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FEATURE: Chinese MSG Giant Fufeng to Double Production Capacity by 2012


15 June 2010 - Earlier this year, the world's largest producer of monosodium glutamate (MSG) announced record high results with a 2009 annual revenue increase of about 29.2% at RMB 4.6 billion and a 215% net profit growth at RMB 928.3 million.

With a 25% share of the Chinese MSG market, and a workforce of 2,200, Fufeng Group is simply seeking to strengthen its presence domestically and on the international stage.

“Fufeng Group Limited is a leading corn-based biochemical products manufacturer in the PRC and aims to become the leading corn-based biochemical products manufacturer in the world”, states Gong Qingli, who is the Chief Financial Officer of the company.

The company has embarked on a large expansion plan as it seeks to invest between RMB 2.2-2.4 billion (about USD 330 million) to double its production capacity by 2012.

Fufeng, which had previously increased its MSG output 92.9% from 280,000 tonnes in 2008 to 540,000 tonnes in 2009, plans to increase its production capacity to 1 million metric tonnes by 2012.  MSG production already accounts for about 90% of the company's revenue.

The significant increase in production capacity of MSG in 2009 was enabled thanks to the construction of a new MSG production line of 150,000 tonnes per year at its Inner-Mongolia plant, which commenced production in November 2009. Production capacity also increased last year as the firm managed to complete a re-engineering of its MSG production process.

“In addition, the company has started the construction of a 4th plant in North East China which is planned to have a 200,000 tonne capacity for MSG, 160,000 tonnes of glutamic acid, 200,000 tonnes of fertilizer products and 100,000 tonnes of synthetic ammonia. The construction of the plant should be complete by mid-2011”, Gong told FLEXNEWS.

Fufeng existing production facilities are located in Shandong, Baoji and Inner Mongolia.

In 2009, the company’s profit generated from MSG sales rose mainly due to the increase in average selling prices and sales volume. In 2010, Fufeng said it will continue to closely monitor the price trend for its products, its raw materials, and will decide on its pricing strategy accordingly.

Fufeng's net profit growth of 215% last year was triggered by the sharp rise in MSG prices in Q4 as the Chinese government's efforts to shut down smaller and less efficient corn processing manufacturers reduced supply, while widespread concerns about inflation led to stockpiling of MSG. According to some reports, MSG prices peaked around RMB 13,000 a tonne in November 2009.

“Management considered that the high MSG prices in Q4 2009 were abnormal. This was due to news about the imbalanced supply and demand in the market”, argued the CFO.

“The MSG prices have returned to reasonable levels in Q1 2010, similar to those of Q3 2009”, he added.

Chinese corn prices, however, which account for half of Fufeng's production costs, have risen in recent months and could negatively affect the company. Although Fufeng processes more than 1 million tonnes of corn each year, Gong is not worried.

“Yes, the corn price has increased in the first half of 2010 but our product prices are matched with this trend. In addition, the company is in a leading position of the market. Part of the increasing cost can be transferred to customers. Our strategy is to strengthen our market leadership to lead the market price of our products. In addition, we can strengthen the competitive cost advantage based on the expansion of our production capacity in Inner-Mongolia and in North East China. We are always seeking to keep the gross profit margin stable and expand our market share”.

“The MSG and Xanthan Gum industries are highly consolidated now. The top two MSG players have more than a 50% market share. The top two XG players have over 60%. With these large market shares, Fufeng is able to pass on the risk”, added the CFO.

As a result, Gong argues that the Chinese government’s recent decision to allow imports of corn from the US to cater for domestic demand will not impact Fufeng.

Xanthan Gum and New Products

Due to its exporting nature and high coherence with the oil market, the company’s other segment “xanthan gum” was heavily hit by the global financial crisis and the failing oil prices last year. However, Fufeng has seen the market demand for xanthan gum recover since the end of 2009 as the global market economy is growing.

The company is also hoping to take advantage of its cost effectively in its Inner-Mongolia plant and capture additional market share. As his company has become one of the leading xanthan gum manufacturers in the world, Gong believes it will have a better control on its xanthan gum selling price and profit margin.

Besides, Fufeng is close to completing a 12,000 tonne production line for xanthan gum in its Inner-Mongolia plant and aims to produce up to 44,000 tonnes of the product this year, 38% more than in 2009.

In addition to xanthan gum, Fufeng will commercialise food grade threonine this month as it is finishing trial production at its Inner-Mongolia plant, where it aims to produce 5,000 tonnes per year.

Furthermore, the company launched a new 1,000-tonne-per-annum production line for a series of new amino acid products at its Shandong plant where it began the production of valine, leucine and isoleucine in March.

Fufeng also invested in a new 5,000 tonne production line for fructose also at its Inner-Mongolia facility, which is expected to commence production in August.

Finally, the firm launched new production lines in 2010 for some of its pharmaceutical products: corn oil (35,000 tonnes) and chicken powder (10,000 tonnes).

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