Jiutian Chemical Eyes RMB1.6 Billion Investment for Expansion into Synthetic Ammonia

Jiutian Chemical Group is set to embark on a strategic investment of RMB1.6 billion ($296.96 million) to diversify its product portfolio and enhance control over its supply chain. The Singapore-listed company, headquartered in China's Henan Province, currently engages in the production of dimethylformamide (DMF), methylamine, sodium hydrosulfate, and dimethylacetamide (DMAC). In a bold move, Jiutian aims to expand its operations into the production and sale of synthetic ammonia, leveraging the project rights in Henan held by its controlling shareholder, Anyang Chemical Industry Group.

On January 13, Jiutian officially announced its intention to undergo an independent valuation of the proposed synthetic ammonia project. The valuation process, if deemed necessary, will precede the presentation of the deal to shareholders for approval at an Extraordinary General Meeting (EGM). To fund this strategic initiative, Jiutian plans to utilize RMB480 million from internal funds, complemented by a borrowed sum of RMB1.12 billion.

Synthetic ammonia, a crucial feedstock in the production of DMF, holds strategic importance for Jiutian. The company boasts that Anyang Jiutian, one of its key operating units, stands among the world's largest DMF producers. DMF, in turn, plays a vital role in the manufacturing of acrylic fibers and plastics.

The primary objective behind Jiutian's venture into synthetic ammonia production is to enhance operational efficiencies, ultimately gaining a competitive edge in terms of cost and quality. By internalizing the production of synthetic ammonia, Jiutian aims to reduce dependence on third-party suppliers and potentially explore new markets for surplus production.

Synthetic ammonia finds extensive applications in the chemical synthesis industry, particularly in the manufacturing of plastics and polymers, as well as in metallurgy. Jiutian's strategic move aligns with a broader industry trend where companies seek greater control over key inputs to optimize their operations.

In its 3QFY2023 business update, covering the period ended September 30, Jiutian reported a net loss of RMB68.6 million. This marked a significant downturn compared to the previous year when earnings stood at RMB93.5 million. Sales during the same period experienced an 85% year-on-year plunge, reaching RMB80.2 million.

Jiutian attributes this downturn to a decline in both sales volume and average selling prices of DMF, its primary product. The challenging market conditions were further exacerbated by an industry-wide softening of demand, a consequence of the slower-than-expected economic recovery in China. The entry of a new competitor, Jiangxi Xinlianxin Chemical Industry, in the fourth quarter of FY2022 also contributed to intensified market pressures.

Jiutian Chemical Group's shares were last traded at 2.6 cents, marking a 67.5% decrease over the past 12 months. The company's strategic decision to invest in synthetic ammonia production underscores its commitment to navigating market challenges and securing a more robust position in the evolving chemical industry landscape. As the company diversifies its operations, shareholders and industry observers will closely monitor the outcomes of this strategic move and its potential impact on Jiutian's future performance and market standing.