Production information of Fufeng Group Co., Ltd.
| Product | Year | Capacity, t/a | Output, tonne |
|---|
| Monosodium glutamate | 2014 | 1,050,000 | / |
|
Monosodium glutamate | 2013 | 1,050,000 | 980,000 |
|
Monosodium glutamate | 2012 | 1,050,000 | 911,000 |
|
Monosodium glutamate | 2011 | 650,000 | 648,000 |
|
Monosodium glutamate | 2010 | 540,000 | 496,000 |
|
Monosodium glutamate | 2009 | 305,000 | 303,000 |
|
Monosodium glutamate | 2008 | 305,000 | 300,000 |
|
Monosodium glutamate | 2007 | | 77,000 |
|
Threonine | 2013 | 40,000 | 37,000 |
|
Threonine | 2012 | 40,000 | 19,000 |
|
Threonine | 2011 | 10,000 | 9,000 |
|
Threonine | 2010 | 10,000 | 2,400 |
|
L-Valine | 2013 | 500 | 200 |
|
L-Valine | 2012 | 500 | 250 |
|
L-Valine | 2011 | 500 | 200 |
|
Valine | 2012 | / | 200 |
|
Valine | 2011 | / | 250 |
|
Valine | 2010 | / | 200 |
|
L-Glutamic acid | 2013 | 820,000 | 791,810 |
|
L-Glutamic acid | 2012 | 820,000 | 802,140 |
|
L-Glutamic acid | 2011 | 513,333 | 552,197 |
|
L-Glutamic acid | 2010 | 460,000 | 434,333 |
|
L-Glutamic acid | 2009 | 350,000 | 354,638 |
|
Xanthan gum | 2011 | 44,000 | 17,000 |
|
Xanthan gum | 2010 | 44,000 | 31,000 |
|
Xanthan gum | 2009 | 32,000 | 28,000 |
|
Xanthan gum | 2008 | 25,000 | 21,000 |
Source: CCM
Content byte: Fufeng Group Co., Ltd. cooperates with Ajinomoto Group on threonine
In March 2011, it's reported that Fufeng Group Limited (Fufeng Group) would cooperate with Ajinomoto Group to produce threonine in OEM form, indicating that Fufeng Group would supply threonine product to Ajinomoto Group, and meanwhile, the product quality of Fufeng Group reached the standards of Ajinomoto Group completely. It's believed that this cooperation, on one hand, can help Ajinomoto Group to expand Chinese market more easily; on the other hand, Fufeng Group can digest its new capacity of threonine launched in H2 2010, and raise its reputation of this product in the world.
CCM confirmed this news with Miss Wang, Assistant of Investor Relations of Fufeng Group. She disclosed that Fufeng Group had already signed an agreement for this cooperation with Ajinomoto Group, and more details will be provided in the company's annual report to some out soon. Miss Wang didn't reveal whether this cooperation had already been executed now or not.
Fufeng Group can get more benefits from this cooperation. It will help Fufeng Group to digest its new capacity of threonine. In 2010, Fufeng Group's threonine production line succeeded in putting into operation with capacity of 5,000t/a, and another 5,000 t/a capacity of threonine production line began to construct in H2 2010, which is planned to be launched in H1 2011. Thus, Fufeng Group possesses threonine production line with total capacity of 10,000 t/a in 2011. Obviously, Ajinomoto Group will be a large client of Fufeng Group's threonine product, and if the cooperation lasts for a long time, the good performance of Fufeng Group's threonine product will be ensured to some extent.
Besides, it will help Fufeng Group to gain better reputation of threonine product. Ajinomoto is a famous brand in amino acid industry both in China and all over the world thanks to its good product quality, and this cooperation actually indicates the product quality of threonine in Fufeng can match with Ajinomoto Group, which is beneficial for Fufeng Group's better reputation.
Content byte: Fufeng Group Co., Ltd.'s cost advantage from scale economy in 2011
Fufeng Group has unrivalled cost advantages from scale economy. Glutamic acid is the precursor of MSG and only needs simply processing to become MSG. As the largest producer of glutamic acid in the world, Fufeng Group can supply itself with glutamic acid with high-quality but much lower prices thanks to the scale economy. According to the historical statistics, the company's operation rate for both its glutamic acid and MSG production could reach around 90% during 2007-2010, which meant the company could fulfill scale economy very well. Furthermore, many small MSG producers in China can not produce glutamic acid technically by themselves and need to purchase it from Fufeng Group. So Fufeng Group's supply depletion of glutamic acid is expected to accelerate the shutting-down of these small companies and promote the concentration of MSG capacity in China.
Content byte: The main products of Fufeng Group Co., Ltd.
The main products of Fufeng Group are as below:
Monosodium glutamate and xanthan gun (the production of them are the biggest in China)
Starch sugar
L-Isoleucine (the quotation in June 2013 is about USD21,840/t)
L-Valine (the quotation in June 2013 is about USD10,840/t)
L-Leucine (the quotation in June 2013 is about USD21,040/t)
L-Proline
Glutamic acid
Threonine
Content byte: Production information of monosodium glutamate segment of Fufeng Group Co., Ltd., 2012 and 2013
Production information of monosodium glutamate segment of Fufeng Group, 2012 and 2013
| Product | 2013 | 2012 | YoY growth rate |
|---|
| Monosodium glutamate |
| Capacity (t/a) | 1,050,000 | 1,008,333 | 4.1% |
|
Output (tonne) | 983,227 | 965,896 | 1.8% |
|
Utilization ratio | 93.60% | 95.80% | / |
|
Glutamic acid |
|
Capacity (t/a) | 820,000 | 786,667 | 4.2% |
|
Output (tonne) | 791,810 | 802,140 | -1.3% |
|
Utilization ratio | 96.60% | 102.00% | / |
| Fertilizer |
| Capacity (t/a) | 1,100,000 | 1,058,333 | 3.9% |
|
Output (tonne) | 982,355 | 1,077,427 | -8.8% |
|
Utilization ratio | 89.30% | 101.80% | / |
| Starch sweetener |
| Capacity (t/a) | 190,000 | 140,000 | 35.7% |
|
Output (tonne) | 162,463 | 103,523 | 56.9% |
|
Utilization ratio | 85.50% | 73.90% | / |
Source: Fufeng Group Co., Ltd.
