.N) signed a pact in September to build a petrochemical complex in Huizhou city of Guangdong, which will also be solely foreign-owned.
Just a week later, Saudi Basic Industries Corp (SABIC) 2010.SE followed suit and signed a deal with Fujian government.
Additional reporting by Christoph Steitz; editing by Richard Pullin and Emelia Sithole-Matarise