Amino Acids China E-News

Transcription

1 Amino Acids China E-News VOL.1 Issue 8, September,5, 2014 Copyright Guangzhou CCM Information Science & Technology Co.,Ltd

2 Contents Headline Editor's Note Governmental Direction Revised Draft of Advertising Law Approved Market Dynamics China Becomes Largest Consumer of Lysine in World in 2013 Application of Amino Acid in Aquatic Feed Additive Is in Infancy Sales of China s Feed Enterprises Grows in H Amino Acid API s Huge Potential in China Company Developments Sichuan Hebang to Construct Methionine Project Revenues from Fufeng Group's High-end Amino Acid Products Increasing in H Wellhope Agri-Tech Listed: Opportunity Comes With Challenge A Revenue Drop in Global Bio-chem s Amino Acid Business in H Import & Export Analysis Imp. and Exp. Overview of Some Amino Acids in China, July 2014 China's MSG Witnesses YoY Increase in Exports in H China s Lysine and Lysine Ester and Salt's Exports Hit Record High H Review of Methionine's Imports in China, Jan.-July 2014 Price Update Market Pirces of Major Amino Acids in China, Aug Ex-works Price of Lysine Stays Stable in Aug Market Price of Imported Methionine Grows Since May 2014 in China Selling Price of Tryptophan Falls in China, Aug /30

3 Headline On 25 Aug. 2014, a revised draft of Advertising Law was submitted to the Standing Committee of the National People's Congress for approval. The law states that it added the advertising guidelines on feed and feed additive, which is conducive to regulating the advertising activities. It's reported that China has become the largest consumer of lysine in world in 2013, followed by Europe, the US. As for the application of amino acid in aquatic feed additive, it is a trendency to achieve nutrition balance by adding amino additive directly. The application of amino acid boasts a bright future. In Aug. 2014, China's listed feed enterprises successively released their semi-annual report of 2014, of this, some of feed enterprises still kept rising in sales under the situation of weak demand. China's amino acid accounts for a great proportion in API trade. With the acceleration of China's aging population, amino acid will saw an increase in demand from pharmaceuticals. On 13 Aug., 2014, Sichuan Hebang intends to raise funds for constructing methionine project, through non-public offering of stock. On 19 Aug., 2014, Fufeng Group announced its interim earnings announcement of 2014, demonstrating that revenues from its highend amino acid products (which has high gross profit margin) saw a year-on-year increase significantly. On 8 Aug. 2014, Wellhope Agri-Tech successfully listed, aiming to raise capital for further business expansion. And Wellhope Agri- Tech would embrace opportunity and challenge after listed. Global Bio-chem experienced a revenue drop in its amino acid business in H1 2014, resulting from a decrease in both sales volume and sales prices. Global Bio-chem's amino acid business will turn around by launching high-added value products. Besides, the newly harvested corn comes into market is another favorable factor for its amino acid business. Imp. & Exp. Overview of Some Amino Acids in China, July 2014 In H1 2014, China's MSG saw an increase in both export volume and export value, but a decline in export price. In H1 2014, the export volume of China's lysine and lysine ester & salt hit a record high, whereas its export value tumbled year on year. During Jan.-July 2014, the imports of methionine in China increased slightly over the same period of 2013, while the average import price of methionine went down. Market Pirces of Major Amino Acids in China, Aug In Aug. 2014, the ex-works price of China's Iysine remained stable and then increased slightly, mainly because of the low operating rate in enterprises and increasing downstream demands. Lysine's price is likely to rise in the future. According CCM's investigation, quoted price of imported methionine offered by domestic dealers or traders went up drastically in May 2014, maintaining at a relatively high level during June-Aug Some of domestic tryptophan manufacturers lowered its selling price in Aug. 2014, affected by the weak demand from downstream industries and the falling market price of soybean meal. 3/30

4 4/30

5 Editor's Note Welcome to Amino Acids China E-News! China, as a leading amino acid producer in the world, is witnessing a sustained growth in amino acids consumption, which was mainly boosted by downstream industries: feed, food, pharmaceuticals, etc. The growth potential in both production and demand will undoubtedly attract more attention from domestic and multinational counterparts. We hope Amino Acids China E-News will act as not only a quick pathway to view China's amino acid industry, but also a long-term platform which shall help you win initiatives in business expansion in China and even the world. Overall, domestic market of amino acids shows well in this August, reflecting by the stable or increasing prices of lysine and methionine. Thanks to the recovery of downstream pig breeding industry and the reducing supply due to production halt, the prices are expected to continually climb in the near future. Besides, it would be a good signal for amino acid manufacturers that the newlyharvested corn is entering into market and the supply is sufficient, which shall relieve their cost pressure mainly caused by the rising corn price. However, the temporary oversupply for domestic market forces domestic manufacturers to export more raw material products. Judging from listed amino acid companies' financial reports released in Aug., they seem to have a hard time during the first half of 2014, mainly blamed to high production costs, depressed price and intense competition brought by the weak downstream demand, especially for animal breeding industry. On the contrary, many large feed manufacturers witnessed a performance growth during the same period, probably thanks to the relatively eased competition from a higher industry concentration. Besides, the lower price of feed additives, especially lysine, also means a lower costs in raw material procurement. Some enterprises' moves should be worthy of attention. For example, Sichuan Hebang intended to raise funds for constructing methionine project in early Aug. and Global Bio-chem, a major amino acid manufacturer at home, is putting more efforts in developing high value added amino acid products. To be noticed, the RMB/USD exchange rate in this issue is (the People's Bank of China). If there are any specific topics you would like us to cover or any subjects you would like us to investigate in more details, please contact us by , or econtact@cnchemicals.com. 5/30

