Could China Strangle Europe’s Weapons Output with Cotton?

· Europe has complained about China’s supply of nitrocellulose, known as guncotton, but experts say Europe would rather not ramp up production

[ABS News Service/19.06.2024]

In early May, a chemical plant in China’s central Hubei province exploded, killing three people. The culprit was nitrocellulose, a highly flammable material made from cotton. The plant belonged to Hubei Xuefei Chemical, China’s second largest producer of nitrocellulose.

And within days, the accident in Laohekou city had triggered a buying spree of shares in North Chemical Industries – China’s top producer of the material – as rumours over the tightening supply and soaring market demand of the compound ran high.

Investors pointed to the rising demand to Europe, which has been struggling to deliver weapons to Ukraine, with nitrocellulose a key input for making propellant powder used in firearms and artillery- a characteristic that gives the compound its alternative name of “guncotton”.

In the past months, European politicians and arms producers have complained that China – a major producer of nitrocellulose – has or at least could cut its supply, which has impeded their ability to supply weapons to Ukraine amid its ongoing conflict with Russia.

While industry insiders acknowledged there is indeed space for China to manoeuvre in terms of the direction of the flow of nitrocellulose for geopolitical considerations, they rejected the accusations, saying that Beijing could not strangle the supply chain if Europe was willing to ramp up production on their own.

“The manufacturing technique is so simple that there is no point in restricting exports – it could never really impede rivals’ military production,” said Lu Wei, an adviser at China’s Public Security Guard Training Centre, a Beijing-based anti-terrorism training institution.

Discovered in Europe in the 19th century, nitrocellulose is mainly made from cotton linters – the short cellulose fluffy fibres that are left on the seeds after the staple cotton is removed – through exposure to nitric acid or another powerful nitrating agent.

The less nitrated types of nitrocellulose are widely used as a plastic film and in inks and wood coatings.

Once rarely known, it came into the spotlight when French President Emmanuel Macron said after a gathering of Ukraine’s allies in Paris in February that “we have all become aware of the need to face up to the scarcity of some components, especially gunpowders”.

More specifically, the European Union’s internal market commissioner Thierry Breton said that the bloc faced challenges finding the raw materials for gunpowder to provide to Ukraine.

“To make powder, you need a specific kind of cotton, which mostly comes from China,” he said in March.

“Would you know it, deliveries of this cotton from China stopped as if by chance a few months ago.”

Some major arms manufacturers in Europe, however, said deliveries of raw materials from China have remained normal.

But they warned about a situation where China could restrict exports of relevant goods if relations were to worsen.

Armin Papperger, chief executive of Rheinmetall, a leading ammunition producer based in Germany, told the Financial Times in April that Europe relied on China for “more than 70 per cent” of its cotton linters.

Micael Johansson, CEO of fellow European defence contractor Saab, also told Politico in April that it “would be detrimental” if China halted deliveries of nitrocellulose, and Western defence firms should look to diversify their sources.

Saab and British aerospace and defence manufacturer BAE Systems did not reply to a request for comments, while Rheinmetall had yet to provide comments. Norwegian defence company Nammo also refused to comment.

When the complaints from the European politicians reached Chinese social media, they were deemed a “boomerang” that Europe threw out and then got hit with, hurting itself.

Some bloggers argued that the bloc had proposed bans on products from China’s Xinjiang Uygur autonomous region due to allegations of forced labour among Uygur minorities, and that was why it could not import enough Chinese-made nitrocellulose that is largely made from cotton sourced from the vast western region.

It is inevitable that nitrocellulose produced in China is eventually traced back to Xinjiang, as the region produces 90 per cent of the country’s cotton.

Industry insiders, however, said that the forced-labour allegations in Xinjiang – which Beijing vehemently denies – so far have nothing to do with the global supply of nitrocellulose.

Yet to be finalised, the EU’s proposed forced-labour ban would cover any forced labour – without specifically naming Xinjiang – to comply with World Trade Organization rules, although it is seen to have been written with Xinjiang in mind.

Bradley Martin, senior policy researcher at RAND Corporation, said there is no good reason to conclude that Europe is highly dependent on China for nitrocellulose, and there is no evidence that there is a major shortage globally.

“It’s a fairly readily generated product. It is certainly possible that there could be spot difficulties. There does not appear to be some sort of widespread, systematic shortage,” Martin said.

“It’s not like that without that supply [of nitrocellulose from China], Europe would be in a particularly bad state … there would be ways to get to the product otherwise, the raw material is cotton and stuff, not like we’re dealing with critical minerals or anything.”

A Chinese explosive detection specialist said nitrocellulose is something that is “quite easy” to produce in the chemical industry, though the flammable and explosive nature means that only a small number of companies are qualified to produce it due to safety concerns.

The circulation of the substance in the market is also under government control, he added.

