Singapore (Platts)--18May2009

Gushan Environmental Energy is starting to see business conditions
improve in China's biodiesel market, and is cautiously optimistic the worst
could be behind it after posting two successive quarters of financial
losses, company leaders told investors in a conference call late Friday.
The Chinese biodiesel giant -- one of the world's largest surviving
biodiesel makers, with a total production capacity of 340,000 mt (6,700 b/d)
spread across five plants in China -- registered a net loss of $339,000 in
the first three months of this year. That result compared poorly with a net
profit of $16.27 million for the same quarter in 2008, but was much better
than the $5.52 million loss it suffered in the final quarter of last year.
"We are cautiously optimistic that the worst may be over in terms of
margin pressure," Gushan President Wilson Kwong Wai Sun told investors in a
conference call after the results were released on Friday.
The company suffered a serious squeeze on profitability last quarter. The
value of its biodiesel fell far more quickly than the cost of its feedstocks,
which are mostly made up of used cooking oil and vegetable oil waste. Gushan
said it sold biodiesel at an average price of Yuan 4,003/mt ($585.80/mt) last
quarter, down 27.4% year on year and down 21.4% from the fourth quarter.
Feedstock costs rose 6.2% year on year, and fell 10.1% quarter on
quarter, to Yuan 2,430/mt ($355.60/mt).
The company raised biodiesel production and sold 63,290 mt of the product
in the face of the margin squeeze, pushing up sales volume by 22.3% from
the first quarter of 2008 and up 12.9% from the fourth quarter of 2008.
Gushan has been in a determined expansion drive since it was listed on
the New York Stock Exchange in November 2007, adding plant capacity around
China at a fairly brisk rate. The jump in sales volume followed on from the
startup of a new 50,000 mt/year biodiesel plant in Shanghai last June. The end
of maintenance work at its Fujian, Sichuan and Handan plants in November and
December helped lift sales.
Kwong said the company's expansion plans were likely to continue for now,
but added the company would take another look at its projects if there is any
major downturn in its already difficult operating conditions. He estimated
that current biodiesel prices were still around Yuan 4,000/mt -- little
changed since the end of the last quarter -- helping take the intense pressure
off Gushan for the moment.
Gushan started up a new 50,000 mt/year biodiesel plant at its Beijing
works in March this year, taking the site's total capacity to 100,000 mt/year.
The company still plans to start new plants in Chongqing and Hunan, each
with a rated production capacity of 30,000 mt/year, in the current quarter. It
also plans to add a new 50,000 mt/year plant at its Shanghai works in the
third quarter of 2009.
Gushan is also building a new plant near its existing Sichuan works,
which would be dedicated to processing inedible oils like jatropha. That
50,000 mt/year plant is expected to start up in the first half of 2010.
--Dave Ernsberger, dave_ernsberger@platts.com