6 Governmental Direction Revised Draft of Advertising Law Approved Summary: On 25 Aug. 2014, a revised draft of Advertising Law was submitted to the Standing Committee of the National People's Congress for approval. The law states that it added the advertising guidelines on feed and feed additive, which is conducive to regulating the advertising activities. On 25 Aug. 2014, the Standing Committee of the National People's Congress approved a reveised draft of Advertising Law.The Law sets the guidelines that the feed or feed additive advertisments should abide by following requirements: any absolute assertions of safety were forbidden; any statements or promises that contained unscientific effects were forbidden; any recommendations or certifications taken by science and research units, academic institutions, technology promotion agencies, professionals and consumers were forbidden; any statements implying the efficiency were forbidden; the words, languages or pictures that violated the security rules were forbidden; other aspects that the law and regulations banned were forbidden. The domestic feed industry presents low intensification and fierce competition, hence, standardizing the advertisements of feed and feed additive is beneficial for sound development of the industries. According to Profile on Production Situations of National Feed Industry of 2013 published by the Chinese Feed Industry Association Information Center on 5 June 2014, the number of feed processing enterprises and feed additive enterprises amounted to respectively 10,113 and 1,377 in In order to survive in the competition, some feed processing enterprises, especially small and medium-sized enterprises, resorted to unfair competition means, such as lying about the nutrition content of the feed, cheating the consumers by increasing the feed conversion ratio. In addition, aming to lower the cost, some enterprises used low-quality raw materials or additives that the law banned or limited to use. Zhang Mao, director of State Administration for Industry and Commerce of the People's Republic of China, introduced the reveised draft of Advertising Law, that the reason that amended the present adverting law was to standardize the advertising activities and promote the sound development of advertising. The problems of the present adverting were as follows: the general rules of advertising law were incomplete and ambiguous; the advertising guidelines on drugs, medical instruments, pesticides, veterinary drugs and tobacco were in shortage; the advertisement in health-care foods, medicals, education, training and real estate were lack of specialized regulations; the rules on advertising activities were not clear enough; the standard of the fake advertisements needed to be clarified; the law responsibility should be pointed and practiced. Apart from adding the advertising guidelines on feed and feed additive, the reveised draft of Advertising Law supplemented the advertising guidelines on pesticides and veterinary drugs, and added the advertising guidelines on seeds, livestocks, aquatic products and breeding and cultivation. Market Dynamics China Becomes Largest Consumer of Lysine in World in 2013 Summary: It's reported that China has become the largest consumer of lysine in world in 2013, followed by Europe, the US. As reported, in 2013, China's market demand for lysine reached 700,000 tonnes; while, a 600,000 tonnes in Europe; a 450,000 6/30

7 tonnes in the US, ranked third largest consumer of lysine in world. Furthermore, on 4 June 2014, Grand View Research Inc, a USbased market research and consulting company, released a Report on Application of Lysine (in animal feed, food and dietary supplements, drugs) in Global market and Various Species of Livestock (pigs, poultry) by Region of The report shows that China has become the largest consumer of lysine in world in 2013, accounting for 31% of the global total consumption. China will become one of the fastest growing countries in lysine industry. Grand View Research forecasts that China's lysine is expected to witness fastest growth, at a CAGR of 7% from 2014 to In 2013, about 58% of the global total consumption of lysine used in finishing pig as feed additive. The growing demand for pork is the main driver of pork consumption in China, thus it will increase domestic pig industry's demand for lysine. The production of lysine is concentrated on four major manufacturers, namely, Global Bio-chem Technology Group Co., Ltd. (Global Bio-chem), Ajinomoto Ltd., Cheil Jedang Corp. and Archer Daniels Midland (ADM), those four's capacities captured about 60% of the global total lysine capacity. Actually, in order to capture more market share, domestic lysine manufacturers keep expanding production in recent years. As CCM's incomplete statistics, the domestic capacity of lysine expanded from 851,000 t/a in 2010 to 1,691,000 t/a by the end of Of this, the capacity of lysine from top four manufacturers, Global Bio-chem, CJ (Liaocheng) Biotechnology Co., Ltd., Meihua Holdings Group Co., Ltd. and Ningxia EPPEN Biotech Co., Ltd, accounted for over 75% in national total, by the end of However, domestic lysine manufacturers blindly expanded production, resulting in oversupply and intense competition in lysine industry, and further leading to lysine price decline. For example, the average ex-works price of 98.5% lysine was USD1,334/t during Jan.-Aug. 2014, while it was USD1,945/t over the same period of 2013 and USD2,409/t during Jan.-Aug Figure 1: Capacity of lysine in China, Note: Capacity of lysine also includes capacity of lysine ester & salt. Source: CCM 7/30

8 Figure 2: Ex-works price of 98.5% lysine in China, Jan Aug Source: CCM Application of Amino Acid in Aquatic Feed Additive Is in Infancy Summary: As for the application of amino acid in aquatic feed additive, it is a trendency to achieve nutrition balance by adding amino additive directly. The application of amino acid boasts a bright future. At present, the application of amino acid in aquatic feed additive is in its infancy in China and enjoys a promising future. China is the biggest manufacturer of aquatic feed in the world. The domestic output of aquatic feed reached 19 million tonnes in 2013, which accounted for about 10% of China's total industrial feed. Industry insiders estimated that the output of China's aquatic feed will be on the increase at a rate of 5% every year. Aquatic feed industry in China starts late. In the early, the technology of aquatic feed formula comes from Taiwan enterprises, such as Grobest Group. Aquatic feed presents complicated formulas and needs a variety of raw materials, thus their production cost as well as the price are high. Generally speaking, the price of aquatic feed is one or two times higher than the price of livestock feed. At present, there are three listed aquatic feed enterprises in China, namely, Guangdong Haid Group Co.,Ltd., Tech-bank Co., Ltd. and Tongwei Co., Ltd. Zheng Shixuan, president of Guangdong Yuehai Feed Group Co.Ltd., pointed out that former aquatic feed needs a variety of raw materials and has complicated formulas, thus to guarantee the feed well-nourished with amino acid. In fact, feed should contain energy, amino acid, fatty acid normal microelement and vitamins to act together. The formulas can be optimized and simplified without reducing the major nutrients. Now, the cost will be very high only by depending on the complementation of amino acids in proteins of aquatic feed. Therefore, it will be a trend to achieve nutrition balance by adding amino acids directly. Now, some amino acids are added to aquatic feed, however, their kinds are few and their quantity is small; and lysine and methionine are the main amino acids used in it. Apparently, livestock feed uses more amino acids than aquatic feed. The major reason is that livestock can make use of crystalline amino acid effectively while aquatic species could not achieve that. At present, there are two research directions on how to expand the application of amino acids in aquatic feed. Firstly, to coat 8/30

