China's Fufeng sees H1 profit doubling, helped by Olympics

By Niu Shuping

BEIJING, July 14 (Reuters) - Fufeng Group Ltd (0546.HK), China's top producer of glutamic acid, the raw material for MSG, expects first-half net profit will more than double due to price rises following Beijing's closure of small rivals.

Henley Gong, its chief financial officer, told Reuters he expects first half net profit to more than double from HK$40 million in the year-ago period, following price increases of 15 to 20 percent this year for glutamic acid.

Beijing has accelerated the closure of heavily polluting small rivals ahead of the Olympic Games, which begin Aug. 8. Beijing has ordered a number of polluting industrial plants to close ahead of the Games, including steel mills and starch makers.

Since last year, the government has closed small glutamic acid producers with total capacity of nearly 500,000 tonnes. That helped eliminate a surplus of the raw material, which is made from corn and is used to produce monosodium glutamate, or MSG, a common flavor enhancer used in cooking.

"After closure, the remaining capacity of 1.2 million tonnes was in a balance with market demand," said Gong.

Gong said there are now 5 major producers that account for a combined market share of as much as 80 percent.

Prices for corn, the raw material for glutamic acid, in the first half of the year remained lower than in 2007 when they surged to a record high, prompting Beijing to release state reserves and halt exports to help contain decade-high inflation.

Record corn prices last year coupled with low prices of glutamic acid had caused the company's 2007 net profit to fall by more than 80 percent.

The company's shares were trading at about HK$0.54 early on Monday, up about 3.9 percent.

"Under current market conditions, we can pass any extra costs to end users, which we failed to do last year due to surplus production," said Gong.

The company produces 300,000 tonnes of glutamic acid a year and uses about 1 million tonnes of corn.

"We expect the outlook in the second half of the year will be better after technical renovations inside the company are finished this month, helping lower costs."

The company also plans to expand production capacity of xanthan gum -- an additive used for thickening foods such as milk or salad dressing -- to 28,000 tonnes in the fourth quarter from 18,000 tonnes now.

The company exported 90 percent of the additive to overseas markets.

($1=6.835 Yuan)

(Reporting by Niu Shuping; editing by Ken Wills)