LCIC: Smash Capacity Bottleneck

Liuzhou Chemical Industry Co., Ltd. (LCIC, SH: 600423) is one
of the biggest chemical fertilizer and chemical enterprises in
Guangxi province, southern China. It is mainly engaged in the
production and sales of chemical fertilizers and other chemical
products. Main products include synthetic ammonia, urea,
ammonium nitrate, soda ash, ammonium chloride, sodium nitrate,
ammonium bicarbonate, sulfur, nitric acid, methanol and
formaldehyde.
   According to the announcement made by the company on January
8th, 2007, the synthetic ammonia energy-saving
potential-tapping clean production technology renovation
project, an IPO fund supported project of the company, completed
wet commissioning on January 4th, 2007. Construction of the
project was started on June 30th, 2003 (CCR2003, No. 20) The cost
of RMB130 million can be therefore reduced in the company each
year.

No longer a chemical fertilizer enterprise long before

LCIC is not just a pure chemical fertilizer producer, but should
be regarded as a comprehensive coal chemical enterprise. The
urea sales profit only accounted for 9.8% of its total gross
profit in 2006. Even after the completion of the new Shell coal
gasification unit, the proportion of the urea sales profit in
the total gross profit will only be 25% - 28%.
   The company is the second biggest producer of nitric acid
series products in China and also the biggest producer of
concentrated nitric acid in Southwest China and South China. The
capacity of concentrated nitric acid was 180 000 t/a and the
sales amount was 133 600 tons in 2005. The capacity of ammonium
nitrate was 280 000 t/a and the sales amount was 200 900 tons
in 2005. The company has a urea capacity of 200 000 t/a today
and the sales amount of urea was 76 600 tons in 2005. The limited
synthetic ammonia capacity has restricted the output of urea.
   Due to the restriction in transportation distance and safety,
the key for the development of nitric acid and ammonium nitrate
lies in peripheral markets. Producers of nitric acid and
ammonium nitrate in China are mostly distributed in East China
and North China. There are few such producers in Southwest China
and South China. South China, however, has a relatively great
demand of concentrated nitric acid. The company as the biggest
concentrated nitric acid producer in Southwest China and South
China has remarkable advantages in regional competition. The
market share in these two regions has constantly expanded in
recent years. The domestic market growth of nitric acid series
products manufactured by the company keeps increasing. Besides
Guangxi concentrated nitric acid and ammonium nitrate market
fully occupied by the company, concentrate nitric acid from the
company holds 90% of Guangdong market and 70% of Hunan market
and ammonium nitrate from the company holds 85% of Guangdong
market and 87% of Hunan market.
   The new capacity of concentrated nitric acid and ammonium
nitrate has already found sales markets. Despite the possibility
for a price drop of urea in line with the oil price in the
international market, the reduction margin will not be big.
Besides, the company has also planned to further expand the
capacity of downstream methanol.

Future development prospect

The net profit growth in LCIC was 23% in the 6 years from 2000
to 2005. It reached 33% in the 3 years after its public listing
in 2003. The average sales revenue growth was 19% from 2000 to
2005. It reached 27% in the 3 years after its public listing in
2003. There has been a synchronous rapid growth in both sales
revenue and net profit.
   The bottleneck in the production of the company today is that
due to the serious deficit of the synthetic ammonia capacity,
the downstream capacity can not be fully operated. Because of
the restriction in the synthetic ammonia capacity, the 200 000
t/a urea unit only attained an operation rate of 38% in 2005.
The new Shell coal gasification unit can help remove the
bottleneck of synthetic ammonia deficit and bring the downstream
capacity into full play. The completion of the coal gasification
unit can also expand the product line of the company and extend
products to nitro-compound fertilizer and methanol sectors.
   The completion of the Shell coal gasification unit can
remarkably reduce the production cost in the company. The coal
consumption per ton of ammonia will be down from 1.7 tons to 1.3
tons. The major raw material used in the company today is
anthracite. It is mainly purchased from Guizhou province and a
small amount is also from Shanxi province and Vietnam. The
consumption of anthracite was 489 200 tons in 2005, accounting
for around 46.10% of the total cost. The use of the coal
gasification technology can greatly lower the utilization
requirements on raw material coal. Fly ash produced in local
areas can also be used in the production. The cost of purchase
and freight can therefore be reduced. Based on estimates, the
cost in the new unit can be 22% lower than the old unit.
   According to the program made by the company, the experience
gained in the coal gasification unit will be used in the
renovation of the old synthetic ammonia unit to promote
comprehensive cost reduction and further capacity upgrading.
The smooth completion of the coal gasification unit is therefore
a starting point for the company in its march towards a large
comprehensive coal chemical enterprise.