Xinghua Chemical Benefits from Prosperity of Ammonium Nitrate Sector      

Shaanxi Xinghua Chemical Co., Ltd. (Xinghua Chemical, SZ: 002109) is located in Xianyang of Shaanxi province. It is the biggest ammonium nitrate producer in China. According to the company's 2007 performance statement, its 2007 operating revenue was RMB667 million, a drop of 2.31% from 2006, the net profit was RMB113 million, an increase of 5.45% and EPS was RMB0.62.
    The company's ammonium nitrate capacity has reached 300 000 t/a. The company's domestic market share has been maintained at around 10%, holding the first place. Revenue from porous ammonium nitrate and conventional ammonium nitrate accounted for 64.35% of the total revenue and the two products' net profit accounted for 83.46% of the firm's total profit in 2007.
    The company's production equipment for industrial ammonium nitrate and nitro-compound fertilizers are interchangeable. For example, the 200 000 t/a capacity of nitro-compound fertilizers can be switched to the production of industrial ammonium nitrate and 200 000 t/a in the 300 000 t/a capacity of industrial ammonium nitrate can be switched to the production of nitro-compound fertilizers. In this way the company can arrange production according to market demand.

Prosperity of the ammonium nitrate sector

The price of ammonium nitrate in both domestic and overseas markets has increased rapidly since the second half of 2007. It is expected that the price of ammonium nitrate in China will be maintained at a high level in 2008 and 2009 for the following reasons:
   First, the sustained price rise of natural gas both at home and abroad in the future will lead to an increase in the production cost of ammonium nitrate.
   Second, the grain supply in the international market will remain tense in the next five years. The grain price will therefore increase drastically and the demand growth and the price rise of ammonium nitrate will be stimulated.
   Third, the capacity of ammonium nitrate in China will be increased by around 740 000 t/a in 2008 and 2009 - a growth of around 10%. Ammonium nitrate expansion projects with a total capacity of 610 000 t/a in Xinghua Chemical, Yunnan Jiehua Chem Group Co., Ltd. and  Shandong Liaherd Chemical Industry Co., Ltd. will start production only in the second half of 2009 or even at the end of 2009. The output of ammonium nitrate in China will increase only a little before 2009.

Drastic improvement of future performance

Xinghua Chemical announced its plans to spend RMB400 million on launching 250 000 t/a ammonium nitrate and 60 000 t/a concentrated nitric acid projects. (CCR2007, No. 8) The output of ammonium nitrate (including nitro-compound fertilizers) in the company was 330 000 tons in 2007, an increase of 11.6% over 2006. With the renovation of existing plant and the completion of new projects, the output of ammonium nitrate (including nitro-compound fertilizers) will reach 360 000 tons in 2008 and 450 000 tons in 2009.
   The price of ammonium nitrate in the company has also increased constantly. Since the start of the brisk season for downstream industrial explosives in April, in particular, ammonium nitrate has been in great tight supply. The price increased by RMB100-150 per ton in April alone. The ex-factory price has reached RMB1 950 per ton today and will go up further in the future. In terms of export, although China increased the export tariff of chemical fertilizers by 100% the company's ex-factory price (after-tax) of ammonium nitrate for export has reached RMB2 050 per ton. (The product for export is mainly porous ammonium nitrate. Its price is usually RMB100 per ton higher than conventional ammonium nitrate.) The increased export tariff has produced no impact on the company. It is expected that the price of ammonium nitrate will remain stable currently with some increase in the future and the financial performance of the company will improve rapidly.

Imagination stimulated by Yanchang Petroleum.

On February 28th, 2008 Shaanxi State-owned Assets Management Commission decided to assign the state assets of Shaanxi Xinghua Group Co., Ltd. to Shaanxi Yanchang Petroleum (Group) Co., Ltd. (Yanchang Petroleum).
   Yanchang Petroleum is a large state-owned enterprise in Shaanxi province. It is one of the four enterprises in China with qualifications for oil/gas prospecting and recovery. The sales revenue of the company was more than RMB47.0 billion in 2007. The company will highlight the development of oil, gas, coal, salt and chemical sectors during the Eleventh Five-year Program period (2006-2010).
   The equity transfer will be completed in 2008. Yanchang Petroleum will take control of Xinghua Chemical at that time. Yanchang Petroleum can indirectly enter the domestic stock market and start to expand its business. Xinghua Chemical can hopefully become a development platform for the chemical sector of Yanchang Petroleum. Yanchang Petroleum can also bring stable and favorable supply of natural gas to Xinghua Chemical.