DÜSSELDORF, GERMANY (Nov. 7, 5:10 p.m. EST) — 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 considering manufacturing facilities in overseas markets. Possible sites are under planning in Mexico, the United States or Canada, and Europe.
No definite timetable is available, but the 14-year-old compounder with 1 billion pounds 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 in 2006, and are projected to reach $933 million for fiscal 2007.
The company operates sales offices in El Paso, Texas; San Diego; Detroit; Toronto; 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 Oct. 24-31 in Dusseldorf. “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 12.53 percent in 2006, up 2.18 points from the previous year.
Whether Kingfa will be able to ensure the profitability of manufacturing in North America or Europe, Cai said the determining factor is market scale.
“If annual volume exceeds 30,000-50,000 metric tons [66 million to 110 million pounds] 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 an overseas market is bearable. “Freight and tariff add about $100 cost per metric ton for exports.”
The different packaging practices in different markets — rail cars in the U.S. vs. sacks in China — are less of a problem than some assume. Cai said his company ships large sacks that hold up to 2,200 pounds of resin.
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.
Cai forecasted the company to top $2 billion 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 regulations 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 with more sustainable products, Cai said, such as bio-based resins.
After three years of research and development, Kingfa is now in the early stages of commercializing its polybutylenes succinate and polylactic acid-based compounds.
The company has established production facility capable of making 6.6 million to 11 million pounds of PLA compounds annually, based on lactic acid purchased domestically. Similar scale capacity also is set up for PBS, Cai said.
