Aug 26 2010
Keyuan Petrochemicals, Inc. (OTC Bulletin Board: KYNP) ("Keyuan or "The Company"), a leading independent manufacturer and supplier of various petrochemical products in China, announced it entered into land use right transfer agreements with the local government of Ningbo on August 18, 2010.
Pursuant to the land use right transfer agreements, Keyuan acquired four parcels of land adjacent to the Company's current facilities totaling approximately 1.2 million square feet. The total cost of the land was approximately $5.8 million, lower than the Company's original $20 million projection. By acquiring the land, the Company will be able to begin the construction of a storage facility, a raw material pre-treatment facility and an asphalt production facility as the Company originally planned. In addition, in the third quarter of 2010, the Company will also begin building a new Styrene-Butadiene-Styrene ("SBS") production facility on the land, which will be included in the expansion plan together with the three facilities mentioned above. SBS is commonly used in soles of shoes, tire treads and other products that require a hard rubber to remain sturdy for a long time. China's current production capacity of SBS is approximately 600,000 metric tons per year while domestic demand is projected to reach 750,000 metric tons in 2010.
"We are pleased to have secured the land we needed to begin our next phase of expansion," said Mr. Chungfeng Tao, Chairman and Chief Executive Officer of Keyuan. "We see a tremendous opportunity to gain market share in the SBS market, given the value-added nature of the product and the supply-demand imbalance that exists today. Our expansion plan includes four new state-of-the-art facilities and they will not only allow us to increase our capacity and expand into new markets but also make us more efficient."
Once completed, the new facilities will add an additional 100,000 MT of petrochemical storage capacity, a raw materials pre-treatment plant, 300,000 MT asphalt production capacity, and 70,000 MT of SBS production capacity. We expect the SBS facility and the storage capacity expansion to be completed in the second half of 2011; and the raw materials pre-treatment and asphalt production facilities to be completed in the 1st half of 2012.
The total build-out of the storage, pre-treatment and asphalt facilities will be approximately $70 million, including $20 million for facility construction, $40 million for new equipment, and $10 million for working capital. Management expects that these three projects together will increase sales by as much as $298 million and net income by approximately $30 million per year.
The total cost of the SBS facility will be approximately $17.5 million. Management expects the SBS facility will generate approximately $110 million in sales and between $10 million to $11 million in net profit annually once it reaches full capacity.