Zhongtai Chemical: Capacity Expansion Guarantees High Growth       


Xinjiang Zhongtai Chemical Co., Ltd. (SZ: 002092) is one of the large chlor-alkali chemical enterprises in China. It has been listed in Shenzhen Securities Exchange since December 8th, 2006. The company is engaged in chlor-alkali products such as PVC (polyvinyl chloride), ion-membrane caustic soda and hydrochloric acid and also transports materials and engages in import/export.
    The company recently published its annual performance statement for 2007. The operating revenue realized in 2007 was RMB2.409 billion, an increase of 45.23% over the previous year. The net profit was RMB218 million, an increase of 71.02%. The per-share earning was RMB0.925. According to the production targets for 2008, the rapid capacity expansion will lead to another drastic revenue and profit increase for the company this year.

Rapid capacity expansion

The main reasons for the performance growth of Xinjiang Zhongtai Chemical Co., Ltd. in 2007 include a capacity expansion and cost controls. The main-business revenue accounted for 99.08% of the operating revenue. PVC resin was the major profit source and sales of PVC resin accounted for 79.37% of the main-business revenue.
   The reason for the drastic growth of the main-business revenue was the completion of the company's first-phase 120 000 t/a PVC resin project and its matching 100 000 t/a ion-membrane caustic soda project in March 2006 (CCR2006, No. 13) Full-load production was achieved in 2007. The company produced 303 800 tons of PVC resin in 2007, an increase of 28.99% over the previous year and 249 700 tons of caustic soda, an increase of 21.69%.
   As the market price of PVC resin has an annual cycle, the price was low in the first quarter of 2007, picked up in the second and the third quarters and came down again in the fourth quarter.
   To reduce the purchase cost and stabilize the supply, the company has adopted several measures such as increasing the local purchase amount of calcium carbide in Xinjiang and reducing the purchase amount of calcium carbide in Gansu province and Ningxia. The proportion of the local purchase amount has increased from 38% in the same period of last year to 55% today. In a time of the constant price increases, the purchase price of calcium carbide in the company today is slightly lower than in the same period of last year.
   Owing to effective controls on production costs, the gross profit rate of PVC and caustic soda in 2007 was 1.0 percentage point and 9.0 percentage points higher than in 2006.

Rapid performance growth this year

The company plans to produce 420 000 tons of PVC resin and 350 000 tons of caustic soda in 2008. The company's PVC capacity and caustic soda capacity will be expanded to 739 000 t/a and 639 000 t/a respectively in 2009. The rapid capacity expansion will guarantee drastic performance growth for the company.
   The financing work is making smooth progress in the company. A total capital of RMB1.002 billion has already been raised. Funds for the first-phase renovation project are committed, and a solid foundation has been laid for the construction of follow-up projects.
   The second-phase project in the company will also be soon launched. The environmental impact report for the second-phase 360 000 t/a PVC and 300 000 t/a ion-membrane caustic soda project is under examination. The project is expected to be completed and put on stream before June 2010. After the completion of the second-phase project, Xinjiang Zhongtai Chemical Co., Ltd. will become a leading coal/power/chemical integrated enterprise in the chlor-alkali sector of China.
   The Toksun Salt Mine to be controlled by the company owns raw salt reserves of nearly 70 million tons that can be used as raw materials for production. The company also plans to construct a 270MW co-generation unit to reduce energy costs. It has also acquired exploration rights for an area of 248.6 km2 in Qitai County with rich coal resources and a foundation has been laid for the mining of coal and the development of the coal chemical industry.
   The expanded capacity of chlor-alkali enterprises in the western region will be released this year. Market competition will therefore be fiercer. Moreover, after the expiration of antidumping measures in September 2008, chlor-alkali enterprises in China will be faced with greater pressure of international competition. Problems in railway transportation will also affect the sales of products.