BEIJING, Oct 30: Germany’s BASF AG will sign an agreement on Wednesday to submit to the Chinese government a feasibility study for a $1 billion joint venture to build and operate a chemical plant near Shanghai, a company spokesman said.

If the study is approved, the plant would manufacture 160,000 tons of crude methylene diisocyanate (MDI) and 130,000 tons a year of toluene diisocyanate (TDI), he said on Tuesday.

TDI and MDI are key components in the production of polyurethane, a versatile polymer used in the automotive and construction industries and in products like refrigerators, upholstery and mattresses.

The deal involves privately-owned US chemical company Hunstman Polyurethanes and Chinese partners including oil major Sinopec Corp.

Chinese Premier Zhu Rongji and German Chancellor Gerhard Schroeder will attend the signing of the feasibility study agreement.

The BASF spokesman said the report would be submitted to China’s State Development Planning Commission for approval shortly.

The firm expected a business licence to be issued next year and said the complex would take some three years to build.

Letters of intent for the plant in a massive chemical park in Caojing, south of Shanghai, were signed in February 1999 and the project was approved by the State Council in June 2000, with an initial estimated investment of one billion euros.

In addition to Sinopec, China’s Shanghai Chlor Alkali Chemical Co Ltd, Shanghai Hua Yi (Group) Co and Shanghai Gao Qiao Petrochemical Co will be partners.

The Caojing site will be BASF’s second integrated site for basic polyurethane products in Asia the other is in South Korea and the spokesman said it would be the firm’s second largest investment in China.

The firm’s biggest investment project in China is a $2.9 billion 50-50 joint venture with Sinopec in Nanjing to build the largest ethylene cracker in China.

It intends to complete the Caojing project by 2005 to capitalise on China’s massive polyurethane market, which the German firm reckons is Asia’s largest, the spokesman said.

Europe’s top chemicals group and its partners intend to sell the products to two joint ventures that will also be established at Caojing.

BASF estimates the global polyurethane market at about 12 billion euros and growing six per cent per year, but still accounting for just five per cent of plastics production worldwide a small but highly profitable area.

Caojing is Shanghai’s pet petrochemical city project; it boasts investors like BP, Bayer AG in addition to BASF and Huntsman.

The city has bold ambitions to build it, through a combination of tax incentives and infrastructure development to lure foreign investors, into Asia’s largest petrochemical production base by 2005.

Germany is China’s biggest European trade partner.—Reuters