China Petroleum & Chemical Corp., also known as Sinopec Corp. (SNP), and BASF SE (BASFY), the world's largest chemical company by sales, signed a preliminary agreement Tuesday to build a "world-scale" iso-nonanol plant in southeastern Guangdong province.

The move will likely help China reduce its reliance on imports of iso-nonanol, a chemical used primarily used in plastics manufacturing. Iso-nonanol ultimately ends up in products such as wires, cables and flooring, and in the automotive, building and construction sectors, Sinopec said in a statement, without specifying the proposed plant's capacity.

In 2009, BASF said it planned to invest 2 billion euros ($2.45 billion) over four years to reach a target of producing 70% of its sales from within the Asia-Pacific region. This amount included the $1.4-billion expansion of an existing chemical plant it jointly owned and operated with Sinopec in the eastern city of Nanjing.

BASF, which started selling textile dyes to China in 1885, made its largest single investment in history in 2000 when it built the Nanjing plant with Sinopec for $2.9 billion, according to a company website.

Earlier this year, BASF signed an agreement with Malaysia's state-owned oil and gas firm Petroliam Nasional Bhd., or Petronas, to develop a new refinery project in Malaysia that included the production of iso-nonanol. Under the agreement, BASF would take a 60% stake in the project, with Petronas owning the rest.

At the moment, China relies exclusively on imports of iso-nonanol, mainly from Germany and Singapore, Sinopec said, adding that China imported 318,600 metric tons of the chemical in 2011.

Under the memorandum of understanding between Sinopec and BASF, the companies will each take a 50% stake in the joint venture and jointly operate the facility, which will be located in the Maoming Hi-Tech Industrial Development Zone, the statement said.

"The final scope of the investment will be determined following the outcome of the joint feasibility study, which is expected by the end of 2012," Sinopec said.

--Sarah Chen contributed to this story.

Write to Wayne Ma at wayne.ma@dowjones.com