Haike Chemical Group Regulatory News (HAIK)

20 Jun 2008 11:23



HaiKe Chemical Group Ltd.

Trading Update

HaiKe Chemical Group Ltd ("HaiKe" or the "Company"), the AIM quoted (AIM: HAIK) petrochemical, speciality chemical and biochemical business based in China, is pleased to provide an update on current trading.

HaiKe notes and welcomes the announcement by the PRC National Development and Reform Commission ("NDRC") on 19 June 2008, stating that the Chinese Government has increased the guideline selling prices for certain refined petrochemical products from 20 June 2008.

The guideline selling prices of gasoline and diesel will be increased by RMB 1,000 per ton to RMB 6,980 and RMB 6,520 respectively and will come into effect on 20 June 2008. The incremental increase is approximately 17-18% and is designed to improve the pricing mechanism within the PRC to match that of the international markets. It will also ensure the supply of domestic product oil and promote economical use of petroleum resources in China. 

During the first quarter of 2008 the Company continued to experience challenging market conditions within the petrochemical sector. Crude oil prices continued to rise significantly across the globe, impacting on the overall petrochemical margins and profit. Notwithstanding these market conditions, the Company delivered a strong performance. The new 800,000 metric tonne heavy oil catalytic cracking facility enabled the Company to focus on producing higher margin products, which predominantly use residual oil and petrolatum oil feedstock, the prices of which are considerably less volatile than crude oil. Additionally, the Company increased its weighting on the speciality chemical side of the business, which performed particularly well during the period. 

This latest increase in the guideline selling prices of certain refined petrochemical products will enhance the Company's ability to generate further revenue and profits going forward, helping to offset the reduction in petrochemical margins and profit. 

As mentioned in the Q1 results, released earlier this morning, the Company continues to focus on the speciality chemical sector, which is now the largest contributor to profit. The testing phase of the new dimethyl carbonate and caustic soda expansion projects is underway and it is anticipated that this will be completed by July 2008. These facilities are expected to increase the Company's percentage of sales coming from the speciality chemical business and increase the proportion of sales coming from high-margin products. Demand for speciality chemical products continues to be strong and the Board expects that the new facilities will generate significant revenue and profit for the Company.

Biochemical trading has recovered following the temporary restriction on the export of heparin-based products imposed by the Chinese government in February 2008. Following the lifting of this restriction in April 2008, and with the Company having passed all quality assurance testing, several new orders have been won and the Board remains confident on the outlook for our biochemical business. 

Mr. Yang Xiaohong, Executive Chairman, said:

"Our first quarter results clearly reflected the challenging market conditions within the petrochemical sector. We therefore strongly welcome this latest announcement by the NDRC and believe it will have a positive impact, improving margins and profit for both the petrochemical business and the Company as a whole. HaiKe is in an extremely strong position, having constructed the new 800,000 metric tonne heavy oil catalytic cracking facility, to benefit from these increases in selling prices, and with production now more focused on the higher margin products, we expect to see growth in revenue and profit going forward.

Trading for our speciality chemical and biochemical businesses remains encouraging and again, we are concentrating our efforts on the production of the higher-margin products.  We look forward to being able to increase production of our speciality chemical products in order to help meet the growing demand of this market. We are confident of significant revenue and profit growth from this side of our business going forward. 

Demand for our biochemical products continues to be high following the removal of the Chinese government's temporary restriction on the export of heparin-based products, and we believe this is a reflection of our clients' confidence in our ability to provide high quality products and a high quality service."

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