Chemical Spotlight on Asia

It is an US$3 trillion industry, and the Asia Pacific has burgeoned into not just a market for the industry but also a highly-favored destination for the relocation of production bases or greenfield expansions. In terns of automation technology investment, the ARC Advisory Group estimates that the expenditures by the chemical industry will be around US$61 billion in 2012, a significant 35 percent jump from the US$45 billion recorded in 2007.

The OECD estimates that the global output from the chemicals (organic and inorganic) sector in 2020 will be 85 percent greater than that in 1995. The chemical industry may not exactly be on a roll at the current time, what with big names like BASF incurring financial losses, however, at least in some parts of the world, investments in the chemicals sector are soaring. Indeed, BASF itself plans to invest two billion euros (US$3 billion) in the chemical sector in the Asia Pacific region over the next four years.

India is a case in point in this regard. In 2008-9, the Indian chemicals sector attracted the largest share of the foreign direct investment that flowed into the country. At US$749 million, this was over 220 percent greater than the corresponding FDI in the previous fiscal year. And in China, the chemical industry is among the industries which have benefited most from the country’s US$580 billion economic stimulus package.

The Asia Pacific region, as a whole, accounted for nearly 40 percent (650 billion euros) of the total global chemical demand in 2008 (excluding pharmaceuticals), and this is expected to shoot up to 1.15 trillion euros by 2020. Among the top 20 chemical companies in the world (in terms of earnings in year 2007), there are five from Japan, and one each from Saudi Arabia and Taiwan.

Formosa Plastics stands at number five with a turnover of US$31.9 billion. Saudi Basic Industries Corporation is seventh with US$26 billion. The five Japanese firms are Mitsubishi Chemicals, Sumitomo Chemicals, Mitsui Chemicals, Asahi Kasei and Toray Industries, in that order, with a cumulative turnover of approximately US$78 billion. And many of the other 13 in the top 20 have established production bases in Asia.

Gear up to grow

Even as the chemical industry continues to grow, in response to increasing demand from a growing population in the developing world, it has had to adjust and adapt to a host of changes – on the economic and regulatory fronts.

Energy cost and scarcity issues, emissions reduction mandates, rising cost of raw-material extraction, competition in the global marketplace, and increasing worker safety requirements are among the factors that have made the path ahead for the chemical industry far from rosy.

However, coping with these multifarious demands has been made a bit easier thanks to a slew of IT and automation solutions – for operations ranging from purchase to production to quality control to outbound logistics.

According to Swiss consultancy Intechno, in the industrialized countries, process automation in the chemicals sector serves to enhance product quality, master the diversity of products, improve process safety and plant availability, and efficiently utilize resources while lowering emissions. On the other hand, in the fast-developing world (in which most of Asia Pacific would figure), the prime motive is to master mass production. Quality and environmental aspects may have taken the backseat in the past, but nowadays, they are gaining ground.

Intechno, while estimating the CAGR for the process automation sector as a whole for the first decade of the 21st century, to be around 4.4 percent, has predicted that the highest demand for process automation would be in the chemicals and petrochemicals sector. China and India have also specifically been identified by Intechno as “automation demand driver engines”.

N Ravi, the region division manager, process automation, ABB South Asia, corroborates this when he tells Control Engineering Asia that while investment in the chemicals sector is slowing down in the developed countries, in Asia (especially India and China), greenfield projects are contributing to the fortunes of the automation industry.

This phenomenon is corroborated by R Inbavanan, sales director, Honeywell Process Solutions (HPS), Southeast Asia, who informs CE Asia that the company’s projects in the chemical industry have not been dented by the economic slowdown.

Automation activities

If one would segment the market by products and services, according to Intechno, in 2010, in the process sector as whole (of which the chemicals, petrochemicals and pharmaceuticals sectors account for a sizable share), 36.7 percent would be for field level hardware (sensors, measurement equipment and actuators), 20.5 percent for control level hardware (control systems), 5.4 percent for standard software, 15.5 percent for engineering, 10.8 percent for installation and start-up, and 11 percent for maintenance, training and support services.

While maintenance and upgrading expenditures would be expected to account for a greater proportion of the automation investments as the “automation stock” ages and/or grows in size, in the case of the chemicals sector in Asia, the dominance of these expenditures may not be as marked as the other industries, considering the numerous greenfield projects that have sprung up and are planned for the future.