“When we need it, we would just synthesise it in the laboratory on our own, using sulphuric acid, nitric acid, cotton and a large amount of cooling water and ice,” said the specialist, who asked not to be named due to the sensitivity of the issue.

Therefore, though it is possible that Beijing could withhold products for geopolitical reasons, the real bottleneck for the EU might be itself as ramping up production is possibly something they could do but would rather not.

“Reshoring production of nitrocellulose is more up to European countries’ own will, but it is not the time yet,” Lu, the anti-terrorism adviser, added.

European arms manufacturers have been amassing nitrocellulose and cotton linters, but this is more to replenish their reserves, rather than the goods being in short supply, he added.

“If [the Ukraine] war was to stop in the next couple of weeks, I’m pretty sure the demand for nitrocellulose would go down as well,” Martin said.

Ni Lexiong, a Shanghai-based military analyst, said firms in Europe were not willing to produce nitrocellulose due to its pollutant and dangerous nature – highlighted by the explosion in Hubei – and had outsourced production to China in the past decades.

“Once a factory is set up and problems arise, their people will protest, so they have to let China produce for them,” Ni said. “And when the war broke out, they started to feel anxious.”

According to the International Trade Centre, China is not the world’s largest exporter of nitrocellulose.

In 2023, Thailand was the biggest exporter, with its shipments worth US$108.6 million, followed by Germany’s US$86.6 million and mainland China’s US$81.9 million.

And for cotton linters, Turkey, Brazil and the US are the world’s top three exporters. In 2022, shipments from the three countries accounted for half of the total global exports, the data showed.

China does dominate the export market for cotton linters pulp, which is the main extract of cotton linters, as it accounted for 49.3 per cent in 2022, followed by the 24.9 per cent from the US and 10.1 per cent from Spain.

“Cotton is produced in lots of places and the production in the creation of nitrocellulose from cotton is not like that – it is such a critical link in the supply chain,” said Martin at RAND Corporation.

In a reply to an inquiry by the Post on an open investor platform on whether the company had reduced supplies to Europe, North Chemical Industries, which is a subsidiary of the state-owned China North Industries Group Corporation, said that its “production and operation are in normal condition,” and the question “involves the company’s trade secrets” so relevant information could not be disclosed.

According to the company’s disclosures, the international market share of its nitrocellulose products was 15 per cent in 2023.

Meanwhile, its major export destinations included the US, Europe, Vietnam and Africa, with 80 per cent of its nitrocellulose used in coating and ink production.

Chinese Customs data showed that in 2023, Vietnam was the biggest importer of nitrocellulose from China by volume, followed by France and the US, even though the latter has banned any imports with inputs from Xinjiang, citing forced-labour allegations.

Even in China, the overall production capacity of nitrocellulose is limited, according to Zhang Biao, general manager of Zhongwang Textile, a cotton factory in Xinjiang’s Yuli county.

Among the five million tonnes of cotton output in Xinjiang annually, only around 240,000 tonnes of cotton linters can be produced, and many of them have uses other than nitrocellulose, he added.

“The overall production capacity is small. So it’s normal that it could be in short supply if there’s suddenly a war breaking out,” Zhang said.

China has also been cutting back its nitrocellulose production capacity in the past years.

Last year, North Chemical Industries shut down a plant in Xian with a production capacity of 25,000 tonnes, leaving its total capacity at 39,882 tonnes in 2023, down by 32 per cent compared to 2021.

At the same time, Chinese exports of the compound to Russia have surged from zero since its invasion of Ukraine in 2022, according to Chinese customs data, although the data does not indicate whether the exports were for military or civil use.

Martin said the imports by Russia are “almost certainly being used in munitions manufacturing”, and the reason that Russia is importing more nitrocellulose from China is because they cannot get it anywhere else.

At the start of May, the US announced sanctions on nearly 300 companies and individuals for alleged support of Russia’s invasion of Ukraine, including China’s Hengshui Heshuo Cellulose and Hengshui Yuanchem Trading, who were accused of shipping large quantities of nitrocellulose to Russia.

Companies from the US, Germany and Taiwan are also producing the nitrocellulose that has been shipped to Russia in the past two years, according to a report from the Wall Street Journal in March.

Still, amid efforts from the EU and the US to “de-risk” their overall supply chains away from China, reshoring the production of nitrocellulose has been placed on the agenda, with Poland investing in restarting its nitrocellulose production to meet growing demand for artillery.

“China certainly supplies a lot of different commodities to Europe, but nitrocellulose … is probably not one of our major vulnerabilities,” Martin said. “It’s not like the processing of critical minerals. It’s something that we deal with fairly readily if we had to.

“But nevertheless, it’s a good practice in the defence industrial base to have excess capacity. It’s really important to have access to the things you need when you need them.”