Content byte: Amino acid business segment and key events of Fufeng Group Co., Ltd.
Amino acid business segment and key events
Threonine and lysine are relatively new products, their total capacity was about 40,000 t/a in 2013, the year that Fufeng Group started their production. Threonine and lysine are essential amino acids which help to keep the balance of protein and are mainly used as animal feed additives. Due to the increasing sales volume, the revenue of threonine and lysine increased by about 90.5% in 2013. Sales volume of threonine and lysine was about 36,613 tonnes and 5,677 tonnes respectively in 2013, while their sales volume was about 18,299 tonnes.
High-grade amino acid products had been put into production in Xinjiang Uygur Autonomous Region at the end of 2012, and its annual capacity was 1,500 t/a, then reached 3,000 t/a at the end of 2013. High-grade amino acid products include valine, leucine, isoleucine, and glutamine. Their sales value increased from USD13.87 million in 2012 to USD34.14 million in 2013. Fufeng Group was committed to developing the high-grade amino acid product market with the aim of strengthening its brand, developing new products for industrial and retail markets, generating publicity and creating greater demand for the products.
Through strategic cooperation with Jiangsu Shenhua Pharmaceutical Co.,Ltd., its products were sold to many health care and pharmaceutical enterprises around the world.
Content byte: General introduction to Fufeng Group Co., Ltd.'s major business
Fufeng Group, the largest manufacturer of monosodium glutamate and glutamic acid in the world, had an output of monosodium glutamate and glutamic acid of 983,227 tonnes and 791,810 tonnes respectively in 2013. The company has eight subsidiaries and six of them are involved in amino acids production: Shandong Fufeng Fermentation Co., Ltd., Baoji Fufeng Biotechnologies Co., Ltd., Inner Mongolia Fufeng Bio-technological Co., Ltd., Hulun Buir Northeast Fufeng Biotechnology Co. Ltd., Xinjiang Fufeng Biotechnology Co., Ltd. and Jiangsu Shenhua Pharmaceutical Co., Ltd.
Fufeng Group's core businesses are monosodium glutamate segment and xanthan gum segment. In 2013, the revenue of monosodium glutamate segment reached USD1.60 billion, accounting for 87.21% of the company's total, down 1.3% YoY, because of the falling ASP. However, its total sales volume increased to 1.00 million tonnes in 2013, up 6.3% YoY, owing to the increasing capacity and competitive price strategy.
The main products of Fufeng Group are monosodium glutamate, fertilizer, corn refining products, threonine & lysine and high-grade amino acid products, etc. High-grade amino acid products include valine, leucine, isoleucine and glutamine. Monosodium glutamate is mainly used as food additive and its revenue reached USD1.02 billion in 2013, accounting for 63.19% of the total. Besides, threonine & lysine products are mainly used as animal feed additives, and their sales volume reached to 36,613 tonnes and 5,677 tonnes respectively in 2013. The high-grade amino acid products of Fufeng Group mainly focus on healthcare and pharmaceuticals industry, and its revenue achieved USD34.14 million in 2013.
Content byte: Cost advantages of Fufeng Group Co., Ltd.'s products have been strengthened
In 2013, outputs of starch sweeteners, xanthan gum and high-end amino acids increased, as the second phase of the Hulunbuir (Inner Mongolia) and Xinjiang plants began operations in Q2 2012 and Q4 2012, respectively. Xanthan gum's capacity rose from 48,000t/a in 2012 to 74,000 t/a in 2013, while the production capacity for high-end amino acids was expanded from 1,500 t/a at the end of 2012 to 4,000 t/a in 2013.
In 2013, Fufeng Group effectively controlled production costs, maintaining 2012 levels. An important factor in this is Fufeng Group's ability to produce and use synthetic ammonia internally, thus reducing liquid ammonia purchasing costs. The 2013 report shows a 60.7% YoY fall in liquid ammonia production costs. On the other hand, Fufeng Group's plants in Xinjiang and Hulunbuir (Inner Mongolia) have easy access to cheap coal and further strengthen the company's cost advantages.
Content byte: Favourable factors promoting Fufeng Group Co., Ltd.'s gross profit margin in Q1 2013
Entering into 2013, Fufeng Group indicated that its gross profit margin rebounded in Q1. which was mainly benefited from several favorable factors.
First, the business of xanthan gum in Fufeng Group still got a good performance in Q1 2013 thanks to the increasing demand from the downstream industries. According to CCM, although the price of xanthan gum this year was not higher than that in 2012, the low prices of raw materials still made the company enjoy an increasing gross profit margin in Q1 2013. In detail, the xanthan gum business of the company enjoyed a gross profit margin as high as 60% in the first four months of 2013.
Second, although the ex-works price of MSG in Fufeng Group was still at a low level in the first quarter of 2013, the raw material of MSG was cheaper than that in 2012. According to CCM, the average ex-works price of MSG in Q1 2013 was USD1,192/t (RMB6,250/t), which is lower than the USD1,214/t (RMB6,500/t) in Q4 2012. After April, the ex-works price of MSG even further dropped, reaching USD1,175/t in May. However, the price of corn was also at a low level in Q1 2013. In April, the domestic market price of corn even touched USD371/t. Moreover, the price of coal also decreased in Q1 2013. Thus, the company's gross profit margin also rebounded thanks to the decreasing costs of raw materials.
In the remaining of 2013, xanthan gum is expected to continue its good performance with the strong demand from the downstream industries. As for MSG, with the increasing price of corn from May 2013 and after expanding its market share of MSG through its low-price strategy, Fufeng Group indicated that it will try to increase the price of the product in Q3 in order to gain more profits.
