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An aerial view of Shandong Yuhuang’s methanol plant currently under construction, taken in December 2018. The project is currently 60 per cent complete, according to the company. Photo: Handout

Chinese petrochemical firm brushes aside escalating trade war as it doubles bet on US$1.9 billion Louisiana methanol plant

  • Shandong Yuhuang Chemical has invested US$1.85 billion in a methanol plant in St James Parish, which is 60 per cent complete
  • The company says it will announce plans to double the plant’s capacity as soon as this year

Chinese petrochemical firm Shandong Yuhuang Chemical is planning to double the capacity of a US$1.9 billion methanol plant currently under construction in St James Parish, Louisiana, despite a full-fledged trade war between the two countries.

“We are definitely considering building a second phase,” said Charlie Yao, president and chief executive of YCI Methanol One, the US subsidiary of Shandong Yuhuang, on the sidelines of an investment conference in Washington earlier this month.

“The project will be launched probably in the second half of this year or next year.”

The plan is to replicate the plant currently under construction, he said, which will become one of the world’s largest methanol facilities with a production capacity of about 1.7 million metric tonnes a year.

Charlie Yao, left, president and chief executive of YCI Methanol One, speaks at an investment conference in Washington, earlier this month. Photo: Handout

Yao did not disclose the cost of the new project or the company’s investment.

Methanol is a type of alcohol used as a raw material to produce a wide range of items, from clothes to paint to plywood.

Based in eastern China’s Heze city, privately owned Shandong Yuhuang ranked 35th among the nation’s petrochemicals players by revenue last year, according to Shenzhen-based market research firm Askci Consulting. Its founder, Wang Jinshu, was a member of the National People’s Congress, China’s top legislature, from 2013 to 2018.

The company announced its US$1.85 billion investment in 2014 – one of the largest greenfield foreign direct investment by a Chinese company in the US – to capitalise on a boom in shale gas output, the raw material for producing methanol. The advent of hydraulic fracturing, or fracking, technology a decade ago has sent US gas output soaring and prices plummeting in the country.

Will China’s tariffs spoil America’s ambition to be top gas exporter?

Yao said about US$1.2 billion has been spent so far on constructing the plant which was 60 per cent complete, adding that the plant was likely to commence production in mid-2020 and sales were expected to start later that year.

Koch Methanol, a subsidiary controlled by the American conglomerate Koch Industries, bought a 40 per cent stake in the project last year.

Yao said he was currently in talks with US companies on a similar partnership in the new project.

The planned move by a Chinese firm to expand investments in the US comes as the world’s two largest economies are engaged in a bruising trade war that has seen them slap punitive tariffs on each other.
On top of the trade war, tightening scrutiny by both US and Chinese regulators on cross-border deals has also resulted in Chinese FDI into the US plummeting by 83 per cent to US$5 billion in 2018 from US$29 billion in 2017, according to data from the National Committee on US China Relations.

Yao, however, said the firm is capable of handling the trade war’s impact on the project.

“The only concern companies have is the uncertainty surrounding increased investment costs due to the tariffs, but the market still remains certain,” he said.

For the first plant, Yao said the company signed contracts with builders and contractors that required them to buy materials locally from the US. This means the increased material costs because of the tariffs on Chinese imports are largely shouldered by the US firms.

US investment in China slumps, as Beijing warns of global recession

He said for petrochemical projects, raw materials and equipment – such as steel and electricity cables – usually make up only one third of the total costs. The rest goes as wages to construction workers, which is unaffected by the trade war.

So the contractors only need to figure out how to manage the one third that is exposed to tariff impacts, he said.

The firm plans to sell 70 per cent of the methanol produced in Louisiana domestically and the rest to Europe and China.

This article appeared in the South China Morning Post print edition as: Shandong firm to double size of US methanol plant despite bruising trade war