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Weekly UpdatesTo sum up the urea market in 2008, three items can be used to describe its characteristics. First, price fluctuation exceeded 40%, with the ceiling price of RMB2 800/t in July and the bottom RMB 1 600/t in December. Second, due to the snowstorm, the earthquake and economic turmoil urea firms have operated below capacity, but better than other industries. Even in the worst month, China's urea producers could operate at over 60% of full capacity on average. China produced 25.9 million tons of urea (counting on active nutrients-nitrogen) in 2008, up 3.68% year over year. Third, the government controlled the fertilizer market tightly through frequent policy adjustments, particularly in export tariffs. China exported 4.36 million tons (in physical amount, the same thereafter) of urea in 2008, a drop of 17%. These issues were generally claimed by the listed urea firms in their fiscal reports.
As for 2009, many urea players agreed the good news will be larger than fears. Preferential policies include the cancellation of price constraints, the unchanged low prices of power and natural gas, low transportation rates and taxation for urea firms, and governmental protection on grain prices. Adversely, capacity surplus will be more serious in 2009 with an added capacity of over 2 million t/a, which will bring China's total urea capacity to 60 million t/a. Players predicted the urea price will hover between RMB1 500/t and RMB2 000/t excluding freight in 2009. Overcapacity will result in phasing out small factories. Natural gas based urea producers will continue to dominate coal based producers.
According to the CCR database, China had 23 listed companies involved in urea production as of December 31 st, 2008. Jiangsu Huachang Chemical Co., Ltd. (SZ: 002274) made its IPO in September. Among them, 19 companies disclosed their urea sales in their fiscal reports ending December 31 st, 2008. Several companies reported their 2008 results till the end of April 2009, together with their fiscal reports for the first quarter of 2009.
PetroChina Company Limited (SH: 601857) produced 3.82 million tons of urea in 2008, China's biggest, with a year-on-year increase of 5.2%. Its operating rate averaged 95.6%. Construction on its 800 000 t/a urea in Tarim of Xinjiang went smoothly.
Sinopec Corp. (SH: 600028) produced 1.65 million tons of urea in 2008, perhaps one of the four biggest among the 23 companies, an increase of 5.4%. With the acquisition of Shandong De Qilong in June 2008.
SinoFert Holdings Limited (HK: 0297) owned 2 million t/a urea production capacity, but it has not reported the performance of its urea business.
Shanxi Coking Co., Ltd. (SH: 600740), the urea business is a minor part, so the company also has not reported the operating result of this business unit.
China BlueChemical Ltd. (HK: 3983) produced 1.95 million tons of urea, exceeding its nameplate capacity of 1.84 million t/a. Such a high operation rate relied on its low cost in acquiring natural gas from its majority shareholder CNOOC. Mr. Yang Ye Xin, CEO and President of the Company, said, "The urea facility of Fudao Phase II urea facility witnessed its longest cycles since they were put into operation. In addition, the company enhanced its presence in northeastern China." On December 12th, 2008 the CNOOC based company announced an acquisition plan to expand its businesses from nitrogenous fertilizer to a wide field, including phosphate fertilizer production.
Shandong Luxi Chemical Co., Ltd. (SZ: 000830) increased its 2008 total sales by 39. 77% helped by the new projects and renovations. Urea sales were RMB3.077 billion, dedicating to 44.4% in the total, and witnessed a year-on-year growth of 51.66%, the highest among the 18 reported companies. Its net income mainly relied on its operation in the first half. At the end of 2008 the goods in its stock were valued at RMB 120 million, up 52.4% over one year earlier, due to sales difficulty and the increased off-season storage. The sales in Q1 of 2009 grew by 6.86%, representing that the operation rate resumed to normal level. The company announced an RMB4. 85 billion investment plan to construct 200 000 t/a of silicone capacity, 120 000 t/a for methane chlorides, 160 000 t/a for melamine, 300 000 t/a for urea, 60 000 t/a for methanol, 200 000 t/a for methylamine and 200 000 t/a for dimethyl formamide in the coming five years. As for 2009, the company planned to manufacture 1.55 million tons of urea, slightly higher than its nameplate capacity.
Liaoning Huajin Tongda Chemicals Co., Ltd. (SZ: 000059) produced 1.64 million tons of urea by its three factories in 2008, up 6. 4%. Its urea sales surged by 11.25% to RMB2.686 billion, next to China BlueChem and Shandong Luxi. The 60.3% growth in net profit was attributed to the high operating rate and increased urea prices. The gross profit rate of urea was 39.21%, the second highest among the 18 companies that released data. Other than urea, ABS (acrylonitrile-butadiene-styrene) business contributed to one-fourth of the total sales. In Q1 of 2009, sales approached the level of Q4 2008 without improvement whilst the net profit was RMB98. 4 million, nearly nine times that of Q4 2008. The company is busy constructing a 450 000 t/a ethylene cracker.
