Hubei Yihua: Capacity Expansion Promotes Performance Improvement     

Hubei Yihua Chemical Industry Co., Ltd. (Hubei Yihua, SZ: 000422) is located in Hubei province. It achieved a main-business revenue of RMB5.075 billion in 2007, an increase of 68.17% and a net profit of RMB388 million, an increase of 76.15%. The main reasons for the performance improvement in 2007 include the startup of a 300 000 t/a ammonia and 400 000 t/a urea project in a subsidiary, Yihua Chemical (Guizhou) Co., Ltd., the startup of a 840 000 t/a compound phosphate fertilizer project in another subsidiary, Dajiang Compound Fertilizer Co., Ltd. in 2006 (CCR2006, No. 27), the acquisition of Hunan Jinxin Chemical Industry Co., Ltd., all increasing Hubei Yihua's output and benefiting from the rising prices of chemical products.

Integrated system

Hubei Yihua is one of the biggest chemical fertilizer producers in China. It can produce 1.05 million t/a urea, 220 000 t/a PVC (polyvinyl chloride), 65 000 t/a pentaerythritol and 170 000 t/a caustic soda.
    Utilities (power and steam) are provided by its subsidiary Pacific Thermal Power Co., Ltd. (steam being a byproduct in co-generation); caustic soda for the pentaerythritol production is provided by its own chlor-alkali unit; formaldehyde is provided by its own powdered coal gasification system; and hydrogen chloride for the PVC production is provided by its own chlor-alkali unit. This integration keeps down the production costs.
   The company's integrated production system has not only increased the raw material self-sufficiency rate but has also reduced energy consumption. It therefore reduces risks from rising upstream prices.
   The company has strengthened control on upstream resources in other ways in recent years, including the acquisition of a mining license in Anlilai Coal Mine in Puan County and the purchase of total equity in Hengtai Coal Mine. (CCR2007, No. 34)

Intensify chemical fertilizer business

The company used RMB530 million to purchase Jinxin Chemical Industry Co., Ltd. located in Hunan province in June 2007. (CCR2007, No. 19) Jinxin Chemical Industry Co., Ltd. can produce 180 000 t/a ammonia, 300 000 t/a urea, 100 000 t/a compound fertilizers and 60 000 t/a fine methanol. The company's urea output supplies around 30% of the total consumption in Hunan province. The purchase of Jinxin Chemical Industry Co., Ltd. can give Hubei Yihua quick access to the Hunan market.
   Hubei Yihua announced plans in January 2008 to purchase 51% equity in Erdos Lianhe Chemical Co., Ltd. , under Erdos Group,  at a price of RMB255 million and also invest RMB255 million to execute a 600 000 t/a ammonia and 1.04 million t/a urea project there. (CCR2008, No. 4) Erdos Lianhe Chemical Co., Ltd. started construction of the 600 000 t/a ammonia and 1.04 million t/a urea project in May 2006. If everything goes smoothly, the project will be completed and put on stream in October 2008.

Demand growth brings opportunity

With the state's increased support of agriculture, the enthusiasm of farmers for planting grain has increased remarkably, and a firm guarantee has been provided for the development of the chemical fertilizer sector. In the international environment, with the impact from the development of bio-energies the world supply/demand relationship of chemical fertilizers has shifted. Oversupply has changed into shortage. Due to the dual impact from phosphate rock and sulfur in particular, phosphate fertilizers will be in short supply until 2009.
   As the price of crude oil continues to climb in the international market and the integration with coal chemicals as raw materials becomes all the more prominent, new opportunities have been brought to chemical sectors in China. Hubei Yihua as a major pentaerythritol producer in the world already controls a considerable share of both domestic and overseas markets. In addition, the completion of the 600 000 t/a soda ash project in November 2007 will contribute to the financial growth of the company in 2008.
    Hubei Yihua has considerable advantages in scale, technology and management. With favorable conditions such as the state's support of agriculture, the firm's capacity expansion and the rising price of chemical fertilizers, the profitability of the company will improve. It is expected that the net profit in the first half of this year will be much higher than in the same period of 2007.
   In addition, the company will raise funds for the following four projects: the purchase of 38.5% equity in Yichang Yihua Pacific Thermal Power Co., Ltd.  at a price of RMB254.30 million, the investment of RMB350.39 million in a 30 000 t/a pentaerythritol project, the investment of RMB1 215.17 million in a 200 000 t/a acetic acid project and the investment of RMB1 186.53 million in a 60 000 t/a 1,4-butanediol (BDO) project.