According to Honeywell’s Inbavanan, the current trends in the chemical industry necessitate that a MAC (main automation contractor) provide a holistic approach to meet customers’ operational goals and be business-ready from project start-up

It can be also be gleaned from the ABB report, Serving the Chemical and Petrochemical Industries, that going the MAC route reduces both expenses and project duration for clients in the chemicals sector. Indeed, ABB claims a reduction in expenses by 20 percent and project duration by two months. And MACs do not necessarily stop activities after the engineering, sourcing, integrating, installation and start-up phases; providing automation lifecycle management solutions is fast becoming the norm in the industry.

Prevention, as they say, is better than cure; and investments in prevention lead to enormous savings by way of avoided costs later on. The AMS Suite from Emerson Process Management is one example of a predictive technology that has been enabling customers in the chemicals and petrochemicals industry to detect plant equipment problems before they occur.

In March this year, Emerson Process Management Asia Pacific announced award of a contract by MCC Advanced Polymers (Ningbo) to digitally automate a new advanced polymers plant, in Zhejiang Province, China, which will produce PTMG fibers for use in China’s textiles industry.

Emerson was chosen to provide engineering and project management as well as automation and control products. Included will be Emerson’s PlantWeb digital plant architecture with its DeltaV automation system, fieldbus instrumentation, safety instrumented systems, as well as the AMS Suite predictive maintenance software.

And with studies showing significant increases in energy use over the last few decades, Siemens centered its appearance at this May’s Achema chemical industry show in Frankfurt, Germany, around the theme of sustainability, with exhibits on how the industry can benefit from products, systems and solutions in such areas as energy efficiency, emission protection, and waste avoidance.

In terms of energy efficiency, says Siemens, its energy-saving motors usually pay their way within as little as three years, given that generally, 97 percent of the lifecycle costs of a motor are accounted for by energy, and only three percent by the purchase price and the costs of installation. With pumps and fans too, power consumption can be substantially reduced – where variable-speed drives with frequency converters are used, by up to 60 percent. Meanwhile, process instrumentation and analytics offerings can work to enable high efficiency in process management and decreases in energy consumption, by allowing the processes to be run closer to the prescribed specifications.

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’There has been a dramatic change in the global chemical industry landscape’

The Asia Pacific market has been relatively immune to the global recession that gripped the world’s economies last year, says Ravi N, region division manager, Process Automation, ABB South Asia.

Q: How active in ABB in the chemical industry?

A: Chemicals and petrochemicals represents a sizable market for ABB, and we offer a really large portfolio of products and solutions for the sector. In this sense, we are different from pure DCS or even pure automation companies.

Industry statistics put the control system market for chemical sector alone at around US$3.5 billion (for the year 2008), with ABB among the top three suppliers in this segment. Within the DCS/PLC market in India alone, ABB has executed over 20 to 30 projects, as well as a composite electrical package for a PVC plant in the last three years. We have deployed some 60 installations in this sector ever since we started selling our DCS (Freelance and System 800xA) and PLC (Compact HMI) products.

If one were to consider other deliverables such as drives and electrical equipment in which ABB is active, the chemical market will emerge as one that is very important for ABB. And the company’s focus on the chemicals sector will remain strong as we watch its progress through the current recession closely and expect it to surge again after year 2010.

Q: What has been the impact of the recession on the sector?

A: The chemicals industry has actually been one of the fastestgrowing sectors of the manufacturing industry in recent years. Solid demand from dependent industries such as agriculture, manufacturing, and construction has been the main driver for chemicals. Combined with a surge of petrochemical prices (driven by record-breaking crude oil prices), this led to booming sales in the chemical sector. Thus, prior to mid-2008, chemical real sales experienced a healthy three percent average annual increase. This, needless to say, has resulted in healthy capital investments in the sector, benefiting companies like ABB.

Though the recession in the second half of 2008 affected the chemical sector as well, the Asia Pacific market was able to absorb the shock, thanks to the bigger backlog of FDI funded projects in Asia Pacific region. It is worth noting that in the last five years, there has been a dramatic change in the global chemical industry landscape, with production bases being moved to Asia.