Content byte: The capacity of new production line of Fufeng Group Co., Ltd. is fairly large and the company wants to keep a foothold in the domestic market rapidly to achieve a satisfying sales volume of its products in 2013
The capacity of the new production line of Fufeng Group is fairly large and the company wants to keep a foothold in domestic market rapidly in order to achieve a satisfying sales volume of those products in 2013. According to Mr. Chen, Vice Financial President of Fufeng Group, the target of the company's total sales volume of minority amino acids is 1,500-1,700 tonnes in 2013. In detail, the sales volume of leucine, isoleucine, valine and proline are expected to reach about 300-500 tonnes, 300-500 tonnes, 800 tonnes and 200 tonnes respectively. At present, Xinjiang Fufeng is producing leucine and isoleucine. Fufeng Group has a valine production line in Shandong, which contributed about 500 tonnes of sales volume for the group in 2012. The production of valine is being transferred to Xinjiang where the production costs are lower. And Xinjiang Fufeng will put proline into production later.
Content byte: Xanthan gum is the fist product of Fufeng Group Co., Ltd. It expanded the capacity of the product to cater to the increasing demand for it.
CCM: Why does Fufeng Group want to enlarge its capacity of xanthan gum?
Chen: Xanthan gum is a fist product of Fufeng Group–the largest domestic xanthan gum producer. At present, Fufeng Group owns three xanthan gum production lines with total capacity of 38,000t/a in Inner Mongolia Autonomous Region (Inner Mongolia). Adding the new production line in Xinjiang Fufeng, the xanthan gum capacity of Fufeng Group will reach 48,000t/a. Also xanthan gum is widely used in food and petroleum extraction industries with a promising market. In H1 2012, the revenue and gross profit of xanthan gum of Fufeng Group reached USD78.8 million and USD30.9 million, up 25.0% and 31.8% respectively year on year against the globally gloomy economy–87.6% of Fufeng Group's xanthan gum was exported in H1 2012 (Relative data come from Fufeng Group's H1 2012 report). Considering the increasing demand for xanthan gum, Fufeng Group planned to expand the capacity of xanthan gum to generate more profit. In fact, the company's supply of xanthan gum was no longer able to meet the market demand in recent months.
Content byte: Fufeng Group Co., Ltd. sees drop in profit in 2011
On 9 Feb. 2012, Fufeng Group Limited (Fufeng Group) released a performance preannouncement that its net profit in 2011 would be less than that in 2010. According Fufeng Group, the following are major factors for the profit drop in 2011:
1. In the second half of 2011, the price of the company's main raw materials rose continuously while those of Fufeng Group's products saw a slight dip, which caused its gross profit rate to decline remarkably.
2. The group's related fixed costs increased apparently because the new factory and production line in Hulun Buir, Inner Mongolia were launched in the second half of 2011.
Content byte: MSG sitiation of Fufeng Group Co., Ltd.
MSG situation in Fufeng Group, 2013
| Item | Content | Remark |
|---|
|
Production | Capacity, Q1 2014 | 1,050,000 t/a | / |
|
Output, 2013 | 980,000 tonnes | |
|
Expansion plan, 2014 | / | / |
|
Technology | Appropriate sub-type biotin pathway | / |
|
Raw material | Corn starch | Fufeng Group purchases corn both at home and abroad. |
|
Market sales | More than 10% of its MSG is exported to regions such as Europe, Africa, North America and South America, while the rest is offered to the domestic MSG end users. | With the output and capacity of MSG increasing, more and more MSG will be exported. |
|
Brand | Fufeng | / |
Source: CCM
Content byte: Fufeng Group Co., Ltd. tries to grab more market share by low-priced MSG in H1 2011
In fact, it is the low price of MSG caused the decline in the gross profit margin of Fufeng Group's MSG segment in H1 2011. Its average sales price of MSG was USD1,254/t in H1 2011, increasing by only 7% over H1 2010, while the production cost of MSG segment rose by 33.9%. Based on incomplete statistics, in H1 2011 the average sales price of MSG of Meihua Holdings Group Co., Ltd. (Meihua Group), a leading MSG producer in China, reached USD1,269/t, a little higher than Fufeng Group's, partly leading to a higher gross profit margin of Meihua Group (28.2%) than Fufeng Group's.
According to Fufeng Group, it is trying to obtain market shares and helping promote the consolidation progress of MSG industry through its low-price strategy. Amidst the increase in governmental restriction and intense competition, the number of MSG producers in China has decreased to about 20 in 2011 from over 200 a few years before, according to Mr. Li, an executive director of Fufeng Group. Moreover, because large producers of GA (a key raw material of MSG) like Meihua Group and Fufeng Group are reluctant to sell their GA this year, some small producers' production cost of MSG soars. Plus the leading producers maintain a low product price. Small players are suffering a hard time currently. According to Mr. Li's estimation, only five MSG producers are running well now.
Fufeng Group, tring to take this opportunity to grab more market shares, already launched its new production base in Hulunbuir City. It now owns 750,000t/a capacity of MSG totally (540,000t/a before), becoming the largest MSG producer in China. In addition, the new large capacity can effectively reduce its current high utilization rate of MSG production lines. In H1 2011, the company's MSG output reached 279,339 tonnes, up 18.9% over H1 2010 with an utilization rate up to 103.5%. Besides the booming demand for MSG in H1 2011, its low-price strategy is also a key factor in the large increase in MSG output.
Content byte: Fufeng Group Co., Ltd. 's gross profit margin decreases in H1 2011
The H1 2011 gross profit margin of Fufeng Group Limited (Fufeng Group) witnessed a slight decline to 21.7% from 24.8% in H1 2010 as shown in its interim report 2011. The main reason lies in the adoption of low-price strategy by the company in H1 2011, who believes it has worked and the company's market share has seen growth. Plus its new production base engaged in the production of MSG, liquid ammonia and sulphuric acid launched in Hulunbuir City, Inner Mongolia Autonomous Region in Aug. 2011, the company may embrace a great prospect in the future.
