Price Increase Boosted Results for Urea Firms   

By Peter Zong    
Amid increased prices, a few new projects came on stream in H1 although many firms commenced construction of new coal based urea projects in the period. According to the CCR database, only Shandong Lianmeng Chemical Group Co., Ltd. added a new 300 000 t/a urea unit in H1.
    Twenty two urea manufacturing firms are already listed in the stock market. They can release unaudited fiscal reports ending June 30th and will be the main objects to be introduced this article. Other large urea manufacturers such as Shanxi Fengxi Fertilizer Industry (Group) Ltd., Shaan'xi Weihe Coal Chemical Group Ltd., and Henan Junma Chemical Group Ltd., all have a capacity of over 500 000 t/a, have not been publicly listed in the stock market, and therefore have not disclosed any operation details for us to share.
   With regard to growth of revenue, two smallest firms - Guangxi Hechi Chemical Co., Ltd. (SZ: 000953) and Hunan Tianrun Chemical Industry Developing Company Limited (SZ: 0002113) saw a drop. But 18 firms enjoyed growth of over 20%. Shanxi Coking (SH: 700740) was the top with a growth of 118.56%.
   All firms claimed difficulties, but no one reported a loss. Six firms suffered a drop in net profit, including three smallest firms and two biggest firms cited here, along with Sichuan Meifeng (SZ: 000731) which was severely impacted by the earthquake. Fifteen firms reported double digit growth in net profit. The two biggest - Sinopec Corp. and PetroChina Company Limited were affected by the price cap and the special petroleum proceeds (or the so called "huge profits" tax in petroleum).
   Regarding to the revenue in the urea business, five firms did not release detailed data. Four firms reported a drop. Shandong Luxi Chemical Co., Ltd. (SZ: 000830) gained the biggest increase - 112.68% among the 17 firms that reported urea sale data.   
   With respect to gross profit rate of urea business, Yunnan Yuntianhua Co., Ltd. (SH: 600096) ranked first with 47.58%. Both Heilongjiang Heihua and Guangxi Hechi reported a negative gross profit rate in urea business.

Individual Case  

Among the nearly 200 urea manufacturers, PetroChina Company Limited (SH: 601857) continues to rank first with a total capacity of four million t/a, all using natural gas as the raw material. It reported a urea output of 2.04 million tons in H1, an increase of 7.9%, but did not disclose the revenue of its urea business in its H1 fiscal report. It is constructing an 800 000 t/a urea in Tarim of Xinjiang, which is scheduled to start up in October 2009.
   In total revenue, Sinopec Corp. topped the 22 firms. It has a total urea capacity of 3.61 million t/a in six factories, but only produced a total output of 684 thousand tons with a drop of 15.7%, at an operating rate of 38%, approaching that of 2007. The company has not explained their low operating rate.
   SinoFert Holdings Limited (HK: 0297), China's largest distributor of chemical fertilizers, became the third largest urea manufacturer by means of two acquisitions in H1. But the newly acquired subsidiaries have not yet contributed their financial results to the H1 report for SinoFert Holdings that is controlled by SinoChem, the fourth largest group in China's petroleum and chemical industry. SinoFert Holdings sold 4.06 million tons of urea through its marketing network which includes 1 860 outlets nationwide. It should be expected that their urea production will grow sharply in the second half.
    China BlueChemical Ltd. (HK: 3893), which is controlled by CNOOC, held the fourth by means of a total capacity of 1.84 million t/a. The company produced 991 069 tons of urea in six months ended June 30th, a small growth of 2.3% compared with the same period of 2007, because the three urea units in Hainan and Inner Mongolia operated at 107.7% of full nominal capacity. Mr. Yang Ye Xin, CEO and President of the company, commented that China BlueChem achieved satisfactory results for the first half of 2008. During the period under review, with the company's efficient cost control through further upgraded operational management, coupled with strong demand driven by the urea market, China BlueChem realized record high operational results. He also appraised that the company will actively promote the construction of a polyoxymethylene project in Inner Mongolia and a methanol project in Hainan province, and will continue to promote the launch of its new coal based urea project in Shanxi province.
    Sichuan Lutianhua Company Limited (SZ: 000912) had no great activity in H1 and reported a flat growth in net profit. The company attributed its growth to the increased urea price. The methanol and dimethyl ether business totaled RMB900 million, with a gross profit rate of 1.27%. The subsidiary Ningxia Jiemei Fengyou Chemical Company Limited is preparing to launch the 400 000 t/a ammonia and 760 000 t/a urea project. The snowstorm in January-February had a heavy impact on the company's financial results.
   Shandong Luxi Chemical Co., Ltd. (SZ: 000830) commenced production of the 210 000 t/a ammonia, 40 000 t/a methanol and 300 000 t/a urea project on December 14, 2007 and renovated its existed production facility, both of which helped the company double its urea sales. The increased urea price, the reduced cost and a more favorable tax rate helped the company gain a 227% growth in net profit. The company worried about the increased prices of raw materials, fiercer competition in marketing urea, burdened by high export tariffs and difficulty in transportation under stricter control of chemicals.   
   Liaoning Huajin Tongda Chemicals Co., Ltd. (SZ: 000059) produced 808 thousand tons of urea in H1, representing an operation rate of 108%. Three production lines in Liaohe, Xinjiang and Jinzhou run steadily. ABS production business, newly acquired from its majority shareholder, also contributed to the 44.75% growth in total revenue.
   In the first half, Shanxi Lanhua Sci-Tech Venture Co Ltd (SH: 600123) produced 524 thousand tons of urea, up 17.87%. It sold 538 thousand tons of urea, an increase of 30.87%. The total revenue in its urea business increased by 44.4%. The data showed that Shanxi Lanhua increased the sale/production rate, cut down inventory and lifted the selling prices by 10% on average. The 180 000 t/a ammonia and 300 000 t/a urea in Tianyue branch started commercial production in H1. And the Clean Energy branch started trial run of the 200 000 t/a methanol and 100 000 t/a dimethyl ether project at the end of June. Shanxi Lanhua reported that its RMB2.26 billion fertilizer project, including 300 000 t/a ammonia and 520 000 t/a urea, is in the preparation. It is certain that the company will report a better result for the second half.  
    A 79.3% growth of total revenue was reported by Hubei Yihua Chemical Industry Co., Ltd (SZ: 000422), mainly powered by the opening-up of three new subsidiaries including Guizhou Xinyi Mine (300 000 t/a coal), Hubei Xiangxi Chemical Company (200 000 t/a calcium carbide) and Yichang Pacific Chemical Company (PVC). The net profit doubled. The urea business grew at 38%, mainly powered by the increased market price. The company has grown its performance by extending its product chain, both downstream and raw materials access, for several years. Early this year Hubei Yihua acquired 51% equity of Inner Mongolia Erdos Lianhe Chemical Company that is constructing two urea projects - 600 000 t/a and 1.04 million t/a. (CCR2008 No.4)
    Shandong Hualu Hengsheng Chemical