While the investment in the sector is slowing down in the developed countries, in Asia (especially India and China), greenfield projects are contributing to the fortunes of the automation industry. In India, for instance, the greenfield investments are in the specialty chemicals and paints industries, and brownfield expansions/ modernization/upgradation projects are underway in the petrochemical and organic chemicals sectors.

Q: How willing are the chemical industries in Asia to invest in automation solutions?

A: The chemicals sector comprises of different types of industries, most of which are very mature and robust. Over the years, they have already scaled up to higher degrees of automation. In fact, given the market dynamics of these industries, advanced automation solutions and energy saving technologies, are among the key differentiators for the market leaders in this sector.

Having said that, the market statistics still shows that the degree of automation in Asian chemical industries is not commensurate with their market share of sales. This is of course due to the cost-conscious nature of the automation market as implied in the question. The strong focus on costs is more prevalent in the case of specialty chemicals and pharmaceuticals than petrochemicals.

It is our hope, however, that as the market matures, customers will start appreciating the long-term “value” of investing in automation solutions; and not consider it purely from a costbased purchase perspective.

Q: Can automation technology help to meet concerns around energy efficiency, emissions reduction and plant safety?

A: Yes, certainly. As a supplier of several components that contribute to the energy efficiency, emissions reduction and safety (e.g. control systems, analytics, drives and many more) we would like to believe that all our projects help the end-customers achieve their objectives.

Our drives and control systems help achieve energy efficiency. Our analytical solutions coupled with our control systems help in reducing harmful emissions. And our SILcertified safety systems have helped customer gain millions of accident free man-hours. In addition, ABB’s explosionproof I/O technology supersedes the use of costly barriers, and reduces project costs. Local language support for the operator interface and a redundant system design promotes user-friendly operations and high availability.

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‘Southeast Asia will play a crucial role in driving chemical industry growth’

R Inbavanan, sales director for Honeywell Process Solutions in Southeast Asia, identifies the chemical sector as key vertical for the company’s automation offerings.

Q: How important is the chemicals sector to Honeywell’s business in Southeast Asia?

A: The chemicals vertical is a major driver for Honeywell’s SEA business. Strategically speaking, the Southeast Asia region, together with other emerging economies, will play a crucial role in driving growth in the chemical industry in the coming years. And with a lineup of Experion solutions tailored specifically for the chemical industry, Honeywell has been able to service this sector well.

During the last three years, we have bagged and executed several projects in the petrochemicals, fertilizers and specialty chemicals segments of the industry. Greenfield projects apart, there have also been quite a few brownfield activities in the Asia Pacific region during the economic slowdown period, with some of our clients expending on upgrading legacy systems to optimize their processes.

Q: Has the economic crisis resulted in less chemical industry investment in the region?

A: The FDI inflows are continuing despite the downturn, and multinationals have invested a lot in mega projects in the chemical sector in Asia Pacific. It should also be noted that the global economic slowdown has not dented the progress of Honeywell’s projects in the chemical industry. There are some delays but once the clouds of crisis pass away, these projects will be up and running again.

Q: What proportion of projects handled recently have been as a MAC (main automation contractor)?

A: The MAC concept has been picking up in this region and we are having our fair share of success in this. With Honeywell’s I-MAC value proposition and key differentiators, we improve our customer’s safety, reliability and efficiency by creating a paradigm shift in the way of resolving customer’s business issues.

Honeywell believes passionately that today’s industry trends require a main automation contractor to provide a holistic approach to meet customers’ operational goals and achieve business readiness from day one of operations.

Q: Is the global downturn impacting the chemical industries’ degree of spend on automation solutions?

A: In this current tough economic environment, caution in spending is seen not just in the chemical industry but across all the industrial sectors. The volatility of fossil-fuel prices has resulted in a great degree of unpredictability in the costs of raw materials required by the chemical industry.

This, coupled with the fact that customers need to achieve “more from less” have led them to rely even more on lifecycle management programmes to sustain the benefits conferred by automation, for the long-term.

Q: Are customers in the chemical sector investing in automation in order to “go green”?

A: Emission reductions and energy efficiency are major considerations for sustainability in the chemical industry today. Our customers are investing in automation solutions such as energy management, simulation, optimization, and planning and scheduling in order to improve their production processes as well as to synchronize and balance operations throughout their entire plant. These investments will help them to create a net emission reduction and overall energy efficiency along the entire chemical value chain.

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