Jiangxi Black Cat: Opportunity from a Single Product     

Jiangxi Black Cat Carbon Black Co., Ltd. (Jiangxi Black Cat, SZ: 002068) is located in Jingdezhen, Jiangxi province, and mainly engaged in the production and sales of carbon black, a coal tar product. Currently, it has 4 production bases in Jingdezhen, Hancheng of Shaanxi province, Chaoyang of Liaoning province and Wuhai of Inner Mongolia and has a total carbon black production capacity of 380 000 t/a.
    In 2008, Jiangxi Black Cat reported total sales revenue of RMB1.775 billion, up 28.6% year on year, but earned a net profit of only RMB2.89 million, down 96.09% year on year. In 2008, the prices of raw materials for the production of carbon black, such as coal tar, anthracene oil and ethylene oil, increased more than 20%, respectively, but the average price of carbon black only rose by 15.51%, so the gross profit rate of carbon black dropped significantly. The RMB49 million losses in the fourth quarter nearly offset the cumulative profit in the first three quarters.

Sales of carbon black now rebounds in China    

Since March 2009, due to the rapid recovery of the Chinese automobile industry, carbon black, as an important raw material of tires, has rebounded in sales volume and price. Because of this, the sales situation of Jiangxi Black Cat's carbon black began to improve significantly in April 2009. From May to October 2009, the company's plants have been running at full capacity. In the first three quarters of 2009, its sales volume and net profit were RMB1.284 billion and RMB49.59 million, down 12.59% and 4.67% year on year, respectively. But in the third quarter of 2009, the company's net profit had a marked quarter-on-quarter increase, reaching RMB31.72 million in a single quarter. The company says that it now has enjoyed an ensured supply of raw materials, a stable selling price and a strong demand for carbon black from downstream sectors. At present, the company occupies a carbon black market share of more than 11% in China. In 2009, its net profit is expected to grow substantially.   
   It is expected that the car sales in China will exceed 12 million sets in 2009. Carbon black is a tire additive, so its market has greatly benefited from the vigorous recovery of the Chinese auto industry. Jiangxi Black Cat timely started up two carbon black production lines, with a total capacity of 80 000 t/a, in Wuhai, Inner Mongolia in June 2009. A manager from the company says that in Wuhai, there are abundant coal resources, and the price of coal tar is RMB300 - 400/t lower than the national average. And one ton of carbon black can save a cost of about RMB630. And the gross profit rate of the Wuhai project can reach as high as 27%, ten percentage points higher than the company's average.
   As an enhancer and a replenishing agent of tire, carbon black accounts for only 7% of the tire cost. So tire producers do not care about the price of carbon black very much. They pay more attention to the supply continuity and quality stability of carbon black. In China, many small-scale carbon black plants can not run stably. In 2008, the operating rate of China's carbon black industry was only 75%. So tire manufacturers prefer purchasing carbon black from large-scale producers. For example, Hankook Tire's factories in China purchases about 60% of their needed carbon black from Jiangxi Black Cat, even though the price of Jiangxi Black Cat's carbon black is RMB200/t higher than that of similar products in China.
   Jiangxi Black Cat's plants are distributed in Shaanxi, Liaoning, Jiangxi provinces and Inner Mongolia, where there are abundant raw materials. This can not only save transportation costs but also cover more tire producers throughout China. By virtue of its scale advantage, the company carries out a comprehensive utilization of resources. For example, the exhaust gas from its plant in Jingdezhen will be utilized by other units of the company, and its plants in Chaoyang, Hancheng and Wuhai are all equipped with exhaust power generation units. After the second phase of the Wuhai project is completed, the company will have a power generation capacity of 53.5 MW and can generate 375 million kWh of electricity a year. In addition for its own use, the company will sell 200 million kWh of electricity in 2011. By then, the gross profit rate of its electric power can be up to 70%.
    In addition, the company is building a 3 000 t/a white carbon black (silica) project in Jingdezhen. The first phase of the project, with a capacity of 1 000 t/a, is expected to put into production this year. The company says that the project will use the gas-phase process to produce nanometer silica. At present, nanometer silica consumed in China is mainly imported, and its price is over one times that of general-purpose silica.

Export of carbon black is steady     

Jiangxi Black Cat says that its export business is now very good and can reach nearly 3 000 tons a month. This also reflects the recovery of the global tire industry. The second phase of the Wuhai project has a carbon black production capacity of 80 000 t/a and will be put into production in the second half of 2010. Considering the international and domestic carbon black markets continue to improve, on November 16th, the company put half of the capacity, 40 000 t/a, into production in advance, bringing the company's total output and sales of carbon black to 300 000 tons.
   The company says that the U.S. higher tariff on Chinese made tires case have no much impact on its sales of carbon black in China. Even if China no longer exports tires to the U.S., the sales volume of carbon black in China is only estimated to drop by 75 000 tons a year. The company says that the case can only cause the sales of its carbon black to drop by 8 000 tons a year. Compared with the company's carbon black sales of over 300 000 tons a year, this figure is negligible.