Both two segments of Fufeng Group's main businesses witnessed a decrease in gross profit margin in H1 2011: a drop from 22.7% in H1 2010 to 19.9% for monosodium glutamate (MSG) segment and a 2% decline to 37.2% for xanthan gum segment. Its MSG segment covers products like MSG, glutamic acid (GA), fertilizers, threonine, corn oil, branched-chain amino acid, chicken powder and starch sweeteners; the xanthan gum segment includes only xanthan gum.
Content byte: Production situation of xanthan gum in Fufeng Group Co., Ltd.
Fufeng Group puts 81.82% of xanthan gum production capacity (36,000 t/a of 44,000 t/a in 2010) in Inner Mongolia Plant with 24,500 tonnes' output in 2010. Meanwhile, the Shandong Plant produces 6,500 tonnes of the product in 2010, whose capacity reaches 8,000 t/a in 2011.
The total output of Fufeng Group is 31,000 tonnes in 2010, 3,000 tonnes more than that in 2009. By releasing the capacity of Inner Mongolia Plant, its xanthan gum output soars in 2011, which comes to 17,000 tonnes in the first six months of 2011.
Content byte: Fufeng Group Co., Ltd.'s capacity, output and price of xanthan gum
Xanthan gum's production information of Fufeng Group, 2010-H1 2011
Source: CCM International
Content byte: Fufeng Group Co., Ltd. is the largest manufacturer in China's monosodium glutamate industry.
Fufeng Group is the largest manufacturer in China's monosodium glutamate industry, whose sales volume of the product in 2010 reached 492,560 tonnes, up 68% over 2009. The company's total revenue in 2010 increased by 38.5% over 2009, but the gross profit margin decreased by 5.8% due to significant increase in the cost of raw material (majorly corn).
Content byte: Fufeng Group Co., Ltd. reduces sales volume of glutamic acid and retains it for own use in 2010
In H1 2010, Fufeng Group Limited (Fufeng Group) totally sold glutamic acid for 12,309 tonnes, compared with 62,440 tonnes last year, roughly plunging 80%. An insider disclosed that Fufeng Group is planning to increase its market share of monosodium glutamate (MSG) to 40% from 20% currently, and the reduced sales volume of glutamic acid is used to produce MSG for itself, which is part of its market strategies.
Decreasing the sales volume of glutamic acid can drive away some small MSG producers. As is known,owing to the production pollution of glutamic acid and government's ban on production without waste treatment,many small glutamic acid producers without waste treatment were forced to be washed out. So most glutamic acid was centralized in several large producers including Fufeng Group. Meanwhile, glutamic acid in the market is undersupplied and glutamic acid price in the market stays at a high-level ofaboutSD1,172/t averagely at present.Thus, some small MSG producers who purchase glutamic acid from Fufeng Group may shut down.
Actually, the capacity of glutamic acid in Fufeng Group has increased a lot since 2009 in order to satisfy the demand for MSG production to reduce its cost by scale production. The company now has glutamic acid capacity of 460,000t/a, increasing by 110,000t/a over 2009. The significant increase in production capacity of glutamic acid was mainly cause by completion of the construction of a new 70,000t/a glutamic acid production line at the end of 2009, coupled with the re-engineering of the glutamic acid production process which enhanced the company's glutamic acid by 40,000t/a.
On the other hand, the reduced sales volume of glutamic acid can be utilized for the production of MSG, which can increase its output of MSG and lower down its MSG production cost. In H1 2010, the output of MSG of the company reached 234,976 tonnes, compared with 129,194 tonnes in 2009, up 82%. Actually, Fufeng Group has also expanded its capacity of MSG to 540,000t/a from 280,000t/a in H1 2009, after it completed the construction of 150,000t/a MSG production in Inner Mongolia, and re-engineered MSG production process at the end of 2009, which enhanced its MSG capacity by 110,000t/a.
Content byte: Annual capacity and output of MSG in Fufeng Group Co., Ltd., 2006-2010
Annual capacity and output of Fufeng Group, 2006-2010
Source: Fufeng Group's Financial Report
Content byte: Fufeng Group Co., Ltd.'s MSG production expansion in 2011
Fufeng Group's industry integration
Actually, Fufeng Group has started its industry integration journey since early 2007. According to its financial reports, the MSG capacity of Fufeng Group soared sharply to 155,000t/a in 2007, over three times of that in 2006. During 2008-2009, the growth rate of capacity also remained around 80%-90%. By the end of 2010, the capacity has already reached 540,000t/a. Correspondingly, the output of MSG has also experienced similar fluctuations during the same period.
Content byte: Fufeng Group Co., Ltd.'s net profit soars by 214.99% in 2009 year on year
Fufeng Group Co., Ltd. (Fufeng Group) has made remarkable achievement in 2009, with net profit soaring 214.99% over 2008, according to its annual report 2009. This good news also attracts more investors' attention to Fufeng Group's stock in HongKong Securities Market currently.
CCM was very pleased to have communicated by Email with Carine Wong, Investor Relations Officer in Fufeng Group on Apr. 1st, 2010. All CCM's questions were answered and confirmed by the senior management team of Fufeng Group, and CCM is enjoyable to co-share them with readers.
CCM: What are the sources for Fufeng Group's outstanding achievements in 2009?
Fufeng Group: There were two factors contributing to the remarkable achievement in 2009. On one hand, MSG business witnessed good sales performance in 2009. Total sales volume of MSG in 2009 jumped to 292,000 tonnes from 146,000 tonnes in 2008, as the company captured much market share left by some small MSG plants prohibited by Chinese government since late 2008. China's governmental has determined to eliminate some MSG plants with capacity less than 30,000t/a since 2007, which was basically completed in late 2008. Therefore, after the integration of China's MSG industry, MSG price increased in 2009, and the average price of MSG in Fufeng Group ascended to USD1,126/t in 2009, up 11.90% over 2008. On the other hand, Fufeng Group enjoys production cost advantage, as most of its products are produced in Inner Mongolia and Shaanxi, which are rich in corn, sulfuric acid and coal.
CCM: What's your total capacity of xanthan gum at present?
