Opinion: Sinopec can learn from German peer Covestro on innovation
Officials at China Petroleum & Chemical (Sinopec), the world’s second largest oil refiner and one of the top chemicals producers, are looking forward to the day when they can make products many times more valuable and profitable on a per tonne basis.
But for a state-backed firm used to receiving development guidance from Beijing, that is a long road to take to evolve into an innovation and customer-driven business model required for them to achieve their goal.
“High value added chemicals is a direction we have been working towards for a number of years,” Huang Zhaohui, deputy director of development and planning department at fuel and petrochemicals producer Sinopec Zhenhai Refining & Chemical told the South China Morning Post in an interview at its plant in Ningbo.
“History tells us this is the right path to go. In Europe, where some have considered chemicals to be a sunset industry, chemical companies have gradually moved downstream at the right time to stay relevant and competitive.”
Huang does not expect Zhenhai to build up a significant scale in the business of so-called fine chemicals, which are consumed in small volumes but carry big price tags, until at least four to five years down the road. Prime examples are pharmaceuticals and cosmetics.
Still, he said Zhenhai is working on two projects – including one on engineering plastic – and planning a few more, and will pursue various forms of cooperation with partners in the nearby chemical industry park where it is the anchor landlord.
“We welcome co-investment, raw materials supply, and technology sharing,” Huang said, adding technology transfer deals have so far proven tough to come by after having held talks with an American peer due to intellectual property security concerns.
Similar to Zhenhai, its sister firm Sinopec Shanghai Petrochemical has also been moving in a similar direction.
In recent years it has spent 7.4 billion yuan (US$1.1 billion) to expand its oil refining capacity by a third, produce proportionally more petrol and less diesel to meet market demand changes, and upgrade the quality of its fuel to meet more stringent environmental regulations, a spokesman said.
But that is no longer sufficient for sustainable development in the long term.
In the face of uncertain crude oil prices and competition from overseas rivals with access to cheap natural gas feedstock and domestic ones using coal as raw material, pressure is mounting for both firms to produce more higher value-added downstream chemical products.
Besides technological barriers, the Sinopec units will also face the challenge of becoming more customer-oriented in order to excel in the high-value chemicals business.
The experience of German chemicals major Covestro, 69 per cent-owned by German drugmaker Bayer, may provide a glimpse of what will come their way.
Covestro is one of the first foreign chemicals firm to set up a research and development centre in China to meet the needs of its customers in industries from vehicles to construction. The Shanghai centre was put into use in 2002 to allow the firm to be closer to its customers in China and Asia.
Christian Haessler, head of innovation for the Asia-Pacific region, said scientists and marketing people in the research and products development centre have to increasingly “listen” to its customers and “try to anticipate trends”.
“For example, the topic of sustainability 15 years ago was not very prevalent, now it is a strategy of China ... if there is one trend in the past 15 years in this innovation centre, it is that the number of our partners has always been increasing,” Haessler told the Post in an interview in Shanghai.
The centre features many of its own products. Its windows have insulation material made with polyurethane and glass fibre materials, and has doors made with three-layer polycarbonate sheets, so that the building can meet 70 per cent of its energy needs from solar power panels on its roof.
The firm, together with its German and Chinese partners, has developed what it calls the world’s first polyurethane rotor blade for wind turbines globally. The material makes wind turbine blades stronger and cheaper to build.
He said many of its Chinese customers and partners, free of historical development encumbrances, are sometimes better customers.
“This is what we enjoy in China, our customers are more daring to try out new materials solutions, and more decisive to go into new product segments such as electric vehicles ... innovation in China takes a different [path], it is faster, and we need to keep up with the pace,” Haessler said.