Lanxess primes its eastern markets

08-Mar-06

In 2004, when low margins and a high cost base led to Bayer's decision to exit the chemicals subsidiary and sell its stake through a public listing, a new company burdened with the legacy of 20,000 employees and an over-reliance on mature markets in the west, Lanxess was created. Lanxess believes that China provides the magic formula for fast growth as the pace of industrialization in China has yet to be matched by its petrochemical capacity and has ambitious investment plans intended to boost sales on the mainland. Sales at the Chinese plants Lanxess inherited from Bayer already grew 30% in 2005 and is poised for faster growth ahead. This year, with 4 new facilities, China will succeed Japan as the leading market in Asia. Lanxess' pan-Asian sales amounted to US$1bln for the first nine months of 2005, an increase of 17.5% from a year earlier, making Asia its fastest growing regional market. By comparison, sales in Europe, outside Germany, grew just 2.7% in this period. However, on the flip side, while the demand obviously exists, Lanxess may still find the China market hard to crack in the long run. Local companies like Sinopec, with a vast sales network and improving quality are becoming a growing threat to established western companies in their home markets. This is coupled with the ongoing concern that Beijing will impose substantial tariffs on Lanxess products. Last year, the German company, among others, was charged with dumping a rubber product in China and the ministry of commerce introduced a 43% tariff.