Thursday, October 10, 2013

Two domestic erythritol producers have contradicting erythritol sales performance in H1 2013

According to CCM’s latest newsletter, Sweeteners China News 1310, Two Chinese erythritol producers, namely Baolingbao Biology Co., Ltd. (Baolingbao, whose production capacity of erythritol is 4,000t/a in China) and Shandong Binzhou Sanyuan Biotechnology Co., Ltd. (Binzhou Sanyuan, production capacity of erythritol is 5,000t/a in 2013), showed contradicting performance in erythritol sales in H1 2013. It is worth mentioning that Baolingbao is a leading functional sugar producer in China having several functional sugar products, while the erythritol business of Binzhou Sanyuan's contributed the total revenue for the company.

Data from the 2013 semi-annual report of Baolingbao revealed that its erythritol business performed poorly in H1 2013. The gross profit of Baolingbao's erythritol reached as high as USD0.81 million in H1 2012, but it decreased by 71% YoY to USD0.23 million in H1 2013. Baolingbao expressed that the poor performance of its erythritol was mainly attributed to the negative effect of the RMB appreciation and the demand decrease from several foreign countries. The appreciation of RMB caused the lower RMB export price (relative to the fixed dollar price for erythritol), reducing the gross profit margin. The gross profit margin of the company's sugar alcohol business decreased to 7.66% in H1 2013 from 15.87% in H1 2012. Besides, Baolingbao also indicated that some political factors caused decreases in its export volume. For example, the export volume to Japan and Philippines decreased in H1 2013 compared to H1 2012, due to the political disputes between China and these two countries.

Baolingbao could not explain well the poorer sales performance of its erythritol in comparison to that of Binzhou Sanyuan's. According to the 2013 semi-annual report of Binzhou Sanyuan, the revenue of the company's erythritol increased to USD1.37 million in H1 2013, with a YoY up of 36.10%. Binzhou Sanyuan was honest to express that the RMB appreciation also brought negative effects on its product's export price in H1 2013 but the company focused on cost reduction and product quality. For example, the company actively established a cooperation with the well known Chinese research institutions to improve its R&D ability and hence its revenue growth. The year-on-year increase rate of erythritol's cost of sales in H1 2013 was just 16.93%, far lower than the one of its revenue at the same time. And the gross profit margin of erythritol of Binzhou Sanyuan also increased to 17.89% in H1 2013.

It is crucial that Baolingbao invest in the R&D in line with Binzhou Sanyuan. As a producer exclusively engaging in the production of erythritol, Binzhou Sanyuan devotes its energy to the research and sales of its erythritol. On the contrary, due to its diverse product range, Baolingbao cannot focus entirely on erythritol's sales. As a result, under the adverse conditions such as the RMB appreciation in H1 2013, Binzhou Sanyuan could depend on product's high quality to attract more downstream customers from overseas market, enjoying more profit compared to the same period of 2012.
For domestic erythritol producers, the objective conditions are the same. Subjective factors, such as more investment in quality improvement and market exploration, will become the determinants to obtain good performance, especially under the bad objective conditions. As an export-oriented industry, the export volume of China's erythritol decreased sharply, from over 2,800 tonnes in the first five months of 2012 to just about 1,900 tonnes in the same period of 2013. Under the negative export conditions, domestic erythritol producers should have a positive attitude to solve their problems.

Table of Contents of Sweeteners China News 1310:
H1 2013 still tough for domestic crystalline glucose industry
Starch sugar producers selling more corn starch threatens domestic corn starch industry
Functional oligosaccharide business of three oligosaccharide giants: challenges hidden behind good performance
Two domestic erythritol producers have contradicting erythritol sales performance in H1 2013
Guilin Layn turns loss into gain in H1 2013
PureCircle: sales performance good while suffering continous losses in FY2013
Export overview of some sweeteners and raw materials in China, August 2013
YoY growth rate of export volume of China's sucralose drops sharply in H1 2013
China's aspartame export not as optimistic as it showed under independent HS code
China's mannitol export: both volume and price increase in Jan. -Aug. 2013
International and domestic factors together impact China's sucrose price in Q4 2013
Ex-factory prices of sweeteners in China in September 2013
Wanfu Biotechnology continues to suffer losses in H1 2013
Zhaoqing Coruscate's starch syrup project starts to build in Sept. 2013
Guangxi government introduces policies to promote health development of its sucrose industry

Sweeteners China News, issued by CCM on 5th every month, offers timely update and close follow-up of market and company dynamics based on China’s sweeteners industry. It also releases the latest information on raw material supply, price update, import & export analysis as well as consumption trend & competitiveness.

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