September 2, 2003



Gansu Rong Hua Enterprise Embarks on A 40,000-Ton Lysine Production Conversion Project


An eFeedLink Exclusive Report


Recently, Gansu Rong Hua Enterprise (Group) Holding Company Limited issued an announcement on the Company's plan to convert the investment of its acquired capital from the originally planned annual 10,000-ton lactic acid production project to an annual 40,000-ton lysine production plant.


Subject to the approval of the Gansu Province Development Committee, Rong Hua Enterprise's lysine production conversion project will require an investment of RMB396 million.  The conversion project is expected to take around four months to complete.  By end 2003, the Company plans to conduct its trial production run, before starting actual production of lysine in 2004.


On the rationale for its plan to switch to lysine production, the Company's Board of Directors explained that since approval for the lactic acid project was obtained in 2000, the Company has not been able to effectively realize the market potential in lactic acid production.  Market demand for lactic acid had been weak and remained unpromising.  Under such circumstances, the Company felt uncertain of its ability, within foreseeable future, to reap any substantive economic benefit from proceeding with the full-scale production and sales of lactic acid.


Of the total investment amount of RMB396 million required for the lysine production project, RMB122.28 million will come from the capital originally acquired for the lactic acid production project.  After discounting the RMB16.916 million already invested in the set-up for lactic acid production, the Company plans to obtain the balance of RMB256.804 million either through bank loans or other means of fund raising.


Since most of the project work would entail only additional installations and modifications, the Company expects to complete its conversion project within four months, and to start its trial production run by end of this year.   


Lysine is a form of amino acid essential to the human body and animals, but cannot be internally produced by them.  When added to food, lysine can increase its protein utilization rate by 30%, thereby enhancing its nutritional value. When added to feed, lysine increases its utilization ratio.  Not only will it help to shorten the rearing period in livestock husbandry, it also improves meat quality of livestock and the rate of egg production in poultry.  Hence the widespread use of lysine in food and animal feed production industries.


With the growth of feed production industry worldwide, global demand for lysine has risen steadily over the years, so has its production.  World production of lysine increased from 176,000 tons in 1992 to 280,000 tons in 1996.  By 2000, it reached 450,000 tons, and is still increasing by 10% annually.  Today, lysine production industry stands second amongst the world's amino acid production industries.


In the field of medicine, as new uses of lysine in pharmaceutical products are being discovered continually, demand for these products also increases. 


Within China, the rapid growth of its animal feed industry and the significant increase in demand for lysine by its food production industries have also contributed to the rapid rise in overall domestic demand for lysine in recent years.


Statistics obtained from China's Custom authority showed that in June 2003, China's lysine import totaled 6,200 tons; and that for the first six months of 2003, the cumulative total was 37,312.8 tons.  These data revealed a relatively strong reliance for imported lysine in China.


It is commonly recognized that to a good extent, especially in the case of agricultural products processing industries, an enterprise's competitive advantage and positioning in the industry would depend on its scale of operation.


In this regard, Rong Hua Enterprise's move to convert its lactic acid production project to an annual 40,000-ton lysine production project is in the right direction.  Taking into account the existing 10,000-ton lysine production capacity already available, the conversion project will increase the Company's lysine production capacity to 50,000 tons per year.  This will place Rong Hua Enterprise amongst the top in terms of production capacity, not only in China, but possibly in Asia as well.


Under the conversion project, the Company plans to realign its human and financial resources to focus on key developmental areas, with a view to rapidly up its competitive positioning in the industry, in terms of product quality and market share.    


The principal raw material used in lysine production is cornstarch.  In this regard, approximately 180,000 tons of cornstarchs will be required for the production of 50,000 tons of lysine.  Under Rong Hua Enterprise's conversion project plan, it will also expand the capacity of its cornstarch production line, currently at 100,000 tons per annum, to 300,000 tons per annum.  This will more than meet the company's need for cornstarch in its lysine production facility.


Where market risks and challenges are concerned, Rong Hua Enterprise sees minimal time-related risk, as the project time frame is relatively short.  However, the Company expects challenges in the development of markets for its new products, and anticipates keen competition from other local as well as foreign lysine producers.  In this regard, Rong Hua Enterprise plans to fully tap the economies of scale available in its large-scale operation and the advantage of its in-house availability of raw materials required for lysine production, in dealing with the challenges ahead.


In the area of environmental protection, the Company plans to employ advanced technology to convert the highly concentrated liquid waste generated during lysine production into organic and non-organic compound fertilizer.  This will not only keep the environment clean but will also enhance the project's economic efficiency.


As for production technology, Rong Hua Enterprise plans to adopt the advanced deep fermentation process developed by the Shanghai City Xinli Industrial Micro-Biotechnology Company Limited to produce lysine out of fungi.  This technique has already been tested and proven effective for use in industrialized production operation.


With regards to production and organizational know-how, Gansu Rong Hua Weijing Company Limited, an associate company of Rong Hua Enterprise, has accumulated vast amount of experience in glutamate production.  The fermentation method used in glutamate production is essentially the same as that for lysine production.  Apart from tapping on the human resources available in Rong Hua Weijing, the Company also plans to strengthen its in-house expertise through external recruitment of experienced personnel with the required production technological know-how.  In addition, Rong Hua Enterprise's employees would also receive training from other lysine production experts.


Through this multi-pronged approach, Rong Hua Enterprise intends to build a core team of production personnel with the technological know-how to ensure smooth and successful implementation of its lysine production project.