Source: Baidu

Under the backdrop of short sucralose supply and increasing product price, Anhui Jinhe's capacity expansion will help it maintain high profitability.

Since May 2016, the price of sucralose has stayed high in China. Specifically, according to CCM's price monitoring, the national average ex-works price of the product reached USD83,104/t (RMB555,000/t) this Sept., a 107.86% increase over the January 2016 figure.

The high price is chiefly backed by a shortage of the product's market supply. Facing ever stricter official supervision over waste treatment in production, sucralose producers in China have generally reduced their output, leading to drop in overall supply. Moreover, JK Sucralose Inc. (JK Sucralose), the largest manufacturer of the product in China, started to idle its production line from late July this year due to environmental problems found in waste treatment equipment of its sucralose production facilities, further intensifying the tight supply.

In addition, the highly profitable sucralose would be supportive to Anhui Jinhe's overall profitability.

As shown in the 2016 semi-annual report of the company, gross margin of its sucralose business reached as high as 26.83% in the past half of 2016. Although this business segment just accounted for a mere 1.28% of its revenue during the said time period, when the company realised the above-mentioned capacity increase, it can benefit more from it. Estimation of the gross profit of 1,000 tonnes of sucralose sold additionally made by sources from the securities market is more than USD22.39 million (RMB150 million) on the condition that the product price could remain stable.

Monthly ex-works price of sucralose in China, Jan.-Sept. 2016

Source: CCM

Increasing its sucralose capacity is just one of the moves of Anhui Jinhe to ensure its profitability.

On 20 Sept., 2016, the company disclosed plans to initiate production and sales of six products including food flavoring, compound food additives, hydrochloric acid, formic acid, neopentyl glycol and sodium sulfate, which are mostly fine chemicals. The 2016 semi-annual report of the company shows that the average gross margin of its fine chemicals was as high as 38.77% in the first half of 2016.

What's more, the company's international trading business keeps growing. To avoid possible impact on its operating performance caused by the large fluctuations of exchange rate, Anhui Jinhe decided on 21 Sept., 2016 that the company and its holding subsidiaries would start foreign exchange hedging in bank with investment no more than USD100 million or in any other foreign currency with equivalent value.

So far, acesulfame-K (ace-K) is an important contributor to help maintain Anhui Jinhe's profitability.

In the past months of 2016, the price of ace-K has been rising because of the short supply and price hike of diketene (DK), key raw material of the product. In detail, the national average ex-works price of ace-K was USD7,337/t (RMB49,000/t) in Sept., increasing by 32.54% over Jan. this year.

It's predicted that supply of DK would remain tight, and ace-K's price would therefore stay high in the rest months of 2016. Having enlarged its capacity of ace-K from previous 9,000 t/a to 12,000 t/a in the first half of 2016, Anhui Jinhe would continue to profit from this.

Gross margins of Anhui Jinhe's major products, H1 2016

Anhui Jinhe still faces uncertainties in its future operation.

In the domestic sucralose market, the company is confronted with competition from not only JK Sucralose but also other rivals including Unisweet (Shandong) Sucralose Manufacturing Co., Ltd., Changzhou Niutang Chemical Plant Co., Ltd. and Ji'an New Trend Technology Co., Ltd., which are all leading sucralose manufacturers and have captured certain market shares. CCM reckoned that improving product quality is also important to Anhui Jinhe besides capacity expansion if it wants to effectively increase its market share and profits.

This article comes from Sweeteners China News 1610, CCM

About CCM:

CCM is the leading market intelligence provider for China’s agriculture, chemicals, food & ingredients and life science markets. Founded in 2001, CCM offers a range of data and content solutions, from price and trade data to industry newsletters and customized market research reports. Our clients include Monsanto, DuPont, Shell, Bayer, and Syngenta. CCM is a brand of Kcomber Inc.

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Tag: sucralose  sweeteners

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