Huaxing Chemical to Change Market Position     

Anhui Huaxing Chemical Industry Co., Ltd. (Huaxing Chemical, SZ: 002018) is located in Hefei, Anhui province and was listed on the Shenzhen Stock Exchange in July 2004. It specializes in the production of pesticides and chemical products. Its main pesticide products include glyphosate monosultap, dimehypo, fenoxaprop-p-ethyl, PMIDA (N-(phosphonomethyl) iminodiacetic acid), imidacloprid and so on.
    Huaxing Chemical also owns several subsidiaries like Anhui Huaxing Hengda Biotech Co., Ltd. and Anhui Huaxing Chemical Industry (Chongqing) Co., Ltd.

Affected by the global financial crisis   

In 2008, Huaxing Chemical realized RMB1.38 billion of revenue and RMB180 million of net profit, an increase of 62.95% and 167.06% respectively over 2007. This substantial increase was mainly caused by the rising glyphosate price spurred by the brisk international market demand in the first half of 2008. However, after the outbreak of the financial crisis in the second half, market demand in areas like South America began to decline. And since the overseas sale accounts for over 80% of Huaxing's total market coverage, the sales of all its products were affected. A manager of Huaxing Chemical says that due to the financial crisis, the glyphosate price fell substantially and averaged RMB21 900/t during the first half of 2009, a 73% drop from RMB82 100/t in the first half of 2008. However, the production costs remained at a high level, the gross profit rate of glyphosate fell down to the negative 5% from 35% in the first half of 2008. Other products' gross profit rate also declined. In the first half of 2009, the company realized RMB433 million of revenue and RMB39.17 million of net profit, down 53% and 75% respectively compared with the same period of 2008. The company has adjusted its market focus and transferred 60% of its sales plan to the domestic market, and at the same time, adjusted its production portfolio targeting the domestic market.

Extend the industrial chain   

Through market and product portfolio adjustment, Huaxing Chemical quickly bottomed out, and at present, 90% of the company's workshops have resumed production.
    The company is now working with Argentina Atanor Company to set up a 50/50 JV - Xingnuo Chemical Company so as to build a 40 000 t/a PMIDA project (equivalent to 24 000 t/a glyphosate). After the project goes into operation, half of the product will be purchased by Atanor Company and the rest will be sold by Huaxing Chemical itself. Up till now, the first phase 20 000 t/a PMIDA project has been basically ready for production, while another 20 000 t/a PMIDA project and a 10 000 t/a 2,4-D acid TC project are still yet to be built. The PMIDA sales will make full use of Atanor's distribution networks in South America and other areas.
    "PMIDA produced in this project is mainly for export. Considering the market shrink in South America, Huaxing Chemical decides to suspend this project temporally and focus on expanding domestic market. We will pay close attention to the foreign markets and will put the project into operation at the right time," a manager of the company said.
    The company purchased all of its raw materials from other companies before. Now the company has put in a huge investment to build new factories for the manufacture of the needed raw materials, thus effectively cutting its production costs.
    Huaxing Chemical used to purchase a large quantity of iminodiacetonitrile (IDAN). To extend its production chain and take full advantage of Chongqing's abundant mineral and human resources, Huaxing Chemical currently is constructing a 50 000 t/a IDAN project there.
    The manager said that, at present, Huaxing Chemical has mastered the technique to synthesize iminodiacetic acid (IDA) with natural gas-based IDAN rather than imported diethanolamine as before. Many of its plants have already adopted this new technique. It make full use of rich natural gas resources in China's southwestern region to produce relatively inexpensive raw materials and has obvious cost advantages for offsetting risk caused by raw material price fluctuations in the international market. Relying on the raw material advantages, the company may further expand its glyphosate capacity in the future, and also become the only domestic company with a complete production chain who can produce from the upstream natural gas all the way to the downstream glyphosate products.
    The company has been specialized in monosultap and dimehypo production for more than 20 years, and also established a good brand in both domestic and overseas markets. In March 2009, the prices of two products both reached about RMB18 000/t (RMB16 100/t averagely in 2008) while their total capacity could reach 12 000 t/a, suggesting a gross profit rate of near 30%. In the future, the company plans to further extend some products' production chain, and with the pending expiration of its fipronil patent, it will also expand fipronil production significantly.
    "Crisis has changed Huaxing Chemical's view about production chain," the manager said, "Huaxing Chemical recently invested RMB270 million to build a 300 000 t/a ion-exchange membrane project so as to meet its fast-increasing demand for upstream raw materials like chlorine, caustic soda and hydrochloric acid, and this project has already been under construction."