German company breaks ground on a domestic manufacturing facility

SHANGHAI - Germany-based Henkel AG began construction of the world's largest adhesives plant on Friday. The facility, situated in Shanghai, will further consolidate the company's leading market position in China, said experts.

The project is part of a strategy to cope with rapidly growing demand for adhesives in China. Upon completion, the facility will be the world's largest production base for adhesives, and will produce an estimated 428,000 tons of adhesives annually when working at full capacity.

Located at the Fengxian district of Shanghai, the plant covers an area of 150,000 square meters and will require a total fixed-asset investment of 50 million euros ($71.45 million). The facility will be implemented in three phases, and the first batch of finished products is scheduled to be shipped from the production line in the fourth quarter of 2012.

"China has been an important growth engine for Henkel, and we are confident that the plant will greatly enhance our growth potential in the country," said Kasper Rorsted, the company's CEO, during the ground-breaking ceremony.

Rorsted said the plant is in line with the company's priority of expanding its business in emerging markets. He added that 42 percent of the company's second-quarter revenue came from emerging regions this year.

Called "Project Dragon", the plant is expected propel Henkel's adhesives business to a higher lever of success, said Jan-Dirk Auris, a member of Henkel's management board and executive vice-president of the company's adhesive-technologies division.

"The establishment of the world's largest adhesives plant in Shanghai comes after multinational producers saw the development of the business in their home market come to a standstill. They are now shifting their business focus to tap into China's rising demand from rapid industrial development," said Ren Tianbin, general secretary of the Shanghai Adhesive Technology Association.

"Only by setting up manufacturing bases in China can companies lower costs, and become more competitive in local market," he added.

China's demand for adhesives will increase at more than 12 percent annually over the next few years, according to the China National Adhesives Industry Association. The nation's total demand for adhesive products will be 4.95 million tons in 2011, with sales totaling 71 billion yuan ($11 billion), which will make China the world's largest manufacturer and the third-largest market for the products in terms of revenue.

Although the country has more than 3,500 domestic manufacturers, most of them are too small to satisfy demand from high-end users. Fewer than 100 have annual revenues of more than 50 million yuan, leaving the more profitable high-end adhesives market to international competitors, said Liu Jin, an industrial analyst from Haitong Securities Co.

By a combination of market listings and rapid development, Chinese adhesive companies have grown quickly in recent years, but Ren noted that the gap between major Chinese and international adhesive companies is still huge. "Henkel's revenue from adhesives was between 70 billion yuan and 80 billion yuan in 2010, but the revenue for the largest Chinese adhesives company is less than 1 billion yuan," he added.