Natural Alkali Shifts to the Methanol Business

Inner Mongolia Yuanxing Natural Alkali Co., Ltd. (Natural Alkali
SZ: 000683) established in 1997 is a large chemical enterprise
with new energy as its leading business and natural gas chemicals
and natural alkali chemicals as the supplement business. It also
completed the strategic shift of its main business from the soda
ash sector to the methanol sector and started an attempt at the
breakthrough from inorganic chemicals to organic chemicals.
Besides inorganic chemicals such as soda ash, caustic soda and
sodium bicarbonate, organic chemicals including methanol were
also added in its product portfolio. The main-business revenue
accomplished by the company was nearly RMB1.089 billion in 2006
and the net profit was more than RMB168 million, an increase of
300% over 2005. The sales revenue of chemical products was more
than RMB110 million and the technical service revenue was more
than RMB463 000. The sales revenue of soda ash, sodium
bicarbonate and methanol business was respectively RMB423
million, RMB177 million and RMB365 million in 2006 and the gross
profit rate of those business was respectively 30.42%, 39.65%
and 42.94%.
   The 180 000 t/a methanol project of Inner Mongolia Sulige
Natural Gas Chemical  Industry Co., Ltd., a holding subsidiary
of  Natural Alkali, has started production in Wushenzhao
Industry Park located 140km away Erdos. Besides, a 1.0 million
t/a methanol project in Inner Mongolia Boyuan United Chemical
Co., Ltd. controlled by Natural Alkali will also start
production in 2007.
   The first phase of the 1.0 million t/a methanol project is
making steady progress in 2007. Since the first quarter of this
year, however, the reduction rate of the methanol price has been
more than 40%. According to analysis, it is the result of the
methanol capacity expansion in the domestic market. Some
analysts also think that the drop of the methanol price is a
normal phenomenon and players can not put the full blame on
capacity expansion. Still some experts point out that 2008 will
be the period for the methanol capacity to augment at a peak in
China. The price reduction will have impacts on many planned
methanol projects.

Inorganics => Organics

The output of methanol in China reached 7.62 million tons in 2006.
The output reached as much as 3.89 million tons from January to
May 2007, an increase of 40.6% over the same period of 2006. The
output growth is already higher than the consumption growth. The
capacity of methanol projects planned to be constructed during
the Eleventh Five-year Program period(2006-2010) will be around
48.5 million t/a. When the actual demand is taken into
consideration, the capacity of new methanol projects that can
really be formed is estimated to be around 20.0 million t/a in
2010.
    In terms of gas sources, Board Chairman of Natural Alkali
says that the company has raw material gas available in 2007 and
a long-term gas supply contract will be signed in 2008. If
everything goes smooth, the second-phase 600 000 t/a methanol
project will also hopefully be put on stream before September
this year.
   Natural Alkali and Jiangshan Chemical Co., Ltd. (SZ: 002061)
jointly established Inner Mongolia Yuanxing Jiangshan Chemical
Co., Ltd. on May 29th, 2007. The joint venture will manufacture
dimethyl formamide (DMF) with methanol as raw material. It has
a registered capital of RMB200 million. Jiangshan Chemical will
subscribe RMB102 million, accounting for 51% of the total.
Natural Alkali will subscribe RMB98 million, accounting for 49%.
(CCR2007, No. 17) According to Natural Alkali, the move can help
extend the industrial chain of methanol products and solve
problems such as potential oversupply, transportation, sales
and environmental protection of methanol. Both upstream and
downstream enterprises of methanol business will benefit.

Fuel or Chemicals?

Natural Alkali that is on the road of shift to methanol is also
faced with problems in the possible capacity surplus of methanol
and the development orientation of the methanol industrial chain.
In making the strategic planning, the company can either take
the chemical road where the market is already well developed but
there is fierce competition or the fuel road where this is huge
space but the market is yet to be fostered and it will at least
need 2-3 years to form scale effect.
   Board Chairman of the company says that methanol can not only
be used as raw material for downstream products such as
formaldehyde and acetic acid, it can also be used to produce
dimethyl ether (DME) and in turn produce olefins through
dehydration and finally replace partial petrochemical products.
DME has a bright prospect in its use as domestic fuel to replace
LPG and town gas.   He also releases that due to the drastic
price rise of methanol in 2006 the 10 000 t/a DME unit in the
company is still idle today. The unit is an experiment for the
company in its attempt at taking the fuel road. The construction
of the unit is intended to cope with the future startup of
methanol capacity and to form a complete production chain from
methanol to DME and even to olefins.
   The fuel road, however, has great uncertainty. The available
way Natural Alkali should take, in the opinion of Board Chairman,
is the chemical road. The possibility for another big stride in
the fuel road should not, however, be ruled out. He discloses
that Mengda New Energy Base in which Natural Alkali holds 45%
equity is making project promotion today. A project of
coal-based methanol and DME will be launched at an optimal time.