Lianhe Chemical Treads a Unique Way in the Field of Fine Chemicals     

Lianhe Chemical Technology Co., Ltd. (SZ: 002250, Lianhe Chemical) was established in 1985 and headquartered in Taizhou, Zhejiang province in southeastern China. It has many subsidiaries in Taizhou, Shanghai and Yancheng, Jiangsu province. Lianhe Chemical is mainly engaged in the production of fine chemicals that are used in pharmaceuticals, pesticides and other industries. More than 80% of its products are exported to abroad.
   Lianhe Chemical began to set foot in the field of fine chemicals in the 1980s. In the beginning, it mainly produced perfumes, dyes and other low-end products. It gradually upgraded its product portfolio from such low-end products to high-end products such as pharmaceutical and pesticide intermediates. In 2008, the company invested to build a 2 500 t/a halogenated aromatic nitrile project and a 600 t/a XDE (cyhalofop-butyl) production line. Construction on the former will be completed in the first half of 2010 and it will be put into production in the second half of 2010. And the latter was already put into operation in late December 2009. When full operational, it is expected that they will bring total annual sales of about RMB260 million to the company.
   In the 1980s, the Chinese fine chemical industry was still in the early stage of development, having low regulatory threshold in investment but high profits. A large number of small and medium sized fine chemical companies thus emerged in China, and the competition became very severe. Within this context, Lianhe Chemical worked out several key development strategies and gradually grew into one of leaders in the Chinese fine chemical industry.
   Fine chemical manufacturing companies have quite different production efficiency and product quality according to the technologies they used. So Lianhe Chemical attached great importance to the development of new technologies. Currently, Lianhe Chemical's 6 core and proprietary technologies, including ammonia oxidation, fluorination, hydrogenation and the cyclization synthesis of benzothiazole products, have all reached the international or domestic advanced level according to related experts' authentication.
    Lianhe Chemical has also improved the production processes of its old products. For example, in 1994 the company started to use the acetic anhydride cyclization process to produce 2 - amino -5 - nitrophenol. After optimizing its production technology, the company has now successfully used the urea cyclization process to produce this product. This greatly reduces the production cost and the environmental pollution.
    Secondly, Lianhe Chemical adopts a customized production mode. In China, most of fine chemical intermediate producers adopt an order-orientated production mode. But Lianhe Chemical adopts a more rapid and flexible customized production mode which can produce customized products at any quantity to meet the demand from single customer or small-batch but multi-variety markets. Because the production of fine chemicals is usually intermittent and in small batch, improving the adaptability of production facilities to different yields and other similar production processes can help to enhance the corporate profitability. Therefore, the company's existing production facilities mostly take a more flexible design. Every production line is equipped with different types of reactors, centrifuges, drying machine, grinder, etc. Through simple modifications and flexible pipe connections, they can quickly be converted into different production lines. This makes the company have the capability to make quick responses to the specialized requirements of customers.
    Lianhe Chemical believes that as large international companies gradually shift their strategic focuses onto the research and market development of end products, they will increasingly adopt the customized mode to procure intermediate products. At present, about 50% of Lianhe Chemical's products are customized, so its products can hardly be copied by other companies and can avoid the price fluctuation of raw materials. The company participates in the R & D and pilot production of its customers' products. This can not only help raise its technical level but also help stabilize its customer base, because customers will face higher costs if they change their partners. The company has now signed long-term agreements with 8 world-renowned large chemical companies for the customized production of high-end pesticide and pharmaceutical intermediates.
   Although the global financial crisis happened in the second half of 2008, the pesticide and pharmaceutical industries have not suffered from great impacts because of their weak cyclicity. Instead, manufacturers who have a monopoly advantage in these segments have got more orders from customers during the financial crisis. So did Lianhe Chemical. In 2008, Lianhe Chemical had total annual sales of RMB1.08 billion and a net profit of RMB74.736 million, up 9.93% and 28.3% year on year, respectively. Its gross margin was 29.57% in the first half of 2008 and increased to 36.92% in the second half of 2008. In 2009, the company achieved total annual sales of RMB1.343 billion, up 23.78% year on year, and a net profit of RMB132 million, up 76.27% year on year. The gross margins of the company's pesticide intermediates and pharmaceutical intermediates all reached over 35%. It is noteworthy that in the fourth quarter of 2009, the company's net profit grew by 27.06% over the previous quarter.