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Sinochem records 19.4pc rise in earnings

Improved sales of domestically produced fertiliser offset sharp drop in revenue from imported products

Sinochem Hong Kong Holdings, China's largest fertiliser distributor, posted a 19.4 per cent rise in first-half net profit, as increased sales of domestically produced nitrogenous products more than offset a sharp drop in imported potassium fertiliser sales caused by prolonged negotiations with overseas suppliers.

The Beijing-based company, a unit of state-owned oil and petrochemical firm Sinochem Group, reported a first-half net profit of HK$465.32 million, up from HK$389.71 million in the same period last year. The year-earlier period figure was calculated on a pro-rata basis from the HK$586.91 million January-to-September figure actually reported to Hong Kong stock exchange by the company last year when it changed its financial year-end to December 31 from March 31.

Also using a pro-rata comparison from a year earlier, when the company was back-door listed in Hong Kong, half-year turnover rose at a slower 7.07 per cent to HK$10.3 billion.

The growth was due to a 10.04 per cent rise in total sales volume to 6.14 million tonnes, of which a 62 per cent rise in domestic fertiliser to 3.27 million tonnes more than made up for a 23 per cent fall in imported fertiliser to 2.46 million tonnes.

A trade halt during an eight-month negotiation with foreign suppliers caused the seaborne import volume of potassium fertiliser to plunge 32.8 per cent to 790,000 tonnes. 'The negotiation standstill meant trade was completely frozen in the first half,' said Sinochem Hong Kong chief executive Du Keping.

To mitigate the impact of the impasse, the Hong Kong-registered company raised domestic procurement by signing a deal to buy 900,000 tonnes of potassium fertiliser from Qinghai Salt Lake Potash this year, up from 500,000 tonnes last year. It bought 700,000 tonnes in the first half. It has also doubled sales of nitrogenous fertiliser to 1.81 million tonnes and raised gross profit margin in this segment to 6 per cent from around 4.5 per cent, said chief financial officer Zhang Baohong.

Mainland buyers in July finally agreed to pay US$25 a tonne, a price rise of about 10 per cent, in a deal with Belarus state producer Belarusian Potassium for this year's supply. Sinochem has contracted to bring in 74 per cent of China's potassium fertiliser import this year.

The company has a sales target of 13.27 million tonnes for this year, up from 11.17 18.8 million tonnes last year. It plans to raise sales to 20 million tonnes by 2008, largely by acquiring its parent's fertiliser-producing assets and raising the number of sales outlets to 2,000 from 1,143 on June 30.

Sinochem Hong Kong expects to acquire its parent's 26.13 per cent stake in mainland-listed Qinghai Salt Lake by the end of the year. It will be the first of three fertiliser-producers to be sold by the parent to the listed firm, Mr Du said.