Guanwei to invest $60 million in expansion despite falling orders

By Steve Toloken
Staff Reporter / Asia Bureau Chief

By Nina Ying Sun
Assistant Managing Editor

Published: May 19, 2014 3:03 pm ET
Updated: May 19, 2014 3:11 pm ET

Image By: Guanwei Recycling Corp. Guanwei Recycling Corp. during its first days on the Nasdaq stock exchange.

Related to this story

Topics Sustainability, China, Recycling

Guanwei Recycling Corp. hasn’t announced it to its investors yet, but the company just signed off on an expansion project, despite a tanking stock price and poor first quarter results.

According to Fuzhou Daily, the government-owned newspaper of Fujian’s provincial capital, Guanwei signed an agreement on May 17 to invest $60 million to build up production and R&D at its headquarters in Fuqing, China.

Half of the $60 million total will be categorized as “foreign investment,” the report said, giving no other details.

Guanwei’s stock price on Nasdaq has dropped about 60 percent since mid-March.

Its first quarter sales shrank 20 percent year-on-year to $11.8 million and net profit contracted by two-thirds to $750,000.

The company put the blame on a worse-than-expected slump in demand, higher costs from the country’s “Green Fence” environmental crackdown and labor shortages.

 “Without question the biggest and most serious problem we had in the quarter, and something we have rarely encountered in our history, was the reduction in orders pretty much across the board in our fairly diversified client base,” said Chen Min, chairman and CEO, in a May 16 conference call with investors.

“The surprise wasn’t in the weakness of the economy, that was fairly clear as we began the year,” he said. “Really it was the severity of the situation with customers in nearly all industries, although most of all in consumer oriented businesses.”

He said the next six months are not likely to be significantly better, which seems to mark a change in tone from the company’s earlier projections that 2014 would have a positive growth outlook.

Guanwei said it has manufacturing capacity of 80,000 metric tons and is one of the few Chinese companies certified by German authorities to import recycled raw materials directly from that country, without brokers. It claims that gives it a cost advantage.

But that was apparently not enough to help its finances in the first part of the year. Sales volume fell 22 percent to 9,275 tonnes of LDPE in the period, part of what Chen labeled a “perfect storm” of trouble.

Company executives acknowledged that they were surprised in the first quarter by continued troubles from China’s “green fence” crackdown on pollution in the recycling industry and by the scope of labor shortages.

“When we ended 2013 we honestly thought and told you that while problems we experienced in the third quarter with expected new governmental environmental activism were not over, the worst seemed behind us,” he said. “It turns out this was not really the case.”

In particular, the company had higher costs in sorting of materials, a problem worsened by labor costs that rose 27 percent to $61 per ton. Raw material costs rose 13 percent to $866 per ton. It said it increased salaries last year but lost more workers than expected after the Chinese New Year holiday in February.

“We took steps in the form of increased wages and training to try to head off the problem in 2014 and also felt reasonably OK, but it turned out this was not enough,” he said. “Following the Spring Festival in February, what we thought might be a small bleed turned out to be more of a mini hemorrhage in terms of the return to work of our experienced workers.”

In the conference, the company declined to comment on a U.S. Securities and Exchange Commission announcement in early May that accused some of its former investors of involvement in a fraud scheme with Guanwei stock, other than to repeat previous statements.

SEC is suing its former investors for stock manipulation.


Comments

Guanwei to invest $60 million in expansion despite falling orders

By Steve Toloken
Staff Reporter / Asia Bureau Chief

By Nina Ying Sun
Assistant Managing Editor

Published: May 19, 2014 3:03 pm ET
Updated: May 19, 2014 3:11 pm ET

Post Your Comments


Back to story


More stories

Image

Study: 100 times less plastic than expected polluting ocean surface

July 23, 2014 3:46 pm ET

There's as much as 100 times less plastic floating on surface of the world's oceans than would be expected given the mushrooming use of the material...    More

Image

Asia to remain chemical giant but US shale will bring competition

July 23, 2014 1:00 pm ET

A new IHS Chemical report on global spending for chemical production predicts capacity additions will peak in 2014 at $120 billion and then will...    More

Image

Plastics industry blasted for stance in green building debate

July 22, 2014 2:45 pm ET

The plastics industry has taken high-profile stance in the debate over green building standards. The result, today at least, is that it's getting...    More

Image

Plastics help designers bring home the gold

July 22, 2014 2:15 pm ET

Products with polymer content received multiple gold recognitions in the 2014 International Design Excellence Awards.    More

Image

Evolving with the times helps Ohio's Midwest Elastomers prosper

July 22, 2014 12:53 pm ET

Midwest Elastomers Inc. is 35 years old this year, and if the company hadn't abandoned its roots and evolved, it long ago could have gone the way of m...    More

Market Reports

Injection Molders Market Report & Ranking 2014

This special package contains our 132-page 2014 Market Report on the Injection Molding segment and our exclusive 2014 RANKINGS database of 500+ Injection Molders for a discounted package price.

Learn more

Plastics Recycling Market Review & Outlook 2014

This special report from Plastics News examines the North American plastics recycling industry and provides insight into indicators that impact market viability, including Resin pricing trends for virgin and recycled market material and historical Resin production trends for post- consumer and industrial waste.

Learn more

Shale Gas Market - Analysis of North American Region

This report highlights the impact of shale-based natural gas on the North American plastics market and features an in-depth analysis of production trends in the United States during 2013 and a forecast for 2014 and beyond.

Learn more

Upcoming Plastics News Events

September 10, 2014 - September 12, 2014Plastics Caps & Closures 2014

February 4, 2015 - February 6, 2015Plastics News Executive Forum 2015

More Events