9 exogenous amino acids or use hydroxymethionine which will help to digest the proteins of exogenous amino acids and amino acids in aquatic feed together. Secondly, to breed aquatic species that could digest and make use of crystalline amino acid effectively. In the past, fishmeal was considered to be the best protein material in aquatic feed, as it has the best amino acid composition. The price of fishmeal increased over five times from 1988 to Many feed enterprises seek other protein alternatives, however, their effects are lower than fishmeal and even exogenous amino acids can not take its place. Aquatic feed manufacturers pay more attention to control costs to improve cost performance of their products. It is estimated that the application of amino acid additives will be the focus of aquatic feed. Table 1: Revenue and net profit of listed aquatic feed companies in China, 2013 Company Revenue, million USD Net Profit, million USD Guangdong Haid Group Co., Ltd. 2, Ningbo Tech-bank Co., Ltd Tongwei Co., Ltd. 2, Source: Sales of China s Feed Enterprises Grows in H Summary: In Aug. 2014, China's listed feed enterprises successively released their semi-annual report of 2014, of this, some of feed enterprises still kept rising in sales under the situation of weak demand. In H1 2014, the demand for feed weakened and total output of feed saw a YoY fall, under the influence of depressed breeding industry, the outbreak of H7N9 influenza and other factors. The national output of feed witnessed a YoY decline of 3% in H1 2014, reported by the Chinese Feed Industry Association Information Center. However, sales in some of feed enterprises were still better than the same period of last year. In detail, New Hope Liuhe Co., Ltd. (New Hope Liuhe) and Guangdong Haid Group Co., Ltd. (Haid Group) both enjoyed a YoY increase of 1.74% and 15.87% respectively in sales volume when facing with market downturn in downstream breeding industry, according to semi-annual report of 2014 published by domestic listed feed enterprises in Aug As small-sized feed enterprises gradually quited the market, some feed enterprises saw an increase in sales volume, thus leads to large-scale feed enterprises capturing more market share. In H1 2014, with the implementation the Regulations on the New Administration of Feed and Feed Additives and Adminstrative Provisions on Feed Quality Safety, China has imposed stricter standards on feed manufacturers, causing some small-sized enterprises quitting the market directly. Although the demand for feed was weak in H1 2014, the gross profit margin still remained stable in some of the feed enterprises in China, and some even a slight rise. For example, gross profit margin of feed business climbed by 1.52 percentage points (YoY) and 1.36 percentage points (YoY) respectively in Haid Group and Beijing Dabeinong Technology Group Co., Ltd. (DBN). Generally speaking, the reason for gross profit rate of feed business maintaining steady or growing is mainly due to a dramatic YoY decline in purchasing price of raw materials (including soybean meal, fishmeal, lysine, etc.) Among them, the ex-works price of 98.5% lysine in China decreased to around USD1,288/t, a significant YoY fall of 37.07% during H Besides, enterprises will take countermeasures to stable its income in accordance with the market changes. For instance, New Hope Liuhe witnessed a YoY growth in the sales volume, revenue and profit of feed business, which was primarily driven by the company's conducting 9/30

10 technical services on breeding in several markets, optimizing its own capacity and the improving operating efficiency. In terms of feed category, in H1 2014, the sales performance of pig feed and aquatic feed was better than poultry feed overall in China. A case in point is DBN, its semi-annual report of 2014 revealed that the its sales value of pig feed was up by 25.54% year on year, and aquatic feed saw a YoY rise of 26.01%,while poultry feed only grew by 0.68%. Moreover, in H1 2014, Tongwei Co., Ltd. has achieved a YoY increase of 5.68% in pig feed sales and a YoY rise of 3.00% in aquatic feed sales, but poultry feed sales suffered a YoY decline of 1.17%. Industry sources hold optimistic view about the development of domestic feed industry in H In fact, with the growing prices of livestock and poultry products since May 2014, domestic breeding industry is recovering, which motivated raisers' enthusiasm of increasing the number of livestock and poultry and boosted the demand for feeds. And the arrival of consumption seasons, such as the Mid-Autumn Festival, will also push up the prices of livestock products, stimulate to raise the number of livestock breeding, thus driving the demand for feed. Table 2: Sales volume of some feed companies's feed business, tonne Company H YoY change New Hope Liuhe Co.,Ltd. 7,040, % Guangdong Haid Group Co., Ltd. 2,300, % Beijing Dabeinong Technology Group Co., Ltd. N/A N/A Jiangxi Zhengbang Technology Co.,Ltd. 2,060, % Tongwei Co.,Ltd. 1,624, % Tangrenshen Group Co., Ltd. N/A N/A Ningbo Tech-Bank Co.,Ltd. 130, % Shenzhen Jinxinnong Feed Co., Ltd. 240, % Source: Table 3: Performances of some companies's feed business, H1 2014, million USD Company Revenue Cost of sales Gross profit margin H YoY change H YoY change H YoY change New Hope Liuhe Co.,Ltd. 3, % 3, % 6.25% percentage point Guangdong Haid Group Co., Ltd. 1, % 1, % 9.87% 1.52 percentage points Beijing Dabeinong Technology Group Co., Ltd. 1, % % 20.04% 1.36 percentage points Jiangxi Zhengbang Technology Co.,Ltd. 1, % 1, % 5.59% 0.94 percentage point Tongwei Co.,Ltd % % 11.00% 1.47 percentage points Tangrenshen Group Co., Ltd % % 8.62% 0.32 percentage point Ningbo Tech-Bank Co.,Ltd % % 14.13% 0.13 percentage point Shenzhen Jinxinnong Feed Co., Ltd % % 13.68% 1.10 percentage points Source: Table 4: Performances of some feed companies, H1 2014, million USD Company Revenue Net profit attributable to shareholders H YoY change H YoY change New Hope Liuhe Co.,Ltd. 5, % % Guangdong Haid Group Co., Ltd. 1, % % Beijing Dabeinong Technology Group Co., Ltd. 1, % % Jiangxi Zhengbang Technology Co.,Ltd. 1, % ,177.62% Tongwei Co.,Ltd. 1, % % Tangrenshen Group Co., Ltd % % Ningbo Tech-Bank Co.,Ltd % % Shenzhen Jinxinnong Feed Co., Ltd % % Source: 10/30

11 Amino Acid API s Huge Potential in China Summary: China's amino acid accounts for a great proportion in API trade. With the acceleration of China's aging population, amino acid will saw an increase in demand from pharmaceuticals. Amino acid enjoys huge potential in the application in pharmaceutical industry in China. Domestic amino acid is booming fast with an output of 4 million tonnes in Domestic enterprises mainly produced amino acid for the applications in food processing and animal feed industries. Only a small portion is used in medicals. There are two major categories for medical use: twenty kinds of protein amino acid and over 100 kinds of non-protein amino acid. In terms of medical use, amino acid is generally applied in infusion. Most of amino acid raw materials for injection are imported from other countries with a little made in China. In China, amino acid is one of the APIs that accounted for a large proportion in API foreign trade. In recent year, amino acid API respectively accounted for 6%-7% of the total API export value and import value in China, presenting a stable performance. In 2013, the import value of amino acid API amounted to USD465 million, among them, methionine took up 83% of the total API import value. In addition, the export value reached USD145 million, witnessing a YoY increase of 6.9%. Among all the export enterprises, private enterprises accounted for 70%. And Asia, Europe and North America were three major export destinations, accounting for 47%, 26% and 15% of the total export value respectively. According to related investigation, it's estimated that the global market size of amino acid would reach USD11.6 million in 2015 and it would grow to USD22.1 billion in 2018, demonstrating a strong growth momentum. In the next few years, each of enduse application will saw a dramatic increase in demand for amino acid. As China's aging population becomes larger, people aged above 60 years old exceeds 0.2 billion, accounting for 15% of the total population. In the next 20 years, the aging population will grow at the rate of 10 million per year. With the acceleration of the aging population, China will demonstrate tremendous demand for pharmaceutical amino acid, its derivatives and amino acid drinks (oral liquid). Therefore, amino acid will enjoy a promising prospect in medical and pharmaceutical field in China. Company Developments Sichuan Hebang to Construct Methionine Project Summary: On 13 Aug., 2014, Sichuan Hebang intends to raise funds for constructing methionine project, through non-public offering of stock. On 13 Aug., 2014, Sichuan Hebang Corporation Limited (Sichuan Hebang) intends to raise funds of up to RMB1.396 billion through non-public offering of stock, aiming to consruct methionine project and to supplement cash flow. Notice shows that Sichuan Hebang planned to issue 221 million shares to no more than ten target objects at RMB6.32 per share. Of this, RMB1.296 billion will be invested in a 100,000 t/a methionine project (the first phase of project will be 50,000 t/a), and the remaining RMB100 million will be used in supplementing cash flow. It will take 2.25 years to build the methionine project. Once realizing its design capacity, it s predicted that the new project will generate RMB1.159 billion of sales per year, RMB1.196 billion of net profit after-tax per year, and its Financial Internal Rate of Return (FIRR) will be 22.65% and payback period will be 6.05 years. 11/30

