Yantai Wanhua: To Be the Top MDI Manufacturer


Affected by the feedstock discontinuity of its Ningbo subsidiary,
Yantai Wanhua Polyurethane Company Ltd. (Yantai Wanhua SH:
600309) will likely suffer a considerable profit loss in 2006.
In spite of this, the leading diphenylmethyl diisocyanate (MDI)
producer in China doesn't stop its expansion.
   It is released that the company will try its best to expand
its MDI capacity to 700 000 t/a in the next 5 years, being 3 times
the capacity today. The company will become one of the first-rate
MDI producers in the world at that time.

Expanding the capacity to 700 000 t/a in 5 years

MDI is a synthetic material extracted from crude oil. Owing to
its features of lasting degradation, heat insulation and good
elasticity, MDI has become a raw material extensively used in
construction, automobile and household electric appliance
sectors, etc.
   Yantai Wanhua introduced MDI production equipment from Japan
20 years ago. It is the only MDI producer in China by August 2006.
On August 18th, BASF and its partners announced the start-up of
their integrated isocyanates complex in Shanghai.
   The company announced in March 2006 that the 160 000 t/a MDI
unit constructed by the company in Ningbo Daxie Development Zone
reached the design capacity. (CCR2005, No. 35) The MDI capacity
in the company therefore reached 240 000 tons today.
   Yantai Wanhua announced on May 17th, 2006 that the MDI unit
in its subsidiary Ningbo Wanhua Polyurethanes Co., Ltd. (NWPC)
was forced to suspend production due to the chlorine leakage that
happened in its liquid chlorine supplier Ningbo Donggang
Electrochemical Co., Ltd. on March 22nd, 2006. Donggang
Electrochemical Co., Ltd., however, soon restored production
after consultation and the MDI production in NWPC was also
restarted.
   Yantai Wanhua has managed to master the core technology for
the MDI production by relying on its own efforts.
   The 2005 performance statement of Yantai Wanhua shows that
the company accomplished a sales revenue of RMB3.309 billion,
a net profit of RMB617 million and a net profit rate of 18.6%
in 2005.
   Besides, the company has also acquired the pricing right in
the domestic MDI market. When the price of pure MDI reached as
high as RMB30 000 per ton in the domestic market, the price of
products from Yantai Wanhua was RMB25 000 per ton. When the price
of pure MDI dropped to RMB19 000 per ton in the middle of 2005,
the price of products from Yantai Wanhua still kept at RMB24 000
per ton. It is because Yantai Wanhua plays an important role in
market stabilization that the price of pure MDI in the domestic
market basically maintains at around RMB24 000 per ton today.
   According to its internal development program, the company
will attain the goal of becoming one of the first-rate MDI
producers in the world in 2010. The capacity of MDI in the company
will be more than 700 000 t/a at that time.

Promoting two major new markets

The capacity of MDI in Yantai Wanhua is 240 000 t/a today. With
the completion of the 240 000 t/a MDI project jointly funded by
BASF, Huntsman and Shanghai Petrochemical Company Ltd., the
capacity of MDI in China is already close to 500 000 t/a.
   Analysts think that the Chinese market has considerable
consumption potential for MDI. Yantai Wanhua has not only
concentrated its efforts on existing consumption markets, it is
also expanding new markets. There are two major new markets for
the application of MDI in the company.
    (a) MDI is used as raw material to produce heat-insulating
materials.
     (b) MDI is used as adhesive to produce formaldehyde-free
boards.
   The use of PU exterior wall protective layers produced with
MDI as raw material can reduce the energy consumption by 65% in
buildings. If the construction sector in China is requested to
use heat-insulating materials produced from MDI, huge
development opportunities will be brought to the MDI sector.
According to statistics from China Petroleum and Chemical
Industry Association, owing to the requirements on energy
conservation the demand of MDI in China will reach more than 1.0
million tons in 2011.
   Yantai Wanhua has made an investment of RMB50 million and
established a joint venture company to produce boards with MDI
as adhesive and crop stalk as raw material. As MDI is a natural
adhesive with no formaldehyde, it is expected to have very strong
competitive edge in the construction material market.
    According to analysts, the price of crude oil will further
increase or maintain at a high level for a considerable period
of time. Faced with the dual pressure of production cost increase
and product price reduction, the net profit in chemical sectors
will go further down. As Yantai Wanhua has mastered the core
technology and acquired strong pricing ability, the profit in
the company will not be greatly affected by the raw material
price rise. The gross profit growth in the company will maintain
at 30% in the next few years.