Healthy outlook for China Bluechemical
China Bluechemical, the fertiliser unit of state-owned China National Offshore Oil Corp, expects this year's profit to be supported by a plant expansion and firm prices due to steadily growing demand and higher feedstock costs.
This is despite delays in three other projects in the pipeline.
Prices of urea, or nitrogenous fertiliser, its main profit generators, are expected to remain steady this year from last year, chief executive Yang Yexin said.
'Demand will be supported by the government's financial backing of the agriculture industry and farmers, which rose steadily and surpassed one trillion yuan (HK$1.22 trillion) for the first time last year,' he said. 'The price of feedstock coal is also expected to stay relatively high.'
Mainland fertiliser demand has been growing at 1.6 to 2 per cent annually in the past few years.
Yang said urea market prices had risen about 11 per cent year on year in this year's first quarter.
China Bluechemical last Thursday posted a 69 per cent jump in net profit to 1.99 billion yuan, 6.5 per cent ahead of an average estimate of 16 analysts polled by Thomson Reuters.
The profit rise was driven mainly by the commissioning of the second-phase expansion of a methanol plant in Hainan Island in December 2010, which saw the firm's methanol output rise 81 per cent last year.
Higher product prices also contributed. The firm's average selling price for urea rose 23.2 per cent to 2,198 yuan a tonne, while that of phosphate fertiliser jumped 22 per cent to 3,143 yuan and methanol leapt 14.2 per cent to 2,262 yuan.
Yang said urea fetched around 2,250 yuan a tonne currently, while phosphate fertiliser traded at 3,900 yuan and methanol 2,900 yuan, adding that further rises were limited since users would find it too dear.
China Bluechemical mainly uses natural gas feedstock from fields operated by sister company, offshore oil and gas producer CNOOC, near Hainan Island to make urea and methanol.
Production trials will start at its phosphate fertiliser plant in Hubei next month, which will double its annual capacity to one million tonnes.
But the expected start-up time of its urea project in Heilongjiang province, with 520,000 tonnes of annual capacity, using coal as feedstock, has been pushed back by 18 months to the end of 2014. Yang said this was due to longer-than-expected time to get government approval for a coal mining licence. The firm produced 1.91 million tonnes of urea last year.
Another project in Shanxi province, with annual output capacity of 1.04 million tonnes of urea and originally expected to come on stream mid-2013, has been stalled due to a dispute between the firm's investment partner, a private enterprise, and its coal mining contractor.
In Guizhou, where China Bluechemical is developing a phosphate fertiliser and chemicals project, progress is also pending granting of mining rights to phosphorous rocks, and completion of ore processing technology development. The project has also been hurt by construction delays in railways to the mine.
Yang said China Bluechemical was close to completing talks to get consent from state-owned Tunisian firm Societe Industrielle d'Acide Phosphorique et d'Engrais for its planned acquisition of its parent's 40 per cent stake in Tianjin-based composite fertiliser joint venture Sino-Arab Chemical Fertilisers. The Tunisian firm has the remaining stake.
'The deal is now only pending approval by the Tunisian government,' Yang said. The talks had been delayed by the change of government. The acquisition plan was first made public in March 2009.
China Bluechemical budgeted 1.7 billion yuan this year to fund its expansion projects.