Review of China's Methionine Market in 2006

The bird flu had no great negative effect on the consumption of
poultry and related products in China in 2006 and the
poultry-raising sector was in slow recovery. Demand for
methionine was also basically stable. Compared with previous
years, market price fluctuations were very small.


  1 Review of the methionine market in 2006

1.1 Stable import increase

The poultry-raising market in China in 2006 recovered slowly
after the bird flu. Relatively little methionine was imported
in January and February. It peaked in March and April. Imports
in August and September were basically equal to the same period
of 2005 but increased later. The import amount in December
doubled the import amount in the same period of 2005.
   Compared with 2005, the demand for methionine was stable and
rose slightly in 2006. Besides, the value of Renminbi also
appreciated drastically, helping imports of methionine to China
to increase to 81 thousand tons in 2006 - 21.4% over the previous
year - but the growth was 6.1% lower than 2004.
   The main sources of methionine imported to China in 2006 were
Belgium, France, Germany, the United States, Japan and Russia.
Compared with 2005, the amount imported from Russia increased
drastically from 44 tons to 2 068 tons - 46 times higher than
the previous year. The amounts imported from Belgium and Japan
also grew considerably - 124% and 28%. The amounts imported from
the United States and Germany however reduced by 61% and 17%.
   Major methionine import entry points included Tianjin,
Qingdao and Huangpu and the proportion of methionine imported
through these 3 customs stations was 24%, 20% and 12%
respectively, totaling 56% of the total.
   According to statistics from the State Customs
Administration, the average import price of methionine was US$2
189 per ton in 2006, an increase of around 12% over the 2005
average of US$1 953 and basically equal to the 2003 average.
Although the poultry-raising sector in China was still affected
by the bird flu in 2006, due to the high crude oil price in the
international market and the flexible marketing tactics adopted
by foreign producers, methionine maintained a relatively high
price.

1.2 Supply and demand

Major methionine producing countries include France, the United
States, Japan and Germany. Major suppliers include Degussa,
Adisseo, Sumitomo and Novus. Degussa constructed the world's
largest DL-methionine unit in Antwerpen, Belgium at the end of
2006. The unit has a capacity of 120 thousand t/a DL-methionine.
Degussa's total capacity to make DL-methionine therefore
reached 350 thousand t/a. Sumitomo capacity increased by 80
thousand-90 thousand t/a. The capacity of other producers was
also increased by different degrees. Owing to the capacity
expansion of various producers, the total capacity of methionine
in the world shot up to 800 thousand t/a in 2006. The actual
operating rate was however not so high and actual output was only
550 thousand - 600 thousand tons.
   China imported 80.6 thousand of methionine tons in 2006. When
the inventory remaining from 2005 is considered, the market
supply of methionine was around 85 thousand tons in 2006.
Consumption of methionine was around 75 thousand tons that year.
There was therefore still an oversupply.

1.3 Price rise

With the impact from the drastic crude oil price rise in the
international market, the price of methionine in China increased
steadily. The price was lower than RMB23 per kg only in April.
It was basically higher than RMB24 per kg in all other months.
The highest price was RMB26.8 per kg and the yearly average price
was RMB25.3 per kg, an increase of 16% over the previous year.

1.3.1 Major factors in the price rise

    (1) Impact from bird flu

There were lingering troubles from bird flu both at home and
abroad in 2006. Cases of men infected by bird flu also appeared.
The frequent incidence of the bird flu had a great negative
impact on the poultry-raising sector. The poultry-raising
sector was at an all-time low in 2006, developing slowly, with
a grave impact on the consumption of methionine in the domestic
market.

  (2) Slight demand downturn in the second half of 2006

The supply deficit of the poultry product market stimulated a
rapid price rise for poultry products in the second half of 2006.
The loss suffered by poultry raisers was reversed. Stimulated
by the increasing profit in poultry raising, the poultry-raising
sector picked up and the demand for methionine increased. In
terms of nutrition, because of restrictions in the supply amount
of protein feed, the proportion of methionine added to poultry
feed increased.

    (3) Crude oil price rise in the international market

Overall, the crude oil price in the international market still
maintained a high level in 2006 - more than US$60 per barrel for
most of the year. Take the price of WTI spot goods for instance.
The price was more than US$65 per barrel in January and went down
to a relatively low level of US$56 per barrel in February. It
stayed above US$65 per barrel for half the year, from the end
of March to the beginning of September, being higher than US$70
per barrel during most of that time. As producers had raw
material inventory, the impact of crude oil price changes on the
price of methionine was usually delayed. The low crude oil price
in February led to a price drop of methionine in April. The crude
oil price in the international market was also low in November,
but owing to the improvement of the poultry-raising market at
that time the impact of low oil prices was offset and the market
price of methionine did not decline.

    (4) Active market control by producers

With the impact of the bird flu in Anhui and Shanxi provinces,
the demand for methionine dipped in February 2006 and the price
touched bottom in April. Foreign producers used the decline of
the bird flu and the production suspension in a large methionine
producer to stimulate the market and actively controlled market
availability. As a result the price of methionine recovered.

1.4 Adisseo merged by BlueStar

China National BlueStar (Group) Corporation (BlueStar) acquired
France-based Adisseo Group on January 17th, 2006. (CCR2006, No.
3) Adisseo Group is one of the world's largest specialized
producers of animal nutrition supplements and is also the
world's only producer of both solid and liquid methionine.
Methionine produced by the company accounts for one third of the
global market and holds the second place in the world. The
successful merging with BlueStar filled the gap in methionine
production in China and enabled China to own methionine
production technologies, production units, R&D contingents and
global sales networks. Also, BlueStar became the second largest
methionine producer in the world.


  2 Prospect of the methionine market for 2007

2.1 Influence of BlueStar on the methionine market

With the acquisition of Adisseo by BlueStar, the China's
complete dependence on imported methionine will be changed in
the next 2-3 years. The long-term price of methionine will have
new variables. As methionine production has a high threshold,
the products produced in the company cannot be brought to market
in a short period of time.

2.2 Stabl