Jianfeng Chemical: Expanding Urea Capacity        

Chongqing Jianfeng Chemical Co., Ltd. (Jianfeng Chemical, SZ: 000950) engages in the manufacture and sales of chemical products, such as fertilizers, ammonia, nitrogen, argon, and other products. The company was formerly known as Chongqing Minfeng Pesticide & Chemical Co., Ltd.
    The company's first shareholder is China Nuclear Industry Jianfeng Chemical Factory (CNIJCF), holding 52.08% stake. Jianfeng Chemical can annually produce 300 000 tons of synthetic ammonia and 520 000 tons of urea at present. On January 23rd, 2009 Jianfeng Chemical pre-announced that its overall profit in 2008 amounts to RMB270 million, increasing 50%-100% from 2007. Its urea business contributes more than 95% to its overall income and the gross profit rate.

Demand for urea will pick up      

* Suffered less from economic crisis     

More than 60% of the nitrogenous fertilizer consumed in China is urea. The demand for agricultural products is stable for they are daily essentials. Thus fertilizer demand is affected less by the economic crisis. Moreover, because urea can increase the grain yield, demand for urea is the most rigid among the nitrogen, phosphorus and potassium fertilizers.

* Policy support    

The National Development and Reform Commission will provide greater financial supports to agriculture in 2009 according to the price fluctuation of grain and agricultural materials like fertilizer, which will enhance the enthusiasm of farmers to cultivate larger areas and promote increased demand for urea.

* Low price-driven demand    

About 70% of urea production in China takes coal as raw material. The declining price of coal and the over supply of urea will keep the price of urea low and will promote the growth of demand for urea in China in 2009.
   Jianfeng Chemical's 520 000 t/a urea capacity can produce a maximum of 600 000 tons every year. The company has had no urea inventory since 2006. The rising demand for urea drives Jianfeng Chemical to expand its urea capacity for further growth of performance.

Large-scale expansion in 2010     

An insider of Jianfeng Chemical said that the company's net profit maintains above 50% during 2006 - 2008, but the benefits will be very difficult to increase under the existing scale.
    At present, the company is constructing the second phase fertilizer project purchased from CNIJCF in April 2008. This project with a total investment of RMB3.17 billion includes production lines for 450 000 t/a of synthetic ammonia and 800 000 t/a of urea, is due for completion at the end of 2009 and is to be fully operational in 2010. The project adopts a cryogenic purification technique introduced from USA Kellogg Brown & Root, Inc., a CO2 stripping process from Dutch Stamicarbon Corporation and a general urea granular aggregating patent that features low energy consumption, high efficiency and high safety. After its completion, Jianfeng Chemical will have a capacity of 750 000 t/a of synthetic ammonia and 1.32 million t/a of urea.
   Urea production can take coal, natural gas and petroleum as raw materials. Among these, the price of natural gas is least influenced by other raw materials' price fluctuations. Meanwhile, natural gas transportation is also limited by regional restrictions, so only sites near natural gas fields are suitable to construct large scale units for urea production from natural gas.
   Jianfeng Chemical will use only natural gas for its second phase urea project and transport natural gas from the natural gas field of eastern Sichuan province through its own 80 kilometer long gas pipe  for saving transportation costs.
   Eighty percent of Jianfeng Chemical's products are delivered to its customers through waterways. At present, the price for transporting one ton of product by water is RMB0.1/kg, lower than RMB0.15-0.2/kg by rail and far less than RMB0.7-1.0/kg by highway. Compared with other large fertilizer producers in Sichuan province, Jianfeng Chemical is nearest to the middle-lower reaches of the Yangtze River, both reducing transport cost and enabling market development.
   The large-scale capacity expansion of the company drives the development of distribution channels. At present, Jianfeng Chemical mainly sells its urea through one of its wholly owned subsidiaries which can sell 1.0 million tons of urea a year. Jianfeng Chemical will further develop distribution channels in the near future.

Feedstock cost will rise    

Natural gas for the company's first phase fertilizer project is provided by CNPC and the price is relatively low, only RMB0.69/m3. The price and supply volume of natural gas for the second phase fertilizer project will be negotiated by Jianfeng Chemical, the Chongqing government and Sinopec Group. Sinopec Group has promised to provide 500 million m3 of natural gas to Jianfeng Chemical at present, but the price has not determined yet. Due to a tight supply of natural gas, it is estimated that the finally determined price will rise, but it probably will not affect the gross profit rate.
   The Chinese government proposed in 2005 that the country will gradually set appropriate prices for energy and will raise the natural gas price. While the normal energy prices are declining and the national agriculture supporting policy predicts less possibility of a price rise for natural gas in 2009. Also, in December 2008 Prime Minister Wen Jiabao pointed out that the government should temporarily reserve the favorable price and preferential tax for natural gas, water, power and other resources in fertilizer production.

Performance of Jianfeng Chemical in 2006-2008
Year    Revenue    Profit    Sales       Gross profit rate
      (RMB MN)    (RMB MN)    of urea (thousand ton)    of urea
2006     978     207     600     37.59%
2007     1023     242     570     36.45%
2008     1350     270     600     35.00%
Source: CNCIC