Fufeng Group: Af ter Fufeng Group successfully launched its third xanthan gum production line with capacity of 12,000t/a in Inner Mongolia in early 2010, total capacity of xanthan gum has reached 44,000t/a currently. Till now, Fufeng Group has built three xanthan gum production lines with capacity of 12,000t/a for each in Inner Mongolia and a 8,000t/a xanthan gum production line in Shandong. At present, Fufeng Group is Chinese biggest xanthan gum producer.
CCM: What's the advantage of Fufeng Group compared with other xanthan gum producers?
Fufeng Group: Fufeng Group enjoys lower production cost for xanthan gum compared with other large-scale xanthan gum producers like Shandong Deosen Corporation, CPKe lco (Shandong ) Biological Co., Ltd. and Zibo Cargill HuangHelong Bioengineering Co., Ltd., whose xanthan gum production bases are only concentrated in Shandong. In terms of xanthan gum, most of our production cost sources from corn and coal. Inner Mongolia is Chinese leading corn and coal production base with lower prices of corn and coal than those in Shandong.
CCM: Why does Fufeng choose to construct a new production base in Northeast China?
Fufeng Group: Northeast China will become another major production base for Fufeng Group in the future, following Inner Mongolia and Shaanxi. Sufficient raw material supply and low labor cost in Northeast China attract Fufeng Group to further enlarge its MSG capacity there. It is certain that this production base will bring much profit for the company. According to the plan, Fufeng Group will build a plant in Heilongjiang this Q2, and expects to launch it in H2 2011. After the launch of this plant, Fufeng Group will complete its industrial chain with MSG capacity of 200,000t/a, GA capacity of 160, 000t/ a, fertilizers capacity of 200,000t/a and synthetic ammonia capacity of 100,000t/a.
CCM: Does Fufeng Group have a plan to build fructo-oligosaccharide (FOS) production line in Inner Mongolia?
Fufeng Group: Yes. Fufeng Group will build 5,000t/a FOS production line in Inner Mongolia in late 2010. The concentration of many large scale dairy processors such as Inner Mongolia Yili Industrial Group Co., Ltd. and Inner Mongolia Mengniu Dairy (Group) Co., Ltd. is the main attracting force for Fufeng's construction. As a kind of functional sugar, FOS is widely used in dairy products, beverage,food, etc.
CCM: Does Fufeng Group have a plan to move the plant in Shandong to Inner Mongolia in the future?
Fufeng Group: No. Shandong will be the headquarter of Fufeng Group all the time. In fact, the production base in Shandong has become R&D center of Fufeng Group in recent years, which is engaged in testing new production lines with small scale and developing new products.
Fufeng Group is mainly engaged in production and distribution of monosodium glutamate (MSG), glutamic acid (GA), fertilizers, xanthan gum, etc. MSG sales revenue accounted for 48.46% of total sales revenue in Fufeng Group in 2009. At present, Fufeng Group has three production bases one in Shandong, one in Inner Mongolia and the third in Shaanxi.
Content byte: Power of production of Fufeng Group Co., Ltd. is the strongest.
Power of production of Fufeng Group is the strongest. Fufeng Group has the lowest MSG production cost in China currently. Firstly, Fufeng Group is the largest MSG producer with total capacity of 540,000t/a currently and is able to efficiently control MSG cost on dependence of scaled production. Secondly, Fufeng Group has ample raw material supply for its MSG production. Fufeng Group is also domestic leading producer of glutamic acid (GA), raw material of MSG, with total capacity of 460,000t/a currently, which is mainly used for its MSG production. Thirdly, MSG plants of Fufeng Group are mainly located in Inner Mongolia, Shanxi and Northeast China, close to corn and coal production bases. Thus its raw material cost is lower as 70% of total MSG cost sources from coal and corn cost in China. Fourthly, investment for facilities purchasing of the company is lower since it usually purchases second-hand MSG facilities. Fifthly, it effectively recycles wastes during MSG production process and extracts useful byproducts which also bring in profit.
Content byte: Brief introduction to Fufeng Group Co., Ltd.
- DescriptionIt is one of major MSG producers in China and focus on production, management and R&D of bio-fermentation products. The company passes ISO 9001 quality management system, ISO 22000 food safety management system, ISO 14001 environmental management system, OHSAS18001 Occupational Health and Safety Management System, GMP certification and the United States Kosher certification and Halal certification.
- FoundationFounded as a foreign-funded enterprise in 1999.
- Product structure Glutamic acidMSGXanthan gumCompound fertilizerStarch sweetenersDrugs & healthcare products
- ProductionFufeng Group has three production bases located in Shandong Junan, Shaanxi Baoji and Inner Mongolia Hohhot respectively. The starting raw material for MSG production is corn in Fufeng Group.The company has marketed its products throughout China, exports MSG to Europe, America, Southeast Asia, Africa, etc.
- Events related to MSGIn Jan. 2007, Fufeng Group was listed as a public company on the Main Board of HKEx.
Fufeng Group announced that it will increase MSG production capacity of 100,000 t/a at the end of this year, totaling 380,000 t/a.
Content byte: Fufeng Group Co., Ltd. chooses Xinjiang as its fermentation base because both the costs of coal and corn there are quite low.
CCM: As known, Xinjiang Uygur Autonomous Region (Xinjiang) is not a main production area of corn in China, why did Fufeng Group set its fermentation base in this region?
Chen: We choose Xinjiang because both the costs of coal and corn in Xinjiang are quite low. Fermentation products consume quantities of energy, coal in general. For example, the cost from corn and coal in the production of xanthan gum is about 35% and 50% respectively (Note: they were 39.5% and 31.4% respectively in H1 2012 as indicated in H1 2012 report of Fufeng Group). On the surface, Shandong is an ideal production base of xanthan gum as it is a main production province of corn in China where there are cities with ports, which makes it advantageous in the supply of raw material and transportation. But the market price of coal in Shandong is very high, about USD95/t on Oct. 17, 2012 while the ones in Xinjiang and Inner Mongolia are just about USD16/t and USD40/t respectively. The low cost of coal can absolutely make up the high transportation cost in Xinjiang and Inner Mongolia.
