May 11, 2004

China's Global Biochem Plans to Become the World's Largest Lysine Producer

An eFeedLink Exclusive Report

China's Global Biochem has recently announced a very noteworthy statistic -- its business earnings in 2003 have increased by 41%. Its lysine production for the year 2003 has exceeded 40,000 tons, of which about 3,000 tons were a new protein lysine (65%) which were produced before official commencement of production for the product in January 2004.

Since January 2004, Global Biochem's monthly production of protein lysine is about 5,500 tons. The company plans to expand its output to 7,500 tons monthly after June. Its plan is to produce 44,000 tons of 98.5% lysine and between 70,000-90,000 tons of protein lysine in 2004.

In addition to selling its lysine products to the domestic market in China, Global Biochem registered a sharp rise in its lysine exports in 2003. Its plan is to achieve a certain ratio of its sales of lysine products in the domestic and global markets, with exports accounting for 20-25% of its total output in 2004. Global Biochem targets to export its lysine products to Asia, Europe, America and Africa. The company will adjust its sales strategy in accordance with the different market situation in the respective regions. However, the company revealed that it will continue to put important emphasis on the domestic Chinese market.

Reportedly, Global Biochem aims to produce up to 100,000 tons and 200,000 tons of 98.5% lysine and protein lysine respectively in the next three to five years, striving to become the largest lysine producer in the world. As to whether the company would produce liquid lysine, Global Biochem has clearly expressed that it has no intention to produce this product type, in view of the exorbitant freight charges for the liquid form.

Global Biochem is currently the largest lysine producer in China. The company has achieved a certain degree in economies of scale with its current output level. Global Biochem's current edge in production costs is reportedly based on:

• Overall vertical integration of production means that the Group is able to cut down 20% of its production costs relative to its competitors, which use starch as an ingredient;
  
  
• Compared to small-scale producers, Global Biochem's economies of scale allows it to cut down its production costs by a further 10%; 
  
  
• The high yield rate saves approximately 30% of Global Biochem's ingredient costs. In China, the yield of some lysine producers is at only about 10%;
  
  
• The depreciation rate of the fixed assets of some local lysine producers is about 10%. For example, a RMB400 million capital has been injected into a local lysine production plant, but the originally planned capacity of 30,000 tons of lysine in fact only produces 2,000 tons a year. Its depreciation cost for every ton will come up to RMB12, 000 per ton. With such a high depreciate rate, the producer will still incur a loss even if lysine prices would too hit as high as RMB25/kg. For some of the local and even overseas producers, depreciation rate is a serious concern. 

The production cost borne by China's domestic lysine producers, barring the depreciation cost, usually range between RMB15,000-17,000 per ton. Nevertheless, in the case of Global Biochem, its production cost is at about RMB9,000 per ton.

Apart from lysine and cornstarch, Global Biochem is also actively putting in efforts to produce compound amino acid, arginine, threonine, methionine and valine. Its production capacity for compound amino acid is expected to reach 20,000 tons per annum within the next two years. Its first arginine project will commence production in the second half of 2004.