12 At present, methionine product is facing with critical requirement on production technology. China s methionine is import-oriented. In 2013, the import volume of methionine (HS code: ) amounted to around 120,000 tonnes while domestic output totaled around 50,000 tonnes. From a global perspective, methionine production technology is grasped by a few companies, such as Evonik, Degussa, Adisseo, Sumitomo Chemical, etc., who monopolize over 90% of the global markets. There are two reasons for Sichuan Hebang to invest the methionine project. Firstly, methionine enjoys a huge potential as additives in food, a new generation of pharmaceutical intermediate as well as an additive indispensable in animal feed; and China's aquaculture is developing rapidly so that the outputs of pork, egg and livestock products are leading the world, which maintains a growing momentum of demand for methionine. Secondly, Sichuan Hebang is centered on chemical engineering manufacturing and the exploitation of salt mine and phosphorus ore. Recently, chemical industry has suffered a downturn, leading to its business adjustment, whose main businesses has turned into high value-added fine chemicals. In Feb. 2014, Sichuan Hebang has signed contracts respectively with JGC Corporation and a European firm, with spending of RMB190 million to buy the full set of methionine production technology, principal proprietary equipments and relevant technical services from these two companies. Thus, based on the existing chemical technology strength and 12 years of experience in chemical industry, Sichuan Hebang has already had the ability to carry out the methionine project. Figure 3: Sichuan Hebang's revenue and net profit, Source: Sichuan Hebang Corporation Limited 12/30

13 Figure 4: Revenue proportion of main products in Sichuan Hebang, 2013 Source: Sichuan Hebang Corporation Limited Revenues from Fufeng Group's High-end Amino Acid Products Increasing in H Summary: On 19 Aug., 2014, Fufeng Group announced its interim earnings announcement of 2014, demonstrating that revenues from its high-end amino acid products (which has high gross profit margin) saw a year-on-year increase significantly. On 19 Aug., 2014, an interim earnings announcement of 2014 released by Fufeng Group Co., Ltd. (Fufeng Group), demonstrated that the revenues from the company's high-end amino acid products amounted to USD23.7 million with a YoY increase of 56%. Its high-end amino acid products include valine, leucine, isoleucine, glutamine and hyaluronic acid, etc. An increase in high-end amino acid products' revenues was driven by the rising sales volume. According to the report, in H1 2014, the sales volume of high-end amino acid products reached 1,824 tonnes, accounting for 76% of the products' total sales in By the end of 2013, the capacity of its high-end amino acid was about 4,000 t/a; and by the end of June 2014, its capacity was increased to 5,000 t/a. Fufeng Group's high-end amino acid products are capable of generating high gross profit margin, which made a contribution to an increase in the company's gross profit and gross profit margin in H However, Fufeng Group's two major businesses, namely MSG and xanthan gum, witnessed a fall in gross profit, due to the selling price fall in H Thanks to the rising revenues of highend amino acid products and implementing effective cost control, Fufeng Group's gross margin increase by 11% and gross profit margin had an increase of two percentage points over H Through the cooperation with Jiangsu Shenhua Pharmaceutical Co., Ltd. (Shenhua Pharmaceutical), the high-end amino acid products were mainly sold to overseas health-care and pharmaceutical enterprises. Shenhua Pharmaceutical, a wholly-owned pharmaceutical enterprise of Fufeng Group, is engaged in the R&D, production and sales of a series of products, such as raw material medicine, preparation and food additives. Table 5: Revenue and sales volume of Fufeng Group's high-end amino acid products, H Item H H H H H Revenue, million USD Sales volume, tonne 1,824 2,406 N/A 13/30

14 Source: Fufeng Group Co., Ltd. Wellhope Agri-Tech Listed: Opportunity Comes With Challenge Summary: On 8 Aug. 2014, Wellhope Agri-Tech successfully listed, aiming to raise capital for further business expansion. And Wellhope Agri-Tech would embrace opportunity and challenge after listed. On 8 Aug., 2014, Liaoning Wellhope Agri-Tech Joint Stock Co., Ltd. (Wellhope Agri-Tech), a leading feed-processing enterprise in Northeast China, successfully got listed on Shanghai Stock Exchange. Its IPO issued 80 million shares, and the opening price at RMB5.88 per share, thus, USD68.79 million (RMB million) capital was raised. In terms of capital raising, Wellhope Agri-Tech stated that it was mainly invested in the construction of feed projects, including a 100,000 t/a feed project by itself, a 240,000 t/a feed project by a subsidiary in Heilongjiang and a 180,000 t/a feed project by a subsidiary in Shenyang, Liaoning, etc. All of these new feed projects will reach a total capacity of about 1 million tonnes. However, though the expansion of feed capacity could strengthen Wellhope Agri-Tech's scale advantage, it might bring forth the problem of overcapacity. It was revealed that, from 2011 to 2013, the feed output of Wellhope Agri-Tech (premix feed excluded) totaled 1,805,600 tonnes, 1,950,400 tonnes and 1,813,500 tonnes respectively, showing a slow growth; meanwhile, the utilization of capacity kept falling to 75.88%, 68.87% and 58.54% respectively. And the production-to-sales ratio of its feed levelled off at around 97%. Feed products of Wellhope Agri-Tech mainly concentrated on pig feed. And its revenues accounted for 33.29% of the total revenues in 2013; other products such as animal feed, aquatic feed and ruminant feed accounted for 23.19%, 5.40% and 9.77% respectively. Industry sources believed that Wellhope Agri-Tech listing will aggravate competition in domestic feed industry, especially pig feed market in Northeast China. The statistic indicated that the northeast market, as one of the major feed markets in China, captures over 10% of the whole country. At present, enterprises in the rivalry in Northeast China were Wellhope Agri-Tech, Beijing Dabeinong Technology Group Co., Ltd. (DBN), New Hope Liuhe Co., Ltd. (New Hope Liuhe) and Twins Group Co., Ltd, etc. As the largest feed enterprise in Northeast China, Wellhope Agri-Tech's sales accounted for more than 59% of major businesses for three consecutive years in that region, while New Hope Liuhe and DBN's business shares in the region both accounted for about 13% of its total businesses. Besides, pig feed market was the focus in their competition. In 2013, in terms of pig feed business, Wellhope Agri-Tech accounted for over 40% of the total feed business, while DBN and New Hope Liuhe's accounted for over 80% and about 30% of the total. After listed, Wellhope Agri-Tech will face challenges as well as opportunities. At present, there are more than 10,000 feed enterprises in China, top ten of whose capacity account for only about 30%. Therefore, feed industry will undergo a period of elimination and consolidation. The industry concentration will be greatly lifted, along with small and medium-sized enterprises likely to be mergered or eliminated. As a leading enterprise in feed industry, Wellhope Agri-Tech was still confronted with the huge pressure from other rivals, such as Tongwei Group Co, Ltd. and New Hope Liuhe. Their sales networks had been spread across the whole country in feed business and they intend to explore the international markets as 14/30