Besides, the market price of corn in Xinjiang is fairly low in China, at least lower than that in Shandong. But the output of corn in Xinjiang is not large. If we set up our monosodium glutamate (MSG) production lines (Fufeng Group owns 1,050,000 t/a capacity of MSG) in Xinjiang, the supply of corn will be insufficient, driving the market price of corn up. Then, we can get no profit. Thereby, we just produce highly value-added products that don't consume too much corn rather than conventional corn products.
What's more, companies in Xinjiang can enjoy more preferential policies than those in Shandong. For instance, Xinjiang Fufeng can enjoy 15% corporate income tax in Xinjiang while the tax rate is 25% in Shandong.
Content byte: The average unit cost of coal of Fufeng Group in major production bases, H1 2012-H2 2013
The average unit cost of coal of Fufeng Group in its major production bases, H1 2012-2H 2013
Source: Fufeng Group Co., Ltd.
Content byte: Fufeng Group Co., Ltd.'s business situation in 2012
According to the 2012 annual report of Fufeng Group, although its revenue got an increase from USD1.30 billion in 2011 to USD1.76 billion in 2012, its gross profit margin still declined to 14.7% in 2012 from 18.1% in 2011.
On one hand, the company's MSG and xanthan gum enjoyed a good performance in 2012. As the Hulunbuir plant was put into operation in 2012, the total production volume of the company's MSG increased by 49.1% compared with that in 2011, amounting to around 970,000 tonnes. Meanwhile, the sales volume of its MSG in also grew to 940,000 tonnes, up by 53.1% over 2011. As for xanthan gum, its sales volume in 2012 exceeded 52,000 tonnes, growing by 14% over 2011. Moreover, the average sales price of the product in the company increased by 12% year on year.
On the other hand, Fufeng Group adopted a low-price strategy in order to expand the market share of its MSG in China. As a result, the average sales price of MSG in Fufeng Group declined by about 10.6% compared with that in 2011. At the same time, the costs of raw materials such as corn increased in 2012. Thus, the overall gross profit margin in Fufeng Group decreased.
Content byte: Fufeng Group Co., Ltd.'s measures taken to cope with high production cost
Fufeng Group adopts some measures to cope with the pressure of high production cost in 2011. On one hand, the company launched liquid ammonia production lines with 100,000t/a capacity and sulphuric acid production lines with 50,000t/a capacity in its new production base in Hulunbuir City in Aug. 2011; both products are key raw materials of MSG. On the other hand, Fufeng Group plans to relocate its MSG production lines in Shandong Province to Inner Mongolia Autonomous Region in the future, where coal price is lower than that in other places. Mr. Li, an executive director of Fufeng Group, believed that Fufeng Group can enjoy lower cost and increase its competitiveness in the future.
Content byte: Fufeng Group Co., Ltd.'s cost advantage from raw materials in 2011
First, Fufeng Group has great cost advantage from raw material and fuel. The initial raw material for MSG production is corn, whose cost can cover 50% ~ 56% of the total production cost according to the financial reports. On the other hand, coal is the major fuel for MSG production and its cost can cover 8% ~ 11%. In order to gain much lower costs from corn and coal, since as early as 2004, the company has started to expand its production facilities from Shangdong Province to Shannxi Province and Inner Mongolia Autonomous Region, for there are very rich in coal and corn, and the costs from them can be cut enormously. These advantages can distinguish Fufeng Group clearly from other competitors. Among the top three MSG producers, besides Fufeng Group, only Meihua Group has one production base in Inner Mongolia Autonomous Region.
Content byte: Ex-works prices of Deosen Biochemical and Fufeng Group's xanthan gum (food-grade, 80 mesh), Jan.-11 Oct. 2014
Ex-works prices of Deosen Biochemical and Fufeng Group's xanthan gum (food-grade, 80 mesh), Jan.-11 Oct. 2014
Source: CCM
Content byte: Fufeng Group Co., Ltd. stopped selling threonine in the domestic market
Fufeng group stopped selling threonine in the domestic market
According to the recent research of CCM, Fufeng group's factories had suspended for selling threonine in domestic market in August 2014 because of the increasing amount of export orders. This caused domestic market's supply reduction again and further stimulated threonine's prices increase. As of 28 September, 2014, the mainstream quotation of threonine in domestic market has risen to 20-22 RMB/kg.
Content byte: Ex-works price of MSG from Fufeng Group Co., Ltd., Jan. 2013-10 Sept., 2014
Ex-works price of Fufeng Group's MSG, Jan. 2013-10 Sept., 2014
Source: CCM
Content byte: Ex-works price of xanthan gum from Fufeng Group Co., Ltd., June 2012-Dec. 2013
Ex-works price of xanthan gum from Fufeng Group Co., Ltd., June 2012-Dec. 2013
Source: CCM
Content byte: Ex-works price of Deosen Biochemical's and Fufeng Group's xanthan gum (food grade, 80mesh), Jan. 2013-June 2014
Ex-works prices of Deosen Biochemical's and Fufeng Group's xanthan gum (food grade, 80mesh), Jan. 2013-June 2014
Source: CCM
Content byte: Ex-works price of MSG from Fufeng Group Co., Ltd., Jan. 2013-May 2014
Ex-works price of China's MSG, Jan. 2013-May 2014
Source: CCM
Content byte: Ex-works price of MSG from Fufeng Group Co., Ltd., Jan.-Nov. 5, 2013
Ex-works price of MSG from Fufeng Group Co., Ltd., Jan.-Nov. 5, 2013
Source: CCM
Content byte: Sales volume and average price of Fufeng Group Co., Ltd.'s xanthan gum, H1 2011-H1 2013
Picture 1.3-1 Sales volume and average price of Fufeng Group's xanthan gum, H1 2011-H1 2013
Note: 1USD=6.17RMB
Source: Fufeng Group Co., Ltd.
