Hong Kong, April 22 - Fufeng Group Ltd, China's top producer of glutamic acid which is used in food additive MSG, expects a strong rebound in its 2008 net profit as Beijing shuts small makers of the raw material in a bid to stabilise domestic prices of corn, which is used to make MSG.
Chief Financial Officer Henley Gong told Reuters late on Monday that Fufeng expected its 2008 earnings to recover to 60-70 percent of 240 million yuan earned two years ago after an 81 percent slide in 2007 net profit.
"Don't expect too much in the first half, but the second half will be much better, " he said.
In the first sign of a recovery in the sector, prices for glutamic acid had rebounded strongly this month, President Li Xuechun said.
Beijing was closing down small glutamic acid makers, which together have an annual capacity of about 520,000 tonnes, by the end of this year, Li said. China had a total capacity of 2.5 million tonnes last year.
Alarmed by high corn prices in China, Beijing scrapped tax rebates for exports of monosodium glutamate (MSG) last year and imposed a series of other measures to curb a rapidly expanding corn processing industry to whittle down demand for the grain.
Gong said Fufeng would convert all of its glutamic acid into MSG itself by the first half of 2009, instead of supplying to other MSG producers.
Last year, Fufeng was hit by an oversupply of MSG and high production costs, including surging corn prices, due in part to rapid expansion, including in the biofuel sector.
The company's shares have lost about 80 percent to HK$0.59 since its debut in February last year as its profits shrivelled.
INNER MONGOLIA
Fufeng, which has its headquarters in the coastal province of Shandong, processes about 1 million tonnes of corn each year into various products, including fertiliser.
It is shifting its focus more to higher-end products, produced from fermenting corn, like xanthan gum -- an additive used for thickening food such as sauce or salad dressing.
The company's xanthan gum capacity at its new plant in Hohhot will reach 28,000 tonnes in the first half of next year, up from 10,000 tonnes now, Li said.
Last year, it built the the plant in Inner Mongolia, one of China's top coal and corn producing provinces.
It could cash in on the location as energy costs accounted for about 50 percent of xanthan gum production costs, Li said. Beijing was also promoting exports of xanthan gum, despite its clampdown on exports of corn and its products, such as starch.
Fufeng exports 90 percent of its xanthan gum and hopes to expand its share to as much as 25-30 percent in its global market, estimated at about 90,000-93,000 tonnes per year.
Asked about corn prices, which hit record highs this year, Li said: "We don't see a significant decrease this year. But this is not an issue for our company as we are a supplier of highly processed products."
He also said that unlike in other provinces, corn acreage in Inner Mongolia had been on the increase as farmers planted more grain on former grassland.