15 Southeast Asia. In comparison, the sales networks of Wellhope Agri-Tech was narrower. Besides, the fluctuation of raw material's prices had a great impact on the profitability of Wellhope Agri-Tech. According to its prospectus, the cost of major raw materials (corn, soybean meal, fish meal) accounted for about 50% of the total production cost of feed products. For instance, from 2009 to 2011, the purchasing cost of three major raw materials accounted for 52.29%, 54.51% and 52.17% of the total purchasing cost of feed business. It could be seen from the financial report that during , the net profit of Wellhope Agri-Tech were decreasing year by year despite the increasing revenues. Luckily, Wellhope Agri-Tech performed well in H During this period, its revenue totaled USD million (RMB3, million) with a YoY increase of 8.89%. Net profit attributable to shareholders of the company was USD14.31 million (RMB88.29 million) with a YoY increase of 4.06%. Wellhope Agri-Tech believed that the rebound of pork price and the revival of breeding industry drove the increasing sales in feed industry. Figure 5: Output and growth rate of feed in China, Source: Table 6: Gross profit margin of three major producers in feed business, Producer Beijing Dabeinong Technology Group Co., Ltd % 18.52% 18.82% Sichuan New Hope Group Co., Ltd. 5.70% 6.23% 6.76% Liaoning Wellhope Agri-Tech Joint Stock Co., Ltd % 10.14% 10.24% Source: Annual financial report of listed companies 15/30

16 Figure 6: Revenue and net profit of Wellhope Agri-Tech, H Source: Liaoning Wellhope Agri-Tech Joint Stock Co., Ltd. A Revenue Drop in Global Bio-chem s Amino Acid Business in H Summary: Global Bio-chem experienced a revenue drop in its amino acid business in H1 2014, resulting from a decrease in both sales volume and sales prices. Global Bio-chem's amino acid business will turn around by launching high-added value products. Besides, the newly harvested corn comes into market is another favorable factor for its amino acid business. On 29 Aug. 2014, Global Bio-chem Technology Group Co., Ltd. (Global Bio-chem), a listed company (Stock Code: 00809, HK) that is specialized in the production and sales of corn deep-processing products, released its semi-annual report of The report shows that its revenue reached USD470 million (HK3,643 million), down by 27.9% year on year, and the company suffered net losses of USD173 million (HK1,342 million), a year-on-year fall of 14.3%. The unsatisfatory performance of Global Bio-chemin in H was ascribable to the following four reasons. Firstly, the company's production cost increased because of the high price of raw material corn. Influenced by the government's temporary storage policy for corn, the price of corn has been lifted. Secondly, the downturn in the consumption market of amino acid and polyol chemicals also affected the company's sales performance. Global Bio-chem has 3 divisions: amino acid, corn sweetener and polyol chemicals. In H1 2014, revenue from amino acid division amounted to USD260 million(hk2,018), which accounted for 55% of the company's total revenue; but, down by 35% year on year. A decrease in revenue of amino acid division was driven by both of its sales price and sales volume dropped greatly. The major amino acid products of the company are lysine and threonine, the two of whose revenue amounted to USD165 million in H1 2014, accounting for 35% of the company's total revenue. Among them, lysine that can be used as feed additive contributed most in the company's total revenue. Influenced by the overcapacity of lysine, the market price of lysine dropped from Q For instance, in Jan. 2013, the price of 98.5% lysine was USD2,295/t, while the figure was just USD1,424/t in June Besides, the sales volume of lysine saw a YoY drop of 22% in H1 2014, because of weak demand from feed industry under the influence of AIV (a new type of bird flu). As the amino acid business was in the doldrums, Global Bio-chem have made adjustments in the following aspects in H Firstly, the company announced to suspend amino acid production facility, reducing 200,000 tonnes from Q2 2014, this was mainly 16/30

17 due to the a relocation its amino acid production facility in Lu Yuan District to Dehui District, Chang Chun City, Jilin Province, so as to cope with the depressed market conditions; at the same time, it also gained compensations from local government for its relocation. In addition, the plant centralizing can low its operation cost. Secondly, it focused on developing and producing high value-added products. It has launched a new protein lysine in H1 2014, which contains over 80% of lysine, so as to improve its product mix and competitiveness. Table 7: Business performance of Global Bio-chem by business, H Main business Revenue, million USD Sales volume, '000 tonne Gross profit margin H H Change H H Change H H Change Amino acid % % -19% 4% -23 percent points Polyol chemicals % % -27% -68% 41 percent points Corn sweetener % % 2% 5% -3 percent points Source: Global Bio-chem Technology Group Co., Ltd. At present, the major amino acid manufacturers adjust their production according to the market condition, and the whole industry was under the consolidation stage. Global Bio-chem estimates that animal feed and corn deep processing industry will turn around along with the newly harvested corn entering into market in Q Thus, amino acid business will turn around in the late of Table 8: Sales volume of Global Bio-chem's amino acid business by product, H1 2014, tonne Product H H Change Lysine 29,710 47,800-38% Protein lysine 204, ,500-20% Threonine & others 5,800 6,200-6% Modified starch 13,780 22,300-38% Corn refined products 213, ,000 55% Source: Global Bio-chem Technology Group Co., Ltd. Figure 7: Revenue structure of Global Bio-chem, H Source: Global Bio-chem Technology Group Co., Ltd. 17/30

18 Figure 8: Revenue structure of Global Bio-chem's amino acid business by product, H Source: Global Bio-chem Technology Group Co., Ltd. Figure 9: Ex-works price of lysine in China, 2013-H Source: CCM Import & Export Analysis Imp. and Exp. Overview of Some Amino Acids in China, July /30

