On 11 Dec., 2015, Fufeng Group officially launched a 100,000 t/a second-phase threonine project. CCM analyzed that the major reasons for Fufeng's strategy were increasing profit of threonine and industrial competition pressure. Therefore, the market pattern in China's threonine industry will take on a new form in 2016.
On 11 Dec., 2015, Hulunbeier Northeast Fufeng Biotechnologies Co., Ltd., a subsidiary of Fufeng Group Co., Ltd. (Fufeng Group) officially put a 100,000 t/a second-phase threonine project in production. It will manufacture threonine in a week. The second-phase threonine project had been constructed since 14 April. The first-phase project (capacity: 70,000 t/a) stared in April 2010 and completed in Aug. 2011.
Notably, the main rival of Fufeng Group is Meihua Holdings Group Co., Ltd. (Meihua Bio), which had officially completed a 80,000 t/a threonine technological innovation project on 17 Nov (based on its existing threonine project). The construction lasted for near two years. After that, the total capacity is 140,000 t/a, and the productivity is improved.
Fufeng Group noted that it intended to expand threonine production capacity to satisfy increasing market demand and enlarge its market shate, since 2014 saw a robust growth in its threonine business. In 2014, Fufeng Group sold 54,992 tonnes of threonine, up by 50.2% from 36,613 tonnes in 2013.
Performance of Fufeng Group, Jan. 2009-Sept. 2015
Source: Fufeng Group Co., Ltd.
CCM analyzed that the following two reasons contributed to production expansion in Fufeng Group.
High profitability in threonine
Firstly, the gross profit of threonine is on the rise in recent years. According to Meihua Bio's financial report of H1 2015, threonine gross profit was about 18%, up by 5 percentage points year on year.
Secondly, from Q1-Q3 2015, the average market price of 99% feed grade threonine was USD2,143.55/t (RMB13,56.95/t), 10.13% rise compared to USD1,946.44/t (RMB12,292.16/t) in the same period of previous year. According to Fufeng Group's annual report of 2014, the average sales price of threonine was USD1,608.96/t (RMB10,293/t), 15.2% increase from USD1,396.68/t (RMB8,935/t) in 2013.
Thirdly, both Fufeng Group and its main rival-Meihua Bio, located in Inner Mongolia, get preferential enterprise income tax rate of 15%. Thanks to production rising, Fufeng Group's production cost is expected to be lowered. Therefore, it will have stronger pricing power over Meihua Bio.
Pressured by the industrial competition
Fufeng Group's position is challenged and its competitiveness is weakened, as Meihua bio completed a 80,000 t/a threonine technical innovation project. Under such circumstances, Fufeng Group put the second-phase threonine project (capacity: 100,000 t/a) into operation in Dec. Its capacity exceeded Meihua Biothe and becomes the top enterprise in China's threonine industry.
Although China's threonine market is undergoing overcapacity, the market shares are mainly controlled by three leaders: Meihua Bio, Fufeng Group and Ningxia EPPEN Biotech Co., Ltd. Leading enterprises have pricing power.
In 2014, the domestic threonine capacity was 570,000 t/a and the output was 280,000 tonnes, according to CCM investigation. It can be calculated that the average operating rate was only 49%. The whole industry is suffering from serious overcapacity. However, leaders reported satisfactory sales performance:
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Fufeng Group: sold 55,000 tonnes in 2014 when its threonine capacity was 70,000 t/a
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Meihua Bio: sold 138,000 tonnes in 2014 when its threonine capacity was 140,000 t/a
It is reasonable that Fufeng Group still expanded threonine capacity under the overcapacity situation.
In 2016, the competitive situation in China's threonine industry will be changed, and the industrial concentration will be lifted. The threonine capacity from Fufeng Group and Meihua Bio will account for 46.27% of the national total in next year, up by around 10 percentage points from 36.84% in this year.
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About CCM:
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Tag: threonine Fufeng Group