Pesticide Makers Enjoy Fat Profits or Suffer Losses   

In contrast with the consistent growth results of urea firms, China's pesticide makers reported wide ranging financial results for their product lines for the first half (H1) of this year, ending June 30th. The early birds entering the manufacture of glyphosate shared fats profits brought by the quadrupled price increase in twelve months. At the other extreme firms who were heavily involved in producing the highly toxic pesticides that were recently banned by the national government generally suffered a drop in profits, unless they had prepared in advance and shifted their core business to other pesticides or offset the loss of suspended production through other tactics.
   China has approximately 2 500 pesticide makers, including more than 600 firms who produce pesticide active ingredients and over 1 800 firms who manufacture pesticides preparations, according to the Institute for the Control of Agrochemicals under Ministry of Agriculture. This includes a number of ventures funded or registered by the world's top ten pesticide firms.
   In H1, China produced 1.01 million tons of pesticides, an increase of 20.8%, the total sales grew by 46.8% to RMB62.5 billion, according to the National Bureau of Statistics. The price increase, particularly in the second quarter, was significant on the whole. The total exports increased by 16.4% to 288 000 tons while the total value of exports grew 84.8%, indicating a faster growth of export price.   
   This summer China harvested 120.4 million tons of grains, up 2.6%. Increased grain prices helped farmers accept higher pesticide prices. The Chinese government has been persistent in helping farmers through a series of policy adjustments in the last few years. These two factors powered the profits of pesticide manufacturers who produce the particular varieties that are encouraged by the government.
   As mentioned by many glyphosate firms in their fiscal report for H1, the high gross profit rate cannot be maintained for a long time, no more than one year. Many investors are entering this sector in a hurry. The supply will go into surplus soon, maybe in early 2009. On August 27th, glyphosate, the spotlight variety of this past year, traded at RMB65 000 per ton, compared with RMB75 000 per ton one week earlier. In March this year the price even reached RMB110 000 per ton, four times as that of early 2007. Some forecasters say that the price may turn back to RMB26 000 per ton in six months, as a great many new projects come on stream by the end of 2008.  
   According to the database of CCR, China has thirteen publicly listed firms involved in pesticides production. Among these giants, only two - Lier Chemical Co., Ltd. (Lier Chemical, SZ: 002258, headquartered in Sichuan province) and Anhui Huaxing Chemical Industry Co., Ltd. (Huaxing Chemical, SZ: 002018) - limit themselves to making pesticides. Counting only pesticides sales, in H1, Zhejiang Xinan Chemical Industrial Group Co., Ltd. (Xinan Chemical, SH: 600596) ranked the first. Xinan Chemical also ranks first in total sales and net profit among the twelve firms. The company recorded the highest EPS, the biggest growth in pesticides sales and the best gross profit rate. Huaxing Chemical gained the biggest growth in total sales and net profit. Shandong Huayang Technology Co., Ltd. (Huayang Technology, SH: 600532) and Zhejiang Qianjiang Biochemical Co., Ltd. (Qianjing Biochemical, SH: 600796) both suffered a loss. Six firms more than doubled their pesticides sales, all of them engaged in the glyphosate business. The net profit of six firms more than doubled, all relying on glyphosate. If compared only by their growth of net profit, the thirteen firms can be divided into two groups - rocketing and dropping, only Nanjing Redsun Co., Ltd. (Nanjing Redsun, SZ: 000525), whose ratio of pesticides sales/total sales is the lowest, remained a moderate growth.
    Xinan Chemical, the biggest glyphosate producer in China, with a total capacity of 80 000 t/a, reported a gross profit rate of 46% in its glyphosate business. The firm's second line, with a capacity of 25 000 t/a, came on stream in March and helped the company gain a 151% growth in total revenue. Otherwise the company attributed the main factor for profit increase to the hike of glyphosate prices. Exports contributed 90% of the RMB3 billion revenue in the firm's pesticides business.
    Jiangsu Yangnong Chemical Co., Ltd. (SH: 600486) ranked next with a revenue of RMB1.28 billion from its pesticide business, which accounted for 95.35% in its total revenue. The company sold RMB645.6 million of pesticides abroad, representing an increase of 179%. It commenced production of the new glyphosate production facility with a capacity in February this year, adding RMB416 million of revenue for the company. The bigger business is still insecticides, which recorded revenue of RMB866.4 million with growth of 15%. .
   Net profit reported by Zhejiang Shenghua Biok Biology Co., Ltd. (SH: 600226) increased by 214%, supported by the price increase of N- (Phosphonomethyl) iminodiacetic acid (15 000 t/a) and glyphosates (4 500 t/a). The company reported export revenue of RMB1.46 billion, accounting for 80% of the total.
   The pesticide business of Nantong Agrochemical & Chemicals Cc., Ltd. (SH: 600389) grew at a growth of 113%. Both the sale amount and price of glyphosate increase, which is the main power for the excellent performance. The company is constructing a 30 000 t/a glyphosate unit and a 25 000 t/a IDAN glyphosate unit in its new site after relocation.  
  Hubei Sanonda Co., Ltd. (Sanonda, SZ: 000553) increased its gross profit rate by renovation. With regards to the 405% growth in net profit, help also came from the existing 5 000 t/a glyphosate facility. The company started trial production on a newly built 15 000 t/a glyphosate unit and ionic membrane caustic soda unit and may benefit from these two projects in the second half. The company also manufactures chlorpyrifos, avermectins, imidacloprid and other pesticides.  
   Huaxing Chemical's average selling price for glyphosate reached RMB82 100 per ton in H1, comparing with RMB33 600 per ton in the year-ago period. The 15 000 t/a unit produced 9 000 tons of glyphosate in H1. The company is constructing a 20 000 t/a glyphosate project and a 50 000 t/a natural gas based iminodiacetonitrile project.
   Fujian Sannong Group Co., Ltd., which has experienced losses for three consecutive years, was saved by reaping profit from glyphosate business.   
   Nanjing Redsun reported that its gross profit in pesticides manufacturing dropped by 9.44 percentage points to 15.1% in H1, due to increased costs, disasters, investments in pollution control and augmented financial cost. The company currently produces insecticides including pyrethroid series and heterocyclic compounds. Its parent company Redsun Group commenced production of the first phase (40 000 t/a N- (phosphonomethyl) iminodiacetic acid) of a 90 000 t/a N- (Phosphonomethyl) iminodiacetic acid and 120 000 t/a glyphosate project on July 31 this year and is applying to build a new 100 000 t/a glyphosate project in Nanjing Chemical Industry Park.
    Shandong Shengli Co., Ltd. (SZ: 000407) is expanding its glyphosate production capacity from 7 500 t/a to 12 500 t/a, due startup in this September. The company's product portfolio covers several dozen insecticides, herbicides and fungicides.
   Hebei Veyong Bio-Chemical Co., Ltd. (SH: 600803), China's major avermectins producer, is investing more money in treating