Dalian Chemical Expects to Complete Reconstruction in 2009        

Dahua Group Co., Ltd., established in 1933, is China's leading chemical raw materials producer. In 1997 Dahua Group initialed an IPO to get its subsidiary Dalian Chemical Industry Co., Ltd. (Dalian Chemical SHB: 900951) listed on the B-block (counted in US$) of Shanghai Stock Exchange in 1997. By the end of May 2009 Dahua Group remains Dalian Chemical's majority shareholder, with a share of 63.64%. Dalian Chemical operated a Hou's soda ash production line with a capacity of 480 000 t/a soda ash and 480 000 t/a ammonium chloride, a 120 000 t/a Solvay routine soda ash production line and a 200 000 t/a Solvay routine soda ash before June 2006. Dalian Chemical's existing factory is located in downtown of Dalian city, Liaoning province. To reduce pollution to the city, the chemical shut down the Hou's production line in June 2006 and started to construct a new 600 000 t/a Hou's soda ash production line in the Songmu Island (CCR2006 No.19).

Business Result for the Fiscal 2008    

In the first half of 2008, the price of soda ash rose dramatically, but Dalian Chemical can not enjoy the high margin because the new production line has not come on stream on schedule. In the second half of the year, the price of raw salt rose greatly, while soda ash went into a precipitous decline in price. A negative margin made the company cease permanently the operation of the two Solvay production lines from November 12th.
   The company only relied on its two Solvay routine soda ash production lines to achieve a sales revenue of RMB423 million, fell 1.04% from 2007. The net profit was RMB6.77 million, compared with the RMB16.32 million profits in 2007. The profit drop was attributed to the drastic increase in the price of principal raw materials (i.e. raw salt and coke).
    Dalian Chemical produced 246 600 tons of soda ash in 2008, 18.34% lower than the expected 302 000 tons. The actual soda ash output was approximately 1.35% of the total nationwide. The difference from the company's consensus was mainly caused by the follow reasons: the company's two Solvay soda ash production lines were considerably out of repair and could only operate below their production capacities. Due to the slack soda ash market and the markup of raw materials and fuels for production, the company permanently shut down the two lines since November 2008. By the end of 2008, Dalian Chemical has basically completed the civil construction of the 600 000 t/a Hou's soda ash project, and initially planned to complete it for startup in May 2009. But influenced by multiple factors, such as delayed delivery of some new equipment, and deficient capital, recently, Dalian Chemical decided to put off its commercial run to September 2009.

Technical innovation and environmental protection    

Dalian Chemical began relocation of its 600 000 t/a soda ash plant to the chemical industry concentrated area in Dalian in 2006, while prepared to close the old Solvay method production lines with excessive drainage of waste residue and waste liquor. So the production capacity of Hou's soda ash production facility was designed higher than the old one. Furthermore, techniques will be upgraded. The new plant is located in the raw salt provenance, which enables the manufacture of raw salt associated with the production of general dense soda ash, agricultural and industrial grade ammonium chloride, so the current products portfolio will be more rational in accordance with national industrial and environmental protection policies.
    Dalian Chemical's 600 000 t/a Hou's soda ash line is designed to use advanced technologies and mature and reliable techniques, and they emit no waste residue, waste liquor or waste gas, and after full operation, they can maintain long-term high-load production stably and safely.

Looking ahead     

In 2009, Dalian Chemical plans to produce 74 500 tons of soda ash and 74 500 tons of ammonium chloride from its new plant, achieving an operating revenue of RMB145.28 million.

  * In the face of competition   
The principle product soda ash serves in basic raw materials field, and thus greatly affected by the macro economy. Since the beginning of the global financial crisis in the second half of 2008, the demand for downstream products of soda ash, such as glass and metallurgy, etc. was extremely insufficient to support all the soda ash producers, and this resulted in a sharp market recession for the products of the company. Meanwhile, there are lots of expansion projects and newly-constructed projects in recent years, hence the managers of Dalian Chemical really knew the competition in soda ash market has been becoming fiercer in 2009.
   However, the gradual fulfillment of the central government's economic stimulus policies will be of great help for the increase of demand for soda ash, and hence the market will turn to be more promising, Dalian Chemical leaders believe.

  * Development strategies     
The construction, startup, and commercial operation of the 600 000 t/a soda ash project are all scheduled in 2009. All the production materials, such as water, power, steam, synthetic ammonia for the soda ash project, are contracted to be provided by Dahua Group Co., Ltd., the controlling shareholder of Dalian Chemical. The progress of these supporting projects will have a direct influence on its going into production. As a result, Dalian Chemical signed an agreement with Dahua Group Co., Ltd., which indicates that if one party fails to go into production on time and hence delays production of the other party, the first party should compensate the other for loss. In order to guarantee the implementation of each step, Dalian Chemical has made detailed plans and preparations for trial run.
     The 600 000 t/a soda ash manufacturing devices adopt DCS (distributed control systems) with high-level automation in production techniques, which demand high technical ability of the staff, and meanwhile, revamping of management procedures and flattening of the organization also bring higher requirements for professional capabilities. Dalian Chemical will do its utmost in pushing forward the training programs for the improvement of the professional level of its staff.
    Missed market share in the past three years is a bigger problem for the company. Since November 2008, Dalian Chemical has no soda ash to supply old clients until September 2009, which further cut its product market share and lost plenty of clients. Dalian Chemical said it will strengthen its marketing capability, and retain the market share for its products as soon as possible.