19 Table 9: Imp. & Exp. overview of some amino acids (with independent HS code) in China, July 2014 Product Import value, USD MoM change Export value, USD MoM change Lysine 31, % 98, % Lysine ester and salt 48, % 24,463,469 5% Methionine 25,562,502-1% 805,911-23% Glutamic acid 1,334-89% 2,190,162 17% MSG 280,153 26% 43,380,585 5% Product Import volume, tonne MoM change Export volume, tonne MoM change Lysine % % Lysine ester and salt 33 67,288% 19,978-4% Methionine 7,748-7% % Glutamic acid % 1,602 20% MSG 96 5% 35,550 2% Product Import price, USD/t MoM change Export price, USD/t MoM change Lysine 101,566 93% 7, % Lysine ester and salt 1,458-99% 1,224 10% Methionine 3,299 6% 7,911-40% Glutamic acid 10,341 10% 1,367-2% MSG 2,909 20% 1,220 2% Note: MSG's HS code: and Source: China Customs China's MSG Witnesses YoY Increase in Exports in H Summary: In H1 2014, China's MSG saw an increase in both export volume and export value, but a decline in export price. In H1 2014, the exports of China's monosodium glutamate (MSG) totaled 185,922 tonnes, a YoY rise of 12%. And the total export value reached USD million, a YoY growth of 9.07%. During Jan.-May 2014, the export price of MSG maintained an overall downtrend. As overcapacity has been an ongoing problem in domestic MSG industry in recent ten years, the MSG enterprises cutting their own prices so as to push up sales and increase exports. In June 2014, the market price of China's corn started to rise due to supply reduction, resulting in pushing up MSG's production cost. Moreover, influenced by the US anti-dumping policy, those who involved in the adjustment of preliminary ruling are Fufeng Group Co., Ltd. (Fufeng Group), Meihua Holdings Group Co., Ltd. (MeiHua Group) and Fujian Jianyang Wuyi MSG Co., Ltd. In H1 2014, the exports of China's MSG to the US amounted to 5,286 tonnes, down by 51.6% year on year. The major export destinations of China's MSG include South East Asian nations, like Thailand, Vietnam and Myanmar, etc., and the exports to these three countries accounted for 38.7% of the national total in H But the exports to the US only accounted for 3.5% of the total exports. Therefore, the US anti-dumping policy had little effect on the domestic exports. Owing to the high price of raw material corn, it's predicted that the export price of China's MSG will continue to climb during Aug.- Nov /30

20 Figure 10: Export trend of China's MSG, H Source: China Customs Figure 11: Capacity and output of MSG in China, Source: CCM 20/30

21 Figure 12: Market price of corn in China, H Source: CCM China s Lysine and Lysine Ester and Salt's Exports Hit Record High H Summary: In H1 2014, the export volume of China's lysine and lysine ester & salt hit a record high, whereas its export value tumbled year on year. In H1 2014, the total export volume of China's lysine (HS code: ) and lysine ester & salt (HS code: ) reached 120,916 tonnes, with a year-on-year surge of 27.3% compared with H Hereinto, the export volume of lysine ester & salt was 120,858 tonnes, accounting for 99.9% of the total exports. The major export destinations of China's lysine and lysine ester & salt are European countries, among which Russia is the top one. In H1 2014, the export volume to Russia increased by 36.7% compared with H1 2013; while that to the US, the second largest export destination of the same period of last year, decreased by 60.5% in H1 2014, down to the 7 th in exports. In April 2014, the export volume of China's lysine ester & salt totaled 22,132 tonnes, reaching its peak in a single month in history. In May, its export volume increased again compared with April, amounting to 27,602 tonnes. 21/30

22 Figure 13: Export trend of lysine ester & salt in China, H Source: China Customs Figure 14: Export trend of lysine in China, 2013-H Source: China customs Table 10: Top 5 export destinations for China's lysine ester & salt, H H H Destination Volume, tonne Destination Volume, tonne The Russian Federation 24,401 The Russian Federation 17,979 The Netherlands 12,648 The US 12,770 Germany 11,937 The Netherlands 11,993 Vietnam 6,460 Belgium 5,220 Belgium 6,216 Germany 3,821 Source: China customs 22/30

23 The reason why China s lysine ester & salt was up in export volume but down in export value in H was that its export price fell drastically. In H1 2014, the average export price was USD1,174/t, USD756/t lower than that in the corresponding period of last year. Lysine overcapacity and fierce competitions in the industry resulted in the export price fall. On 31 March, 2014, Global Biochem Technology Group Co., Ltd., largest lysine manufacturer in the world, made an announcement on a production cut of 200,000 tonnes of lysine under the pressure of overcapacity. The saturated demand for lysine ester & salt at domestic market made lysine enterprises strive to promote sales through cutting the export prices. In fact, due to the falling export price and price rise in corn (raw material), part of domestic lysine manufacturers suffered great losses in H For instance, China Starch Holdings Limited saw a YoY decrease of 36% in net profit in the first four month of Review of Methionine's Imports in China, Jan.-July 2014 Summary: During Jan.-July 2014, the imports of methionine in China increased slightly over the same period of 2013, while the average import price of methionine went down. Data from China Customs showed that China imported about 71,159 tonnes of methionine (HS code: ) in Jan.-July 2014, a year-on-year increase of 0.28%. Whereas, the average import price of methionine decreased to about USD3,113/t, down by 4.79% year on year. During Jan.-July 2014, the imported methionine are mainly produced by France's Adisseo, Germany's Evonik, the US' Novus and Japan's Sumitomo; Belgium, Japan, France, the US and Germany are the five major import origins of methionine for China. Except for the US, the exports of methionine from other four countries experienced a YoY increase during Jan.-July The average import price of methionine dropped slightly in Jan.-July 2014, compared with the same period of last year. However, its import price tends to rise on the whole. In Oct. 2013, Chongqing Unisplendour Chemical Co., Ltd. (CUC), a major maufacturers of methionine in China, suspended production because of environmental protection issues. As a result, foreign methionine manufacturers take this opportunity to control the supply of methionine and rise its price, thus the average import price of methionine increased from USD3,018/t in Jan to USD3,172/t in March Besides, in July 2014, foreign methionine manufacturers are eager to increase its price due to the insufficient supply of methionine. Thus, the average import price of methionine increased greatly month on month in China. It's estimated that the import price of methionine trends to remain high in Aug. 2014, because of its supply shortage. In terms of foreign manufacturers, it is reported that, in early August, an Adisseo's plant in Europe has been overhauled for about 20 days because of production breakdown. Germany's Evonik stated that their operating rate is still low. Besides, the US' Novus will also overhaul for two weeks. As for Chinese manufacturers, Bluestar Adisseo Nutrition Group Ltd. suspended the production of liquid methionine in Nanjing plant during the Nanjing Youth Olympic Games (from 16 Aug to 28 Aug. 2014). CUC did not resume production since Oct /30

