Qinghai Salt Lake Potash: Rising Price Promotes Performance      


Qinghai Salt Lake Potash Co., Ltd. (Qinghai Salt Lake Potash, SZ: 000792) is located in Charhan, Germu, Qinghai province. It is the biggest potash fertilizer producer in China. The company was listed on the Shenzhen Stock Exchange in September 1997.
     According to the 2007 performance statement published by Qinghai Salt Lake Potash, the company accomplished an operating income of RMB3.109 billion in 2007, an increase of 19.76% over 2006, with a total profit of RMB2.036 billion, an increase of 25.65%. EPS was RMB1.29.
     The company's performance improvement arises mainly from steady expansion of capacity and the fortuitous rising price of potash. With the maturing of production technologies, the company's capacity will continue its stable growth in the future.

Price rise of potash fertilizer

As the biggest potash fertilizer producer in China, the company produces only one end product - potassium chloride. The operating income from potassium chloride reached RMB3.06 billion in 2007, an increase of 18.55% over 2006 and accounting for 98% of the total operating income in the company. The potassium chloride output was 1.90 million tons, an increase of 9.8% over the 2006 output of 1.73 million tons. The market share increased further.
   Demand for potassium chloride was brisk in China in 2007 and the price increased constantly. The company's average selling price in 2007 was 12% higher than that in 2006. The domestic market price of imported potassium chloride has maintained a drastic increase since the first half of 2007, growing more than 40%.
   Qinghai Salt Lake Potash determines its selling price by the international price trend. Potash fertilizer exported by Canada and Russia accounts for 80% of all that is traded in the international market. These two countries dominate the pricing of potash fertilizer. When potash fertilizer is in shortage, they increase the price. When there is an abundant supply, they restrict the output to maintain price stability. The price of potash fertilizer in the domestic market will therefore be maintained at a high level. Sinochem Corporation has signed a contract with international exporters to import 2.0 million tons of potash fertilizer in 2008 and the price is more than twice the 2007 price.

Rapid growth of performance

Qinghai Salt Lake Group, the major shareholder of Qinghai Salt Lake Potash, will use rich resources in the Salt Lakes of Charhan to actively develop non-potash businesses through a project called "comprehensive utilization of salt lake resources". The project is being executed in three phases. It includes various sub-projects such as methanol, vinyl chloride, PVC (polyvinyl chloride), synthetic ammonia, urea, metal magnesium and anhydrous magnesium chloride. After the full completion of the project, Qinghai Salt Lake Group will become the first new oil/gas/salt chemical base in China integrating salt lake resources and oil/gas resources. The second phase of the project was launched in June 2007. (CCR2007, No. 19)
   Advances have already been made in the heat supply center project and the 100 000 t/a hot melt process refined potassium chloride project being executed by Qinghai Salt Lake Potash.
   Due to problems in equipment transportation last year, the construction of the heat supply center was postponed. One boiler can be installed in mid-2008. The other two boilers can also be installed before the end of 2008. The heat supply center will help extend the production cycle, increase potassium chloride yield and stabilize potassium chloride quality. In this way great improvements of product quality, resource conservation and cost reduction can be achieved.
   The 100 000 t/a hot melt process refined potassium chloride project in Sanyuan Co., Ltd. of Qinghai Salt Lake Potash has also been launched. The project is expected to be completed and put on stream in 2009. In the project potassium-containing waste liquid will be transformed into sylvine, and refined potassium chloride will be produced through the hot melt process. The raw material to be used in the project will be potassium-containing waste salt from the tail salt pond and the sodium salt pond. Not only the cost for pond cleaning can be reduced, but the waste of resources can also be avoided.
   Besides the competition from imported products, Qinghai Salt Lake Potash also has to face the competition from CITIC Guoan Information Industry Co., Ltd. (SZ: 000839) and Xinjiang Guannong Fruit & Antler Co., Ltd. (SH: 600251) With the completion of these projects, the performance of the company will have a further rapid growth.
   In addition, Sinofert acquired 18.5% equity in Qinghai Salt Lake Potash from Sinochem Corporation in October of 2007. (CCR2007, No. 31)