- THE MAGAZINE
Like many of its engineered materials markets, China's advanced ceramics industry has been growing exponentially. Geologically, the country has 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 centers of kaolin production in central China to the high-tech processing zones of Guangdong and Shanghai. Suppliers considerably outnumber customers, particularly in the case of heavy industries such as petrochemicals and electricity distribution where quasi-monopsonies exist.
ProductsLike the rest of the world, advanced ceramics in China is defined as engineered compounds of inorganic crystalline materials, the properties of which include abrasion resistance, heat resistivity and chemical inertness. Oxide ceramics accounted for around 95% of the total domestic market size of approximately 2 million tons in 2010; silicon carbides were around 4% and other types (e.g., nitrides and borides) comprised the remainder.
The majority of oxide ceramics are aluminum based, with zirconium comprising around 5% and magnesium, 3%. Others include beryllium, calcium, zinc and titanium, as well as trace levels of yttrium, thorium, and uranium. The typical product is an aluminum oxide-based ceramic used as an insulator in power transmission and distribution.
Market StructureAround 500 companies are registered as advanced ceramics suppliers across China. The majority of them are small, one-product specialists that are tied to a large customer. An example of a small supplier might be one that focuses on ignition electrodes for a provincial gas boiler manufacturer and earns around $1 million per year.
Medium-sized companies number around 100 and earn approximately $10 million in sales revenues per year, with a larger production scale and export market than their smaller counterparts. Such a company could include a refractory products manufacturer for a large power company.
Large advanced ceramics suppliers are earning over $40 million in sales per year. These companies offer multiple product lines and have branched into multiple types of aluminum and carbide ceramics. Many of these companies benefit from some form of foreign investment or association. For example, Huaxin Electro-Technology, a producer of hollow bushings for power lines, supplies ABB and Siemens. Another, Yixin Ceramics, reportedly produces proppants for Haliburton.
ApplicationsAs shown in Figure 1, China's booming power industry is driving the bulk of market demand and will be the source of an estimated $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 like the State Grid or one of the Big Five power plant holding companies.
The chemicals and petrochemicals market was the source of around $500 million in supplier revenues in 2010. Like the power industry, it is expected to grow substantially in 2011, expanding the market by as much as $100 million this year. Unlike the power industry, this segment has 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, commonly procured types of ceramics in this segment include magnesium oxide, zirconium oxide and silicon carbide.
The metallurgy sector is also a large end-user market. Metallurgy, which was worth around $450 million to suppliers in 2010, consists of the processing of China's ferrous, base and precious metals. This is a high-growth market for advanced ceramics because of the increasing efficiencies that industry regulators are trying to push through. These are borne out in the need for longer lifespans of its capital goods. Products mainly include high-refractory ceramics for crucibles and heat treatment facilities. Customers include Shougang, Baosteel and Masteel.
Trends and OpportunitiesThe industry will continue to grow, but profits may not grow at the same rate, especially for suppliers of the more common types of 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 on downstream pricing is likely. At the same time, raw materials 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 project will buttress the continuation of high growth rates in the market.
In addition, the National People's Congress has announced the details of China's 12th Five Year Plan. Two features stand out as major benefactors of the advanced ceramics industry: investment in infrastructure and industrial capacity will continue on an expansion of the nation's monetary base, and 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 while creating 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.
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