24 Figure 15: Import trend of methionine in China, Jan July 2014 Source: China Customs Table 11: Top 5 import origins of methionine in China, Jan.-July 2014 Jan.-July 2014 Jan.-July 2013 Import origin Volume, tonne Price, USD/t Import origin Volume, tonne Price, USD/t Belgium 31,530 3,054 Belgium 23,680 3,156 Japan 21,259 3,195 Japan 21,526 3,503 France 9,397 3,207 The US 16,160 3,158 The US 7,220 3,036 France 8,427 3,214 Germany 1,754 2,993 Germany 1,165 3,176 Source: China Customs Price Update Market Pirces of Major Amino Acids in China, Aug Table 12: Market prices of major amino acids in China, Aug Product Price in Aug. 2014, USD/t Price in July 2014, USD/t MoM change 98.5% lysine 1,485 1, % 70% lysine 999 1, % 98% tryptophan 18,190 20, % Methionine (solid) 6,161 5, % 99% threonine 1,925 1, % Source: CCM Ex-works Price of Lysine Stays Stable in Aug Summary: In Aug. 2014, the ex-works price of China's Iysine remained stable and then increased slightly, mainly because of the low operating rate in enterprises and increasing downstream demands. Lysine's price is likely to rise in the future. In Aug. 2014, the ex-works price of China's Iysine remained stable on the whole: the average ex-works price of 98.5% lysine fluctuated around USD1,450/t and that of 70% lysine was around USD980/t. Both their prices showed a rising trend in late Aug. Two reasons mainly accounted for the price changes. 24/30

25 For one thing, it was due to the insufficient supply and price rise of raw material corn. In Aug. 2014, the overall operating rate of lysine manufacturers was low. Several enterprises either suspended production or had production cut. Two giant manufactures, namely Global Bio-chem Technology Group Co., Ltd. (Global Bio-Chem) and Meihua Holdings Group Co., Ltd., had a production halt for overhaulling. And they did not have any plan for operation yet. At present, manufacturers such as CJ Liaocheng Biotech Co., Ltd., Anhui Bbca Biochemical co., Ltd. and East Hope Group are under production. Hence, the domestic market price of lysine was generally stable with a slight increase; the sales of lysine were mediocre in domestic market, whereas trade volume was low. It is worth mentioning that Global Bio-Chem, the world largest lysine manufacturer, is mainly specialized in the production of 70% lysine, so its production halt led to feed enterprises' increase in purchasing volumes of lysine out of the concern of lysine's price rise. Therefore, recently, 70% lysine was in short supply. In addition, it is said that Global Bio-Chem is probably to undergo reconstruction, which would affect the supply of lysine, hence lysine's price is likely to rise in the future. For another, downstream pig breeding industry also exerted an influence on lysine's price. In China, pig feed is the largest consumption market of lysine. In July 2014, pig breeding industry was in the doldrums but recovered in Aug. In July 2014, data from the Ministry of Agriculture of China indicated that swine's inventory increased by 0.3% month on month, but, a YoY decrease of 5.4%; adult sow' inventory decreased by 1.2% month on month with a YoY fall of 9.1%. In Aug. 2014, pig breeding had a turnaround. Live pig price went up in July 2014, with a MoM increase of 6%. On 20 Aug. 2014, the average price of live pig was USD2,428/t in China. The price rise was driven by the increasing demand. With the coming Mid-autumn Festival and the National Day, demand for live pigs will increase continuously with a great deal of live pig available for slaughter. Therefore, the rise of pig's market price motivated raisers enthusiasm of increasing the number of live pig and boosted the demand for pig feeds, which was favorable for lysine's price rise in the end. Figure 16: Ex-works price of lysine in China, Aug Source: CCM 25/30

26 Table 13: Capacity of China s major lysine enterprises, t/a, 2013 No Enterprise Specification 98.5% 70% 65% 1 Global Bio-chem Technology Group Co., Ltd. 100, , ,000 2 CJ Liaocheng Biotech Co., Ltd. 130, , Ningxia EPPEN Biotech Co., Ltd. 60,000 85,000 55,000 4 Heilongjiang Chengfu Group Co., Ltd. 26,000 40,000 30,000 5 Easthope Baotou Biology Engineering Co., Ltd. 0 50,000 30,000 6 Meihua Holdings Group Co., Ltd. 30,000 35, COFCO Bio-chemical (Anhui) Co., Ltd. 30, ,000 8 Shandong Shouguang Juneng Golden Corn Co., Ltd. 10,000 20,000 25,000 9 Star Lake Bioscience Co., Ltd. 15, , Changzhi Jinze Biological Engineering Co., Ltd. 10,000 20, Henan Xinxiang Hua Xing Pharmaceutical Factory 10,000 20,000 0 Source: CCM Others 1,000 5,000 4,000 Total 422, , ,000 Figure 17: Market price of live pigs in China, Jan.-20 Aug., 2014 Source: CCM Market Price of Imported Methionine Grows Since May 2014 in China Summary: According CCM's investigation, quoted price of imported methionine offered by domestic dealers or traders went up drastically in May 2014, maintaining at a relatively high level during June-Aug In May 2014, the market price of China's imported methionine went up. For example, according to the investigation of CCM, the average quoted price of imported solid methionine offered by domestic distributors or traders increased from USD4,432/t in April 26/30

