February 24, 2005

Global Bio-chem to raise lysine output, exports to drive profits for 2005
 

 

Expect a 6.26-percent year-on-year decline in lysine prices for 2005, said Mr Kong Zhanpeng, executive director of Global Bio-chem, one of the largest lysine producers in China.

 

Despite this hefty price fall, it is still within acceptable range, he said. But to maintain profit margins, Global Bio-chem plans to raise production levels and increase exports.

 

According to Kong, the 2004 average market price of lysine in China was RMB17,000-19,000/tonne. Given the expected steady supply in 2005, lysine prices are likely to fluctuate between RMB14,000 and 16,000/tonne. This works out to a year-on-year decline of 6-26 percent. This year's prices are expected to be 17 percent lower than last year's.

 

Kong added that Global Bio-chem's lysine business contributed 70 percent of the total earnings of the company. Global Bio-chem produced protein lysine instead of starch-lysine, and the company enhanced its lysine and protein lysine annual production capacity to 100,000 and 140,000 tonnes respectively.

 

In 2004, Global Bio-chem exported 17,000 tonnes of lysine. For this year, the target is 80,000 tonnes. Exports in January 2005 alone have already hit 6,000 tonnes.

 

Referring to data compiled by Global Bio-chem, Kong pointed out that China's demand for lysine in 2004 ranged from 150,000-160,000 tonnes, a 15-16 percent increase over 2003 although lysine prices have been weak for the most of last year. He predicted domestic demand for lysine would stay between 180,000 and 200,000 tonnes for 2005 citing improving demand for lysine by China's feed market, rising consumption of lysine by feed millers as well as a significant increase in exports to South-east Asia.

 

Information from the Web page of eFeedLink, provider of feed market information, showed that China's lysine prices rose above RMB50,000/tonne in 2003 following the collapse of an international lysine producer.

 

In early 2004, China's lysine prices retreated to around RMB35,000/tonne after the government announced a series of macro-economic measures to prevent the economy from overheating. In the second half of 2004, lysine prices in China declined further and settled between RMB14000/tonne and RMB20,000/tonne.

 

"From the producers' perspective, the surge in lysine prices is good news but for prices to go beyond RMB30,000/tonnes is irrational. After all, the production cost for lysine is less than RMB9,000/tonne," said Kong.

 

 

Prices of corn, the raw material for lysine production, expected to remain stable
 

Kong highlighted the fact that prices of the raw material for lysine production -- corn -- have fallen by 5-10 percent to around RMB1,000/tonne recently with the bumper harvest. This year, he believed China's corn output would see a 10-percent rise over last year with prices remaining stable for most of the year.

 

He said Global Bio-chem has maintained a corn stockpile of 400,000 tonnes, sufficient to meet production requirements for four months. Even if corn prices were to fluctuate widely in the near term, Global Bio-chem would not be greatly affected.

Last year, the company processed 1.8 million tonnes of corn, of which 1.2 million tonnes were used in its Changchun plant for producing biochemical products.

 

Corn is used in the production of lysine and other related biochemical products. In May 2004, corn prices hit a high of RMB1,350/tonne, the highest since China liberalised its commodities trading market in 2000. Following the implementation of macro-economic measures to cool the overheated economy, corn prices settled to around RMB1,250/tonne.

 

Kong revealed that the company has injected US$1 million to develop a new bacterium to boost the conversion rate of starch-lysine into other products. If this is successful, starch input during lysine production can be lowered, thereby translating in savings for the company. The conversion rate in 2004 was 15 percent and the company is targeting at 18-19 percent for this year.

 

 

More effort to focus on boosting polyhydric alcohol business
 

China currently consumes 4 million tonnes of polyhydric alcohol per year, said Kong. The country only produces one million tonnes, the rest are met by imports. Polyhydric alcohol is refined from oil-based products and its cost is relatively high.

Global Bio-chem has set its sight on the market for polyhydric alcohol and the company intends to produce polyhydric alcohol by using corn as the raw material base.

 

Polyhydric alcohol production trials in Global Bio-chem began in July last year. During the initial stage, 20,000 tonnes were produced, used mainly by the car industry as an anti-freezing agent. Global Bio-chem planned to raise its polyhydric alcohol production capacity to 220,000 tonnes/year by 2006 and the average sale price is set at RMB10,000/tonne

 

Kong said using agricultural commodity in place of by-products of crude oil refining as raw materials for producing polyhydric alcohol is a wise move. It solves the problem of oil supply shortage and lowers the cost of producing polyhydric alcohol. At the current crude oil price of over US$48 per barrel, the production cost of polyhydric alcohol is RMB7,500/tonne. By using starch, the cost could be reduced to RMB4,500.

 

Global Bio-chem raised HK$830 million through a share placement exercise last year. The company is undergoing a new project in polyol instead of polyhydric alcohol. It is investing US$5 million as initial investment for the first plant.