Danhua Technology: Bright Prospects for the Coal Chemical Industry      

Danhua Chemical Technology Co., Ltd. (Danhua Technology, SH: 600844), called Daying Modern Agriculture Co., Ltd. in the past, was established in Shanghai in 1993. It was listed in Shanghai Stock Exchange in 1994. The company was engaged in agricultural products at first. It purchased 75% equity from Jiangsu Danhua Acetic Anhydride Co., Ltd. (Danhua Acetic Anhydride) in 2007 and shifted from an agricultural company to a coal chemical company. The major products of Danhua Technology are acetic anhydride and coal-based mono-ethylene glycol (MEG) which is being researched. The acetic anhydride capacity of Danhua Technology is 70 000 t/a today and is planned to be expanded to 100 000 t/a in the future.   

Equal emphasis on acetic anhydride and MEG   

The main profit of the company comes from acetic anhydride. Danhua Acetic Anhydride, which is located in Danyang of Jiangsu province and controlled by Danhua Technology, estimated that the output of acetic anhydride will be around 70 000-75 000 tons in 2008. Coal used in acetic anhydride production is from Henan Yongcheng Coal & Electricity (Group) Co., Ltd. and the purchase cost is around RMB1 200 per ton. Producing one ton of acetic anhydride consumes around 750 m3 of CO. The price of acetic anhydride has kept increasing since early 2007 and has reached around RMB12 500 per ton today. (CCR2008, No. 20) The cost of acetic anhydride in Danhua Acetic Anhydride is around RMB7 200 per ton. If the average price of acetic anhydride stays around RMB11 500 per ton, based on an output of 70 000 tons the company can reap a profit of around RMB225 million a year. The main-business revenue of Danhua Technology in the first half of 2008 was RMB306 million, an increase of 195.50% over the same period of 2007. The main-business profit was RMB67.0 million, an increase of 127.5%. The net profit was RMB26.84 million and the EPS was RMB0.088. The net profit in the second quarter of 2008 was RMB23.45 million, an increase of 592% over the first quarter as the operating rate was affected by the snow storm that hit in the first quarter of 2008.
    Danhua Technology will highlight the MEG business in the future. It plans to raise RMB1.1 billion in 2008 to buy major equity in GEM Chemical which is constructing a 1.2 million t/a coal-based MEG project in Tongliao, Inner Mongolia. The project has a total investment of RMB10.0 billion and will be executed in three phases. A 200 000 t/a unit with an investment of RMB2.13 billion taking the impact of the iron/steel price increases into consideration, a 400 000 t/a unit and a 600 000 t/a unit are planned to be constructed in three phases. The first phase project was launched in Tongliao Economic and Technological Development Zone in 2007 (CCR2007, No. 33) by Shanghai Jinmei Chemical New Technology Co., Ltd., the controlling shareholder of GEM Chemical, and will come on stream in mid-2009. To conduct the large-scale production of MEG in Tongliao municipality, Danhua Technology has expanded the capacity of the 300 t/a MEG unit in Danyang municipality to 10 000 t/a for the purpose of demonstration. The unit is operating steadily now. In spite of the serious damage done by the snow storm to power facilities in eastern China, the MEG unit still produced 1 500 tons of MEG in the first quarter of 2008. GEM Chemical will commence the second-phase 400 000 t/a project after the completion of the first phase project. It is also possible that GEM Chemical will conflate the second phase and the third phase to construct a 1.0 million t/a MEG project directly.

Advantages in technology and resources   

Danhua Technology is one of the few companies in China that have mastered the core technology for the acetic anhydride production through carbonylation. Compared with the acetic acid cracking process, the carbonylation process has a huge cost advantage. The forthcoming capacity expansion of acetic anhydride in China will therefore has less impact on the performance of the company.
   The coal-based MEG project which is under construction will produce MEG from oxalates and this process is world class and costs much less than the ethylene oxide synthesis process. Danhua Technology first uses lignite as the raw material to produce MEG in China and holds advantages in production technology. GEM Chemical also has advantageous access to natural resources for the development of the coal chemical industry such as rich low-price lignite, water, power resources and also has convenient communication and transportation. As Tongliao is located in a minority area it can enjoy autonomous region policies and favorable policies for western development.
    As the coal-based MEG project has long-term development potential and Tongliao has comprehensive advantages in water, coal, transportation and policy, the Tongliao coal chemical industry base has extremely bright development prospects. The production cost of MEG in Danhua Technology is only around RMB3 000 per ton and there is therefore a great profit margin. After the completion of the MEG project, the performance of the company will increase dramatically.