27 2014 to USD5,276/t in May During June-Aug. 2014, the quotation of the product was above USD6,000/t. China is heavily dependent on imported methionine. As one of the largest feed producers in the world, China demands 150, ,000 tonnes of methionine one year. By the end of Nov. 2013, the capacity of domestic methionine reached about 83,000 t/a. But home-made methionine cannot fully meet the demand in domestic market. The market price of imported methionine rebounded in China in May 2014, which attributed to the following reasons: For one thing, it was boosted by the recovery of domestic downstream breeding industry. According to the Ministry of Agriculture of the People's Republic of China's price monitoring on livestock and poultry products and feed in designated 480 shops, the average market price of compound feed for finishing pig increased from USD533/t in the first week to USD553/t in the fourth week of Aug. 2014, as well as compound feed for chicken, rising from USD550/t to USD564/t. Firstly, after a price fall for four consecutive months, the domestic market price of live pig rose since May The domestic market price of live pig increased from USD1,708/t in April 2014 to USD2,056/t in May 2014, reaching USD2,390/t in Aug Hereafter, its market price went up for the government's pork purchasing and storage policy. With the celebration of the Dragon Boat Festival and the coming of the Midautumn Festival and the National Day, live pig is in short supply. Secondly, as weather became warmer, domestic aquaculture entered into peak season, so the demand for feed additive (methionine) was supported by demand for aquatic feed. Thirdly, with the growth in domestic poultry price in May 2014, the gross profit of domestic poultry breeders went up, which motivated their enthusiasms to increase the number of poultry. For another, methionine was in short supply. In terms of home-made methionine, in Oct. 2013, Chongqing Unisplendour Chemical Co., Ltd. (CUC), a major maufacturer of methionine in China, was ordered to suspend methionine production line by Chongqing Environmental Protection Administration on account of pollution violation and it did not resume production by the end of Aug yet. As for imported methionine, because of the overhaul, overseas methionine manufacturers had a relatively low operating rate. But, overseas methionine manufacturers also controlling the supply of methionine aggravated tense supply of methionine in domestic market. During July-mid Aug. 2014, the quoted price of imported methionine decreased slightly. Because of the high temperature and the concern of the outburst of H7N9 in summer, raisers' enthusiasms to replenish the poultry livestock was low, which weakened the demand for methionine. In addition, it was reported that in July 2014, Evonik and Sumitomo increased the supply of methionine in China. In fact, in late Aug. 2014, traders offered a higher quotation of imported methionine due to the short supply of methionine. Overseas enterprises maintained a low operating rate for an overhaul in Aug At the same time, Bluestar Adisseo Nutrition Group Ltd. suspended the production of liquid methionine in Nanjing plant between 16 Aug and 28 Aug It's estimated by CCM that the quotation of imported methionine would remain high in the next month. There were two reasons for that. Firstly, methionine was in short supply. Secondly, live pig and poultry industry was lucrative at present. And downstream industry had increasing demand for methionine, which was favorable for the deals of methionine in the market. 27/30

28 Figure 18: Domestic distributors' quotation of imported methionine, Jan Aug., 2014 Source: CCM Selling Price of Tryptophan Falls in China, Aug Summary: Some of domestic tryptophan manufacturers lowered its selling price in Aug. 2014, affected by the weak demand from downstream industries and the falling market price of soybean meal. In Aug. 2014, with the rising price of animal products, domestic demand for feeds will gradually increase, which revived domestic market of feed-grade amino acids, that of tryptophan excluded. According to CCM's investigation, the ex-works price of 98% tryptophan produced by Henan Julong Bioengineering Co., Ltd. (Henan Julong) reached USD17,830/t-USD17,880/t in Aug. 2014, about USD4,100/t lower than that in July (Henan Julong is the largest tryptophan manufacturer in China, with a capacity of tryptophan reaching 7,000 t/a.) A fall in the selling price of tryptophan was attributed to the following reasons: For one thing, sluggish demand from downstream industry led to the price fall. Part of tryptophan manufacturers reduced its price, hence, downstream enterprises hold wait-and-see mood, causing weak actual transactions. For another, the constant falling price of soybean meal also had an impact on demand for tryptophan. As feed-grade amino acids are easy to be substituted, its adding amount and useage are affected by feedstuff, such as soybean meal, corn and wheat, etc. The adding amount of soybean meal will be increased when its cost is low, so as to reduce the useage of amino acid additives and corn (or wheat) to guarantee nutritional balance. Due to the weak demand, the domestic market price of soybean meal kept falling since May According to CCM's investigation, the domestic market price of 43% soybean meal witnessed a fall from USD646/t in May 2014 to USD598/t in Aug In fact, during July-Aug. 2014, domestic tryptophan supply dropped, but, it did not revitalize domestic market of tryptophan. At the beginning of July 2014, Henan Julong revealed that the company started to conduct a regular overhaul on associated equipment of tryptophan production line for 45 days. In addition, Meihua Holdings Group Co., Ltd. (the second largest tryptophan manufacturer in China) also had an overhaul in summer. 28/30

29 It's estimated that the price of tryptophan will maintain at low level in short term. As weather becomes cool, the domestic tryptophan outputs are expected to increase. Besides, an increase in imports of tryptophan will exert great pressure on domestic market. However, overall demand for livestock feeds will increase after autumn, which may push up tryptophan's price. Figure 19: Ex-works price of Henan Julong's 98% L-tryptophan in China, 2 Jan.-28 Aug., 2014 Source: CCM Table 14: Capacity of major tryptophan manufacturers in China, H No. Manufacturer Capacity, t/a 1 Henan Julong Bioengineering Co., Ltd. 7,000 2 Meihua Holdings Group Co., Ltd. 5,000 3 Zhejiang Shenghua Biok Biology Co., Ltd. 2,300 4 COFCO Bio-chemical (Anhui) Co., Ltd. 1,000 5 Global Bio-chem Technology Group Co., Ltd. 1,000 6 Ningxia EPPEN Biotech Co., Ltd. 1,000 7 Shandong Lukang Shelile Pharmaceutical Co., Ltd Hubei Bafeng Pharmaceutical Co., Ltd Zhejiang Dream Garden Biotechnology Co., Ltd Tianjin Tianan Pharmaceuticals Co., Ltd. 20 Source: CCM 29/30

30 Journalist: Junwei Chen, Shuixiu Feng Editor: Ally Bi Chief Editor: Xuejian Shi Publisher: Guangzhou CCM Information Science & Technology Co.,Ltd CCM's legal disclaimers 1. CCM guarantees that the information in the report is accurate and reliable to the best of its knowledge andexperience. CCM defines the report as a consulting product providing information and does not guarantee its information is completely in accordance with the fact. CCM shall not have any obligations to assume any possibledamage or consequences caused by subscribers any corporate decisions based upon subscribers own understandingand utilization of the report. 2. The complete copyright of the report is and will be held by CCM. Subscribers shall not acquire, or be deemed toacquire the copyright of the report. 3. The report provided by CCM shall be only used as source of subscriber s internal business decisions and shall notbe used for any other purposes without CCM s prior written consent, unless stated and approved in license contractsigned by both parties. Subscribers shall not distribute, resell and disclose the whole report or any part of the report to third parties and shall not publish any article or report by largely or directly copying or citing the information or databased on CCM s report without the prior written consent of CCM. 4. Single User License means that there shall be only ONE person to receive, access and utilize the reportsubscriber can present the content of the report that marked the source from CCM to their internal colleagues for theirinternal communication and utilization, but cannot share the whole report to other individuals. Any citation, distribution,reselling and disclosure of the report as well as its partial content to any third party are prohibited, including but notlimited to their parent companies or subsidiaries. 5. Corporate License means that subscriber shall not cite, distribute, resell the report or disclose information of thereport to any third party without CCM's prior written consent, except subscribers' affiliates controlled with ownership of more than 50% of shares. Guangzhou CCM Information Science & Technology Co., Ltd. Any publication, distribution or copying of the content in this report is prohibited. 17th Floor, Huihua Commercial & Trade Building, No.80 XianlieZhong Road Guangzhou, , P.R.China Tel: Fax: econtact@cnchemicals.com Website: