Cheap gas spurs Chinese chemical firm to locate in St. James

28th July 2014   ·   0 Comments

By Susan Buchanan
Contributing Writer

In the biggest, direct Chinese investment in Louisiana, Yuhuang Chemical Inc., a subsidiary of Shandong Yuhuang Chemical Co. in Heze City, said this month it will build up to three methanol plants in St. James Parish. With a planned injection of $1.85 billion, the company has its sights on the state’s natural gas, Mississippi River access and ports. The new plants, of course, will be subject to U.S. and Louisiana regulations.

Yuhuang’s methanol complex will create high-paying jobs and give the Pelican State a bigger foot in the Chinese door, according to the Jindal administration. China accounted for $8 billion worth of Louisiana exports last year and is the state’s top foreign market.

Meanwhile, all is not well in the U.S.-China business arena, however. Washington for years has accused China and its companies of stealing American technology, and a number of Chinese firms have lost their listings on U.S. stock exchanges after falsifying financial reports. What’s more, air pollution from plants in China wafts into the western United States, adding to smog.

Why exactly is Yuhuang Chemical locating its new methanol plants here? “As China develops, many of its companies have accumulated capital and technologies so it’s natural for them to invest overseas, including in the U.S.,” geography professor Fahui Wang, director of Louisiana State University’s Chinese Culture and Commerce Program, said last week. “Louisiana’s abundance of natural gas seems to a good reason for the company to invest here.”

The United States runs a trade deficit with China, and the Chinese use some of their greenbacks to buy dollar-denominated businesses and bonds here. On the energy side, the Asian giant doesn’t have enough natural gas or gas pipelines to support its growing chemical industry. In the last five years or so, U.S. gas supplies have swelled because of extraction from shale. Late last week, natural gas traded at $3.85 per 1,000 cubic feet on the New York Mercantile Exchange, down from nearly $14.00 in 2005.

Meanwhile in China, residents are alarmed about industrial pollution. “Environmental awareness is on the rise among the Chinese public,” Jane Nakano, senior fellow with the Center for Strategic and International Studies in Washington, DC, said last week. “This awareness is driving China’s leadership to launch various low-carbon measures, such as a coal-to-gas switch and renewable energy deployment.” She said concerted efforts to improve air quality got under way last year as part of China’s twelfth five-year plan for 2011 to 2015.

China’s demand for natural gas has outpaced domestic production, raising its reliance on gas imports. “In 2013, China’s natural gas usage grew by 13.9 percent while its combined gas production and imports rose 11 percent,” Nakano said. “However, officials are moving forward with a mandate to help facilitate fuel-switching” from coal to gas.

In parts of China, citizens are lobbying against industrial plant construction. But that’s not what’s sending Chinese operators overseas. “I don’t believe that environmental awareness is driving Chinese business decisions to set up chemical plants abroad,” Nakano said. “Job creation is crucial to the Chinese leadership’s ability to maintain social stability and order. So off-shoring of chemical plants isn’t something businesses would be encouraged to do.” Chinese business decisions to relocate abroad are almost purely economic, she said.

In addition to accessing Louisiana’s natural gas, Yuhuang Chemical in St. James will gain a presence in the U.S. consumer market, with proximity to Canada, Mexico and other neighbors. Company executives will make industry contacts here and see how business is done. The corridor from Baton Rouge to New Orleans, lined with industrial plants, is a petrochemical learning lab.

The United States, meanwhile, is battling China over theft of company information. In May, the Justice Department charged officers of the Third Department of the Chinese People’s Liberation Army with stealing trade secrets from 2006 to 2014 by cyber-hacking United States Steel Corp., Alcoa Inc., Westinghouse Electric Co., Allegheny Technologies Inc. and U.S. subsidiaries of SolarWorld AG. The DOJ said piping and pipe routing information for nuclear power plants was taken from Westinghouse. In addition, Chinese nationals have been accused of stealing company-patented seeds from Iowa and Illinois cornfields.

What are Shandong Yuhuang Chemical’s or SYCC’s operations like in Heze City? In that metropolis on the Yellow River Alluvial Plain in Shandong Province, air quality was rated as unhealthy last week. The privately run company, started in 1986, is one of China’s top four synthetic rubber manufacturers. Demand for synthetic rubber has grown in recent years because of increased tire output. With branches in Hong Kong, Shanghai, Hubei, Henan and Rizhao in China, SYCC has more than 5,600 employees. Wang Jinshu, SYCC’s chairman, is a member of the National People’s Congress and a billionaire who amassed his fortune in chemicals. The company’s products include gasoline, diesel, MTBE, DME, isoprene, butadiene, isobutane, styrene, toluene, propylene, propane, butadiene, polybutadiene rubber, benzene, xylene, naphtha, petroleum coke and sulfur.

Recently created Yuhuang Chemical Inc., with an office in Houston, is one of thirteen SYCC subsidiaries. Yuhuang has an option to purchase 1,100 acres in St. James Parish for a three-phased project, with construction due to start in 2016. Yuhuang plans to build a first and then a second methanol plant there, with a combined capacity of three million tons per yearly. The company’s methanol operations should begin in St. James in 2018. A third plant at the site will be a methanol-derivatives operation producing intermediate chemicals. Most of the products from this complex will be shipped to the parent company in China, with 20 to 30 percent to be delivered by barge and rail to North American customers.

Yuhuang Chemical expects to create 400 direct jobs in and around St. James Parish at an average salary of $85,000 yearly, along with benefits. The new methanol plants will generate 2,365 indirect jobs, according to Louisiana Economic Development or LED. The three-pronged project should spawn 2,100 construction jobs.

Louisiana offered the company performance-based grants, including $9.5 million to be paid over five years, starting in 2017, to offset the project’s infrastructure costs and $1.75 million to be disbursed over 10 years to defray riverfront development expenses. The company will receive workforce training assistance and is eligible for state industrial tax exemptions. Last week, LED was unable to provide any further details about its incentive package for Yuhuang.

SYCC says it ranks 456th among China’s top 500 companies. Big business in China is a mix of state-controlled and private enterprises, with a fuzzy boundary between the two because of considerable state influence in many private firms. SYCC is looking well beyond China, and on its website says it strives to become “a famous multinational group,” focused on producing petrochemicals and fine chemicals.

As for Yuhuang Chemical’s announcement about St. James, “we’ll get used to this type of news in the near future,” LSU’s Wang said.

Several hundred Chinese firms operate in the United States now. As a subsidiary of privately held, joint-stock company SYCC, Yuhuang Chemical has shown no interest in listing on a U.S. stock exchange. But e-commerce leader Alibaba and other Chinese firms are expected to list on U.S. exchanges this year. That follows a slowdown in such listings in recent years because of bookkeeping scandals. In 2011, Shanghai-based chemical producer ShengdaTech, Inc. was delisted on the NASDAQ after it falsified financial records.

This article originally published in the July 28, 2014 print edition of The Louisiana Weekly newspaper.