Zhejiang Longsheng: dyestuff giant striving for bigger and stronger.

Zhejiang Longsheng Group Co., Ltd. is the biggest dyestuff producer in China and also the only listed company in the dyestuff sector. Its products are mainly used in the textile printing/dyeing sector. The output and the sales amount of dyestuffs in the company have held the first place in China for several consecutive years. The output of disperse dyes holds the first place in the world and occupies a domestic market share of around 40%. The output of reactive dyes holds the first place in China and occupies a domestic market share of around 20%.

Bright development prospect

The dyestuff sector is a traditional chemical sector. After the shift from the United States to West Europe in the 1950s, the dyestuff production started the second shift at the end of 20th century from West Europe to developing countries in Asia with China as the lead. This trend is still going on today. China has become the biggest dyestuff producer in the world and the total output of dyestuffs reached 540 000 tons in 2003, accounting for more than a half of the world total. The strong position of the domestic textile sector in the world has also laid a solid market foundation for the development of the dyestuff sector. The total elimination of textile quotas on Jan. 1, 2005 will surely promote the demand of dyestuffs and further upgrade the value of the domestic dyestuff sector.

What should be noted is that the technical mainstream based on the improvement of traditional products in the world conforms to the features of small research input, weak basic research and strong application research and imitation ability in Chinese enterprises. Unlike other chemical sectors, the dyestuff sector in China can bypass technical barriers and make rapid developments.

Strong cost shift ability

In the production cost of dyestuffs in domestic enterprises, the cost of raw materials accounts for more than 80%. There are numerous raw materials in the dyestuff production. Benzene, naphthalene and their derivatives are major varieties. The price of pure benzene has made a drastic increase this year, but it did not produce a great pressure on the production cost in Zhejiang Longsheng. 0.2 tons of pure benzene is needed for 1.0 ton of dyestuff. According to the performance of the company in 2003, suppose the average price of pure benzene is RMB5 000 per ton, the cost of pure benzene only accounts for 9% of the total production cost.

As a leading dyestuff producer, Zhejiang Longsheng occupies a very high market share and therefore has a strong ability in pricing. It can use the means of price rise to shift the production cost and guarantee a reasonable profit space. In the printing/dyeing business, the purchase of grey fabric usually accounts for around 90% of the total production cost. Dyestuffs only hold a very small proportion in the total production cost and downstream enterprises can therefore accept the price rise of dyestuffs. Zhejiang Longsheng has the ability to keep the channels of shifting the production cost to downstream enterprises smoothly open and use the means of price rise to withstand the impacts from the price rise of raw materials and the increasing expenses in environmental protection.

Main business forging further ahead

Disperse dyes--striving for "stronger" : In 1993 when Zhejiang Longsheng was just involved in the dyestuff sector, the focus was laid on disperse dyes. The capacity of disperse dyes in the company holds the first place in the world today and occupies a domestic market share of over 40%. As the company already holds the monopoly position in the disperse dye market, it is no longer practical to continue to make a rapid growth. The target fixed by the company is therefore shifted to making the disperse dye production "stronger" . The rapid expansion of the output is no longer the priority. Efforts will be made to improve product structure, strengthen after-sale service, increase product added value, reduce raw material cost, fully use market control ability and maximize profit, m-Phenylenediamine is one of the main raw materials for disperse dyes. The m-phenylenediamine unit completed by the company in 2004 can reduce the raw material cost and greatly increase the product gross profit margin.

Reactive dyes--striving for "bigger" : Compared with disperse dyes, the reactive dye production in the company started a little late. The company adopted the competition strategy of "exchanging price for market" to reactive dyes and the gross profit margin therefore presented a trend of decline. After several years' rapid development, reactive dyes have become an important profit source for the company today and the gross profit margin accounts for around 13% of the total. The output of reactive dyes in the company holds the first place in China and occupies a domestic market share of nearly 20%. There is however still no monopoly position as with disperse dyes. The 5 100 t/a blue chromatogram disperse dye project, the 4 900 t/a red chromatogram disperse dye project and the 5 000 t/a yellow, orange and black chromatogram disperse dye project launched by the company through financing will be completed and put on stream in the first half of 2005. These projects will become an important support for the growth of the reactive dye business.

Chemical intermediates--bright prospect: After the company acquired the monopoly position in the dyestuff market, it has started to expand to the chemical intermediate business by using its own technologies and projects. The company has used funds raised to launch an m-phenylenediamine project. A solid step has therefore been taken towards a comprehensive chemical enterprise. After the completion of the project, besides the use in its own dyestuff production (The company had to purchase m-phenylenediamine in the past.), the product can also be sold in the market. While benefiting from the growth of the dyestuff business, the company will also be able to reap profits from the comprehensive chemical business.

The company will continue to implement the strategy of "striving for bigger and stronger" in the dyestuff business. The revenue from the dyestuff business will further increase and the strong ability in pricing will also help achieve a slight increase of the gross profit margin. The m-phenylenediamine project starting production soon will contribute to revenue increase and cost reduction and become a new profit growth point for the company.