This article is based on a GCiS multi-client report: China Advanced Ceramics Market Research Report.
China's advanced ceramics industry has been growing exponentially, but this is a fragmented market contested by hundreds of companies ranging from those located around the historical centers of kaolin production in central China, to the high tech processing zones of Guangdong and Shanghai. Suppliers outnumber customers considerably; particularly in the case of heavy industries such as petrochemicals and electricity distribution where quasi-monopsonies exist.
Like many of its engineered materials markets, China’s advanced ceramics industry has been growing exponentially. Geologically, the country sits on abundant quantities of the necessary minerals, including the rare earths used in cutting edge applications. In economic terms, huge investments in the nation’s power distribution, chemicals, and metallurgy base have created widespread demand for high performance and versatile materials. Politically, the Chinese government backs (and fronts) high-tech, home-grown, industries with export potential.
But this is a fragmented market, contested by hundreds of companies ranging from those located around the historical centres of kaolin production in central China, to the high tech processing zones of Guangdong and Shanghai. Suppliers outnumber customers considerably; particularly in the case of heavy industries such as petrochemicals and electricity distribution where quasi-monopsonies exist.
Like the rest of the world, advanced ceramics in Chinese is defined as engineered compounds of inorganic crystalline materials, the properties of which include abrasion resistance, heat resistivity and chemical inertness. Oxide ceramics account for around 95% of the total domestic market size of approximately two million tons in 2010; silicon carbides around 4% and other types such as nitrides and borides the remainder.
The vast majority of oxide ceramics are aluminum based, with around zirconium comprising 5%, magnesium 3% and beryllium, calcium, zinc, titanium and, in very trace levels, yttrium, thorium and uranium. The typical product is an aluminum oxide based ceramic used as an insulator in power transmission and distribution.
There are around 500 companies registered as advanced ceramics suppliers across China. The majority of the 500 are small, one product specialists, that are tied to a large customer. An example of a small supplier might be one that focuses ignition electrodes for a provincial gas boiler manufacturer and earns around USD 1 million.
Medium-sized companies number around 100 and earn around USD 10 million in sales revenues, with a larger productive scale and export market than their smaller counterparts. Such a company could include a refractory products maker for a large power company.
Large advanced ceramics suppliers are earning over USD 40 million in sales. These companies have multiple product lines and have branched into multiple types of aluminum as well as carbide ceramics. Many of these companies have some for of foreign investment or association. Huaxin Electro-Technology, a producer of hollow bushings for power lines, supplies ABB and Siemens. Another, Yixin Cermaics, claims to produce proppants for Haliburton.
China’s booming power industry is driving the bulk of market demand and will be the source of an estimated USD 1 billion in advanced ceramic supplier revenues in the domestic market. This segment of the market is crowded at the supply-end: an estimated 200 suppliers vie for the business of a few key companies such as the State Grid or one of the Big Five power plant holding companies.
The chemicals and petrochemicals market was the source of around half a billion dollars of supplier revenues in 2010. Like the power industry, it is expected to grow substantially in 2011, expanding the market by as much as USD 100 million this year. Unlike the power industry, there are a large number of customers and more diversity in the application of advanced ceramics. For example, advanced ceramics are used in corrosion control, packaging or catalysis support. In addition to aluminum oxide, magnesium oxide, zirconium oxide and silicon carbide are commonly procured types of ceramics.
The metallurgy sector is also a large end-user market. Metallurgy, which was worth around USD 450 to suppliers in 2010, consists of the processing of China’s ferrous, base and precious metals. It is a high growth market for advanced ceramics due to the increasing efficiencies which industry regulators are trying to push through. These are borne out in the need for longer lifespans of its capital goods. Advanced are mainly high refractory ceramics for crucibles and heat treatment facilities. Customers include Shougang, Baosteel and Masteel.
China’s Advanced Ceramics End-user Market Opportunity Matrix
Note: The bubbles represent spending, while positioning is decided by a combination of near term opportunities in the market and end-users’ demand for quality.
Trends and Opportunities
The industry is going to continue to grow, but profits may not grow at the same rate, especially for the suppliers of the more common ceramics. Capacity building has been rife in the industry and looks set to continue. As a result of this and the increasing number of market entrants, pressure is likely to be placed onto downstream pricing. At the same time, raw material prices are expected to rise, eroding profitability.
Because it is now easier to produce advanced ceramics on a large scale, the industry is able to meet the needs of multiple end user applications, creating new markets for advanced ceramics. The Chinese government is broadly supportive of advances in the country’s technological production capabilities. The National Development and Reform Commission is in the process of overseeing a multi trillion dollar nationwide project to industrialize the underdeveloped western provinces of the country. Over the near term future, this will buttress the continuation of high growth rates in the market.
Further, the National People’s Congress is announcing the details of China’s 12th Five Year Plan. Two features stand out as major benefactors of the industry. First, that investment in infrastructure and industrial capacity will continue on an expansion of the nation’s monetary base; and secondly, significant levels of funding for advanced materials R&D are going to be made available.
Over the course of the Five Year Plan, which ends in 2015, growth rates in excess of 15% per year can be expected for the advanced ceramics market. This will attract more suppliers and distributors, as well as create new products and markets. Innovators, traditionally originating from abroad, will find the market increasingly localized, as China-specific solutions are sought and compensated to a higher degree and the buying power of local customers dwarfs that of others. Moving onshore and into the domestic supply chain may make strategic sense now that this modern variant of China’s eponymous material has come of age.
This was originally published in Ceramic Industry, May 2011.