Liuguo Chemical: Strategies Closely Follow the Market     

Headquartered in Tongling, Anhui province of China, Anhui Liuguo Chemical Industry Stock Co., Ltd. (Liuguo Chemical, SH: 600470) was listed in Shanghai Stock Exchange in 2004 and mainly engages in the manufacture, processing, and sale of compound phosphate fertilizers.
    There are 5 subsidiaries under Liuguo Chemical, namely Susong Liuguo Mining Co., Ltd. (a wholly-owned subsidiary), Yichang Xinguan Chemical Co., Ltd., Anhui Yingshang Xintai Chemical Co., Ltd. and Yichang Liuguo Chemical Co., Ltd. (holding subsidiaries), and Yichang Mingzhu Phosphorous Chemical Company Ltd. (a joint stock subsidiary).

* Phosphate fertilizer capacity expanded     

As a key domestic manufacturer of compound phosphate fertilizer in China, Liuguo Chemical aims eastern China, northern China and northeastern China as its target markets. In recent years, it has been steadily expanding its production capacity, and after the completion of its third phase debottlenecking project, it owns now totally four sets of production facilities for high-concentration compound phosphate fertilizer, with a total production capability of 1.12 million t/a.
    While with an yearly increased capacity, the annual consumption of raw material phosphorus ore also soared, totaling about 1.7 million tons every year since 2005, with annual purchase cost of over RMB300 million. As a result, Liuguo Chemical began to purchase phosphorus ore resources. In April 2006, it purchased 100% interest of Susong Liuguo Mining Co., Ltd. at a price of RMB22 million, and accordingly acquired 20 million tons of phosphorus ore resource (with the ore grade of around 20%). In October 2006, it purchased at a price of RMB30.90 million a 15% share of Yichang Mingzhu Phosphorous Chemical Company Ltd. in Hubei province, which boasts workable and verified reserves of phosphorus ore of about 65 million tons (with the ore grade of over 28%). In March 2007, Liuguo Chemical invested RMB250 million in its ongoing 800 000 t/a phosphorus ore mining and mineral processing project. In March 2007, Yichang Liuguo Chemical Co., Ltd. (of which, Liuguo Chemical possesses a share of 80%) acquired a share of 57% of Yichang Xinguan Chemical Co., Ltd. in Hubei province, which currently boasts a production capacity of 150 000 t/a of sulfuric acid and 120 000 t/a of monoammonium phosphate (MAP).
    In the first half of 2008, the price of its main raw material, i.e. phosphorus ore, skyrocketed. Although Liuguo Chemical possessed two phosphorus ore mines at that time, the mining projects had not been completed yet, so the phosphorus ore resource for manufacturing phosphate fertilizers was insufficient. Moreover, the purchasing cost for raw materials had not been reduced to an expected value, so the gross profit rate of its leading product diammonium phosphate (DAP), remained low.
    The company's output of phosphate fertilizers in 2008 was 1.04 million tons, with revenue of RMB 3.06 billion and net profit of RMB66.46 million, a year-on-year increase of 32% and a year-on-year fall of 35% respectively. Of the turnover from main business, RMB1.19 billion came from DAP, with a gross profit rate of 5.95%, and RMB1.018 billion was contributed by compound fertilizers, with a gross profit rate of 6.84%, and RMB506 million was created by MAP, with a gross profit rate of 4.14%.
    The price of raw materials (such as sulfur, etc.) and fertilizers in international market fell considerably since the fourth quarter of 2008, and the domestic market had a similar situation. Due to these factors, Liuguo Chemical's profits for the whole year experienced a year-on-year decrease, though its revenues increased in 2008. Its sale revenue from main business in the fourth quarter of 2008 totaled RMB546.93 million, with a year-on-year decrease of 40.6%, which brought a net loss of RMB28.57 million.

* Onsite Direct Marketing    

The "Onsite Direct Marketing" strategy implemented by Liuguo Chemical is a "brand-new industrial-commercial integration" based on the cooperation with agricultural means of production companies, supply and marketing cooperatives, and "able persons" in the countryside. Currently, Liuguo Chemical is doing further discussion and attempt, such as trying to cooperate with some distribution companies - if they have established ideal network in certain regions, Liuguo Chemical will promote sales and marketing via these companies.
    "By making use of others' marketing channel in this way, we can not only do well in our distribution, but also save our energy for better development. It is impossible for an enterprise to be omnipotent, and it has to take advantage of others available to accomplish some tasks. The core of competition among enterprises is to contend for clients, while the best effective way in contending for clients is the innovation of marketing mode. Liuguo Chemical is a good example, its superiority of profit rate in the same industry results from the vital role played by marketing effort of 'Onsite Direct Marketing' mode," said Mr. Huang Huafeng, Chairman of the Board of Liuguo Chemical.
    At present, Liuguo Chemical has established sales network all over China except Tibet and Taiwan, etc., with direct marketing offices totaling 320.
    Influenced by the financial crisis, Liuguo Chemical's sale has slowed down and inventory has increased since the beginning of 2009. However, Liuguo Chemical believes that phosphorus chemical and compound phosphate fertilizers will remain to be its future development orientation, and meanwhile, it will continue to take a grip on the development of phosphorus ore resources. The company also takes into account some acquisition in coal chemical industry in the future, and also considers making use of the abundant resources of Anhui province to construct some relatively high-end chemical products such as fluoride chemical project, so as to enhance its anti-risk ability.
    In the first quarter of 2009, Liuguo Chemical's sales revenue totaled RMB648.75 million with a year-on-year increase of 5.3%, and retained profits of RMB8.17 million - although it is only equal to 28% of that of the same period last year, the dawn of hope has come.