Content byte: Ex-works price of Fufeng Group Co., Ltd.'s xanthan gum (food grade), June 2012-July 2013, USD/t
Ex-works price of Fufeng Group's xanthan gum (food grade), June 2012-July 2013, USD/t
Source: CCM
Content byte: Ex-works price of MSG from Fufeng Group Co., Ltd., June 2012-May 2013
Ex-works price of MSG from Fufeng Group, June 2012-May 2013
Source: CCM
Content byte: Ex-works price of xanthan gum from Fufeng Group Co., Ltd., June 2012-May 2013
Ex-works price of xanthan gum in Fufeng Group, June 2012-May 2013
Source: CCM
Content byte: Thanks to the low cost of coal in Xinjiang, Fufeng Group Co., Ltd. enjoys much lower costs of minority amino acids than other producers
Thanks to the low cost from coal in Xinjiang, which is a main production region of coal with the lowest market price of coal in China, Fufeng Group enjoys much lower costs of minority amino acids than other producers. According to Mr. Chen, the cost from coal even exceeds that from corn due to the high consumption of energy in the production of minority amino acids. He did not rule out the possibility that Fufeng Group might reduce their quotations further in the future if other producers cut down their prices too. Moreover, Fufeng Group thinks that the lower prices of minority amino acids can enlarge the consumption area of the products, thereby increasing domestic demand for its products. Because the high market prices of minority amino acids in China have limited their application before, Fufeng Group wants to explore the market potential of these products.
Content byte: The low-price strategy of Fufeng Group Co., Ltd. has decreased the market price of minority amino acids month by month
As a result, the low-price strategy of Fufeng Group has decreased the market price of these minority amino acids month by month. For example, the average market prices of isoleucine and valine in China were USD26,485/t (RMB165,000/t) and USD14,446/t (RMB90,000/t) in Nov. 2012 respectively. And they decreased to USD24,077/t (RMB150,000/t) and USD12,841/t (RMB80,000/t) in Dec. 2012, and got a further decrease to USD20,857/t (RMB130,000/t) and USD11,236/t (RMB70,000/t) in Feb. 2013. But the quotations from Fufeng Group were USD20,064/t (RMB125,000/t) and USD10,433/t (RMB65,000/t) for isoleucine and valine respectively in late Feb. 2013. Consequently, most domestic producers suffered a tough time. Some of them even have to undergo losses or fail to accomplish transactions. For example, the quotation of the isoleucine from Yichang Sanxia Pharmaceutical Co., Ltd., a major isoleucine producer in China with a capacity of 450t/a, was USD23,274/t (RMB145,000/t) in late Feb. 2013, already a rock-bottom price, making it impossible for the company to complete transactions with its buyers.
Content byte: Fufeng Group Co., Ltd. adopts aggressive low-price strategy towards minority amino acids market
The new production lines of minority amino acids in Xinjiang Fufeng Biotechnologies Co., Ltd. (Xinjiang Fufeng), a subsidiary company of Fufeng Group Co., Ltd. (Fufeng Group), came on stream in Dec. 2012. In order to win more market shares of minority amino acids (amino acids except for glutamic acid and lysine), Fufeng Group adopts a low-price strategy to appeal to new consumers–it offers apparently lower quotations of minority amino acids than most domestic producers. In general, the quotations of Fufeng Group's minority amino acids were about 10%-20% lower than other producers in the recent two months.
Content byte: Fufeng Group Co., Ltd. performs poorly in H1 2012
On 1 June 2012, Fufeng Group Co., Ltd. (Fufeng Group), the globally largest monosodium glutamate (MSG) producer with a capacity of 750,000t/a, published a profit warning that its net profit in H1 2012 may decrease obviously according to its financial data in the first four months of 2012 and its performance in May 2012. As a matter of fact, it is the low market price of MSG that is majorly responsible for the decreasing net profit of Fufeng Group. Fufeng Group has decreased it quotation of MSG to respond to the policy of restructuring MSG industry since H2 2011. But the restructure will last longer than Fufeng Group expected, making the company to suffer low price of MSG for a period.
Content byte: Average sales price of MSG from Fufeng Group Co., Ltd., 2010-2011
Average sales price of MSG in Fufeng Group, 2010-2011
Source: Announcement of Annual Results for the Year Ended 31 Dec. 2011 of Fufeng Group
Content byte: Fufeng Group Co., Ltd. adopts low-price strategy to sell xanthan gum for more market share
Fufeng Group also adopted low-price strategy in H1 2011 in order to increase its market share in xanthan gum industry. Its average price of xanthan gum during this period reduced by a year-on-year 7.2 % to USD2,902/t, while the production cost climbed by 45.2%. It's worthy to note that the price drop is majorly caused by the appreciation of the RMB against the US dollar this year, because Fufeng Group's xanthan gum is export-oriented with export revenue contributing about 88% to its total revenue; besides, Fufeng Group's FOB price in US dollar of xanthan gum didn't decrease, according to Mr. Li. The low-price strategy was rewarded: the sales volume of the company's xanthan gum witnessed a 12.8% increase in H1 2011 over H1 2010. It's believed that this uptrend of sales volume could last to H2 2011 thanks to the booming market demand.
Content byte: Power of product of Fufeng Group Co., Ltd. is stronger.
Power of product of Fufeng Group is stronger. MSG wholesale price of Fufeng Group is the lowest in domestic market currently. And Fufeng Group developed new brand “Uo-Xian” which would be used in high end seasoning market in 2009. In addition, Fufeng Group also develops various seasoning products such as chicken essence on the basis of MSG.
Content byte: The reason for Ajinomoto Group to cooperate with Fufeng Group Co., Ltd.
As for Ajinomoto Group, this cooperation also can benefit the company. More threonine product branded Ajinomoto will be supplied in China, which will facilitate Ajinomoto Group to grasp larger market share in China.
Besides, it's reported that Ajinomoto plans to pay more attention to Southeast Asia and China market in future, and also plans to invest USD560 million in the overseas merger and acquisition in order to expand its offshore businesses. This cooperation with Fufeng Group may be one step in this strategy. Besides, the increase of threonine price in China may also be one of the reasons.
