Markets put squeeze on orange juice producer

The mainland's largest orange juice producer is striving to boost production capacity to fend off foreign competitors, but weakening market sentiment is casting a pall over some deals.

Tianyi Fruit Holdings plans to buy juice processing facilities in Hunan - one of the country's three key citrus plantation areas. It expects the purchase to lift capacity by up to 25 per cent, but financial market volatility could drag out price negotiations.

'We will strive to reach a deal soon, but there is a process for the negotiations - and the market is not doing well these days,' said Sin Ke, the chairman of Tianyi.

Orange and orange juice prices rose by more than one third last year, but the company's net profit slipped 1.8 per cent to 153 million yuan (HK$185.8 million) for the year to June, as bad weather cut production.

'This year, however, the harvest will be good, and the country is likely to produce 35 per cent more oranges on average in the coming year compared with last year - our production growth for oranges will definitely exceed that,' Sin said.

The group said it will add 8 to 10mu (0.53 to 0.67 hectares) to its orange farms in Chongqing by the end of the year, pending government approval. Tianyi operates 71,000 mu (4,733.3 hectares) of orange farms in total, of which 21,000 mu (1,400 hectares) are newly planted and won't bear fruit until 2013.

Orange prices - which have jumped 34.9 per cent to 2,310 yuan per tonne in the year to June - are expected to fall in light of this year's better harvest, the group's chief financial officer Hu Xu said.

But orange juice prices are expected to remain stable or to rise slightly amid strong demand, widening the group's gross profit margin.

Shares in Tianyi closed 1.97 per cent higher at HK$1.55 yesterday, after falling to a one-year low earlier in the day. Its earnings per share remained stable at 18 HK cents, and the group will not issue a final dividend.