Hubei Yihua Chemical Industry Co., Ltd (SZ: 000422) has kept a high exposure in the acquisition market in recent years. The new acquisitions and startup in 2007 and early 2008 help the company achieve a 40.5% growth in its 2008 total sales. Urea sales expanded 35.37%, next to Shandong Luxi and Shanxi Lanhua. The net income declined 40% in 2008, which was attributed to the price drop and sales down in the second half. It reported a loss of RMB145 million in the fourth quarter of 2008, second largest among the 21 companies that reported quarterly results, compared with a profit of RMB 133 million in Q4 2007. Although the company owns advanced coal-to-urea technology, its gross profit rate in urea business was only 20.7% in 2008, far behind the gas based urea producers. It has no mighty competitor in Hubei province. The 1.04 million t/a natural gas based urea project in Inner Mongolia's Erdos Lianhe Chemical Company whose 51% equity is controlled by Hubei Yihua, came onstream at the end of 2008 and is aimed at the market in northeast China, expected to bring more than RMB200 million of profit to the company's 2009 results. The performance in Q 1 of 2009 is giving a good illustration.
For fiscal 2008, Sichuan Lutianhua Company Limited (SZ: 000912) reported a drop of 1.44% in total sales, a drop of 35. 16% in net profit and a drop of 19.77% in urea sales. The company produced 1.32 million tons of urea from its 1.6 million t/a nameplate capacity. The firm performed badly in Q4 with a decline of 37.3% in total sales and a loss of RMB70.6 million. Data for Q1 of 2009 showed the company recovered to a normal operating rate. Three new projects are under construction--a 400 000 t/a ammonia and 760 000 t/a urea project, a nitric acid renovation project and a PTMEG project.
Supported by the increased coal prices and a 5.5 million tons of coal output, Shanxi Lanhua Sci-Tech Venture Co., Ltd. (SH: 600123) nearly doubled its net profit in 2008, with an annual growth of 98.25% that is the third highest among the 23 companies here. The profit/sale rate was 28.86%, second only to the 29.63% of China BlueChem. Urea business was 45.3% of the total. It produced 1.18 million tons of urea in 2008, a year over year growth of 25.97%, supporting a 36.17% growth in urea sales, on the back of the startup of a 300 000 t/a urea unit in Tianyue branch. The RMB2.26 billion second phase project of 300 000 t/a ammonia and 520 000 t/a urea has not been onstream as scheduled, and it has not appeared in the 2009 startup plan. Data by quarter showed that the company has kept stable growth in the period of October 2008 to March 2009, not impacted by the financial turmoil.
Sichuan Meifeng Chemical Industry Co., Ltd. (SZ: 000731) posted a growth of 67.34% in 2008 total sales by two acquisitions, which is the highest growth among the 23 firms in the sheet. It purchased 51% of Lanzhou Far East Fertilizer Company in September 2007, and 55.78% of Guizhou Chemical Fertilizer Co., Ltd. in November 2007. Lanzhou plant owns a capacity of 80 thousand t/a synthetic ammonia and 110 thousand t/a urea, and Guizhou branch operates a 200 thousand t/a synthetic ammonia unit, 300 thousand t/a urea unit and 50 thousand t/a methanol unit. Both of them produce urea from coal. The headquarters factory has a 600 000 t/a natural gas based urea unit. Given the impact from the snowstorm, the earthquake and the economic downturn, the three urea units frequently stopped running and restarting in 2008, causing a lowered net profit and a low gross profit rate. The company produced 999 thousand tons of urea in 2008, and posted a 25.64% growth in urea sales. Other main business units that posted a positive growth include compound fertilizer, potash, phosphate fertilizer and melamine. The company announced on June 24th, 2008 a plan to construct a 1 200 tons per day urea unit.
Shandong Hualu Hengshcng Chemical Co., Ltd (SH: 600230) reported an increase of 20.08% in 2008 total sales on the back of the startup of new capacity for 350 000 t/a urea and 200 000 t/a methanol in early 2007. The gross profit rate of urea dipped to 22. 48% for the whole of 2008 compared with 30.43% in the first half. The new 200 000 t/a acetic acid unit came on stream in May 2009 and the 100 000 t/a acetic anhydride will start commercial operation this July. Probing into the data for Q4 of 2008 and Q1 of 2009, the company maintained a steady operating rate with little impact on its total sales. Q4 witnessed a drastic drop in net profit.
In 2008 Yunnan Yuntianhua Co., Ltd (SH: 600096) posted the highest gross profit rate from urea business among the 18 companies. It reported a urea output of 695 thousand tons and an increase of 2.4% in urea sales. The majority of the increase in total sales came from the glass fiber business that also contributed to the loss in Q1 of 2009.
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