It's predicted that the price of threonine in China will increase this year. The demand increase of threonine in China and its uptrend manufacturing cost contribute to the uptrend of domestic threonine price. Currently, its price climbed to USD2,628/t on March 15th 2011 from USD2,462/t on Feb. 16th 2011, up 7%.
Content byte: Revenue from Fufeng Group Co., Ltd.'s high-end amino acids increases in H1 2014
On 19 Aug., 2014, an interim earnings announcement of 2014 released by Fufeng Group Co., Ltd. (Fufeng Group), demonstrated that the revenues from the company's high-end amino acid products amounted to USD23.7 million with a YoY increase of 56%. Its high-end amino acid products include valine, leucine, isoleucine, glutamine and hyaluronic acid, etc.
An increase in high-end amino acid products' revenues was driven by the rising sales volume. According to the report, in H1 2014, the sales volume of high-end amino acid products reached 1,824 tonnes, accounting for 76% of the products' total sales in 2013. By the end of 2013, the capacity of its high-end amino acid was about 4,000 t/a; and by the end of June 2014, its capacity was increased to 5,000 t/a.
Fufeng Group's high-end amino acid products are capable of generating high gross profit margin, which made a contribution to an increase in the company's gross profit and gross profit margin in H1 2014. However, Fufeng Group's two major businesses, namely MSG and xanthan gum, witnessed a fall in gross profit, due to the selling price fall in H1 2014. Thanks to the rising revenues of high-end amino acid products and implementing effective cost control, Fufeng Group's gross margin increase by 11% and gross profit margin had an increase of two percentage points over H1 2013.
Through the cooperation with Jiangsu Shenhua Pharmaceutical Co., Ltd. (Shenhua Pharmaceutical), the high-end amino acid products were mainly sold to overseas health-care and pharmaceutical enterprises. Shenhua Pharmaceutical, a wholly-owned pharmaceutical enterprise of Fufeng Group, is engaged in the R&D, production and sales of a series of products, such as raw material medicine, preparation and food additives.
Content byte: Revenue and sales volume of Fufeng Group Co., Ltd.'s high-end amino acids, H1 2014
Revenue and sales volume of Fufeng Group's high-end amino acids, H1 2014
| Item | H1 2014 | H1 2013 | H2 2013 | H1 2012 | H2 2012 |
|---|
|
Revenue, million USD | 23.7 | 15.2 | 19.0 | 7.0 | 6.9 |
|
Sales volume, tonne | 1,824 | 2,406 | N/A |
Source: Fufeng Group Co., Ltd.
Content byte: Fufeng Group Co., Ltd. to face challenges for its MSG sales in 2011
Challenges
It is quite reasonable to predict that Fufeng Group, the largest glutamic acid producer in the world, will probably become one of the top MSG producers in the future. However, it should be noticed that MSG, unlike glutamic acid, is a kind of end-use and fast-moving consumer goods rather than chemical raw material. Facing public consumers, Fufeng Group is expected to put much more weight on its brand establishment and promotion at home and abroad in the future. After all, compared with the other two global MSG magnets, Ajinomoto Group (Japan) and Meihua Group (China), who enjoy great brand recognition globally, it is expected that Fufeng Group will have to promote its brand with intense competition.
Content byte: Fufeng Group Co., Ltd.'s gross profit grows significantly in 2013
On 18 March, 2014, Fufeng Group Co., Ltd. (Fufeng Group) released its 2013 annual report. The report shows the company's revenue grew by 2.3% year on year in 2013, achieving continuous growth in revenue for seven years (since 2007) with a compound annual growth rate of 29.2%. Moreover, gross profits increased sharply in 2013, with 28.2% year-on-year growth rate, as the xanthan gum business became a key profit pillar of the company.
In 2013, affected by a weak demand for xanthan gum and low import prices of guar gum (a substitute of xanthan gum), the domestic xanthan gum market was in the doldrums. Even in this scenario, Fufeng Group's xanthan gum witnessed YoY increase of 72.7% in gross profit in 2013. The growth was driven by a rise in both sales volume and average sales prices, of 23.8% and 10.1% year-on-year growth rate respectively. Most of Fufeng Group's xanthan gum are sold to overseas markets. In May 2013, the US Department of Commerce imposed dumping margins ranging from 15.09% to 154.07% on Chinese xanthan gum, leading to a raise in Fufeng Group's xanthan gum export prices. Furthermore, increasing demand for xanthan gum from the oil and gas drilling industry helped Fufeng Group's xanthan gum exports reach USD213.3 million in 2013, up 42.4% YoY. Fufeng Group produces food-grade and industrial-grade xanthan gum, and is one of the world's largest producers.
In addition, Fufeng Group's high-end amino acids business, which includes valine, leucine, isoleucine and glutamine, also performed well in 2013, selling approximately 2,406 tonnes and realizing revenue of 146.0% year-on-year growth rate. High-end amino acid products, mainly used in health care products and pharmaceuticals, are very profitable.
Content byte: Business structure of Fufeng Group Co., Ltd.
Business structure
Fufeng Group's core businesses are monosodium glutamate segment and xanthan gum segment. The revenue of its monosodium glutamate segment was USD1.60 billion in 2013, accounting for 87.21% of the total revenue of the company's core businesses, down 1.30% YoY because of the falling ASP. However, at the same time, its sales volume increased to 1.00 million tonnes in 2013, up 6.30% YoY as a result of the increasing capacity and competitive price strategy.
The company's main products in the monosodium glutamate segment are monosodium glutamate, glutamic acid, fertilizer, refined corn products, threonine & lysine, high-grade amino acid products and others. Monosodium glutamate was mainly used as food additives and its revenue was USD1.02 billion in 2013, occupying 63.79% of the total of monosodium glutamate segment. Threonine and lysine products were mainly used as animal feed additives, and their revenue reached USD56.50 million in 2013, occupying 3.53% of the total of monosodium glutamate segment. The high-grade amino acid of Fufeng Group mainly focused on healthcare and pharmaceuticals industry and it achieved a revenue of USD34.14 million in the same year.