By Nina Ying Sun
PLASTICS NEWS STAFF
“…the future lies on … sustainable products, …. such as bio-based resins.”
After three years of research and development, Kingfa is now in the early stage of commercializing its polybutylenes succinate (PBS) and polylactic acid-based compounds. The company has established a production facility capable of making 3,000-5,000 metric tons of PLA compounds annually, based on lactic acid purchased domestically. Similar scale capacity is also set up for PBS, Cai said.
Cai
DÜSSELDORF, GERMANY (November 13, 2007) — Guangzhou Kingfa Sci & Tech Co. Ltd. no longer is satisfied with its leading position in the Chinese compounding industry.The publicly held company is determined to build a world-class brand name and highlighted its global vision at K 2007, its first international trade show.
Chief Marketing Officer Cai Lizhi said the company is mulling manufacturing facilities overseas, with possible sites in Mexico, the United States or Canada, and Europe.
No definite timetable was available, but the 14-year-old compounder with 500,000 metric tons of annual capacity in China expects to start overseas production in three years.
Kingfa seems to be in a good position to extend its foothold from the Far East to the global market. Sales have been growing more than 30 percent annually for the past three years, reaching $703 million (5.6 billion yuan) in 2006, and are projected to reach $933 million (6.94 billion yuan) for fiscal 2007.
The company operates sales offices in El Paso, Texas; San Diego, California; Detroit, Michigan; Toronto, Canada; Tokyo; Kuala Lumpur, Malaysia; and Moscow, although 95 percent of business remains in China.
“Europe and the Americas are indispensible markets,” Cai said in an interview at K 2007, held October 24-31 in Düsseldorf, “We need production facilities on the ground to convince our customers.”
He said Kingfa is doing business with many multinational companies in China, and he hopes to extend the supplier relationship to these customers’ operations outside China.
The company is setting up an overseas sales department to focus on exports, according to Cai.
While U.S. compounders PolyOne Corp. and A. Schulman Inc. have been posting single-digit profit margins, Kingfa’s financial reports show the company’s gross margin hit 12.5 percent in 2006, nearly 2.2 points up from the previous year.
Whether Kingfa will be able to ensure the profitability of manufacturing in North America or Europe, Cai said the determinant factor is market scale.
“If annual volume exceeds 30,000-50,000 metric tons for the location, it’ll make good economic sense for us to open a plant there.” He said the company’s sales volume in the target regions are already close to that range.
Even without local production, Cai said additional cost for overseas market is bearable. “Freight and tariff add about $100 [744 yuan] to the cost per metric ton for exports.”
The different packaging practices in different market — rail cars in the States versus sacks in China — are less of a problem than some assume. Cai said his company ships large sacks that fits up to one metric tons of compound in one.
Kingfa claims to be one of the five largest compounders worldwide, measured by capacity. It has large-scale production bases in Guangzhou, Shanghai and Mianyang, Sichuan province.
Cai forecasted the company will top $2 billion (14.9 billion yuan) in sales in 2010, narrowing the gap between Kingfa and global leaders.
That requires the company to improve product mix and raise margins, Cai said.
“We can’t be competitive in the global market with commodity resins. The trend is to develop specialties.”
Polypropylene, priced lower in the United States than in China, still represents 40 percent of Kingfa’s sales.
China’s loose environmental laws enable the industry to make PVC at very competitive costs, while developed countries enforce higher standards for pollution control and energy consumption.
But the future lies on more sustainable products, Cai said, such as bio-based resins.
After three years of research and development, Kingfa is now in the early stage of commercializing its polybutylenes succinate (PBS) and polylactic acid-based compounds. The company has established a production facility capable of making 3,000-5,000 metric tons of PLA compounds annually, based on lactic acid purchased domestically. Similar scale capacity is also set up for PBS, Cai said.
