China Essence

[potatolover]

5.4 cents (all time low)... not sure if Sanlam or some of the other fund houses are selling too..
(Value Partners , Populus Fund)....

dropping below 5 cents is a matter of time...since the starch price is still stagnant at 6000 RMB level

[jzk]

400.000-500.000 shares traded daily for the last week. If the seller is Sanlam, they still have almost 35M shares to sell... Sanlam seems to be yet another hedge fund struggling to beat their benchmark this year. It is fairly easy to imagine the fund manager being under heavy pressure from his clients, hence needing cash for pending redemptions. In the short term (weeks) this is certainly not good news for the share price. On the other hand, short-term trading is essentially for those shares with average spread of few basis points, not with totally illiquid nano-caps.

Should the production amounts fall substantially (the whole sector faces the imminent problem of negative refining margin and scarce cash), do you think that could have any effect on the starch price next winter?

[Underdogger]

I have studied the price pattern and relationship b/w price of potato and starch for the last 2 harvests...

if price of potato goes up, price of starch will follow suit.
But there is a floor to the price of potatoes as Govt is protecting the farmers. But there is no floor to the price of starch!!!

hence, in the last harvest when the price of potato fell and stopped at around 500 rmb per tonne, the price of starch continued falling...

Hence, my point is that mid-stream starch producers are squeezed out in the middle.

Very dangerous situation..

400.000-500.000 shares traded daily for the last week. If the seller is Sanlam, they still have almost 35M shares to sell... Sanlam seems to be yet another hedge fund struggling to beat their benchmark this year. It is fairly easy to imagine the fund manager being under heavy pressure from his clients, hence needing cash for pending redemptions. In the short term (weeks) this is certainly not good news for the share price. On the other hand, short-term trading is essentially for those shares with average spread of few basis points, not with totally illiquid nano-caps.

Should the production amounts fall substantially (the whole sector faces the imminent problem of negative refining margin and scarce cash), do you think that could have any effect on the starch price next winter?

[Underdogger]

All time low 5 cents today...

45 cents IPO
highest point - $1.07
recent low 9 cents when Lee Kah Bao sold off his 35mil shares...

[Curiousparty]

So Mr Lee is the smart Alex . Winner...at least, he sold off most of it above 10 cents and Sanlam bought over some of it..

All time low 5 cents today...

45 cents IPO
highest point - $1.07
recent low 9 cents when Lee Kah Bao sold off his 35mil shares...

[Underdogger]

i think we might see a lot of S chips closing shops in the few months ahead if economic situation does not improve....

*******************

China Confronts Mounting Piles of Unsold Goods

GUANGZHOU, China — After three decades of torrid growth, China is encountering an unfamiliar problem with its newly struggling economy: a huge buildup of unsold goods that is cluttering shop floors, clogging car dealerships and filling factory warehouses.

The glut of everything from steel and household appliances to cars and apartments is hampering China’s efforts to emerge from a sharp economic slowdown. It has also produced a series of price wars and has led manufacturers to redouble efforts to export what they cannot sell at home.

The severity of China’s inventory overhang has been carefully masked by the blocking or adjusting of economic data by the Chinese government — all part of an effort to prop up confidence in the economy among business managers and investors.

But the main nongovernment survey of manufacturers in China showed on Thursday that inventories of finished goods rose much faster in August than in any month since the survey began in April 2004. The previous record for rising inventories, according to the HSBC/Markit survey, had been set in June. May and July also showed increases.

“Across the manufacturing industries we look at, people were expecting more sales over the summer, and it just didn’t happen,” said Anne Stevenson-Yang, the research director for J Capital Research, an economic analysis firm in Hong Kong. With inventories extremely high and factories now cutting production, she added, “Things are kind of crawling to a halt.”

Problems in China give some economists nightmares in which, in the worst case, the United States and much of the world slip back into recession as the Chinese economy sputters, the European currency zone collapses and political gridlock paralyzes the United States.

China is the world’s second-largest economy and has been the largest engine of economic growth since the global financial crisis began in 2008. Economic weakness means that China is likely to buy fewer goods and services from abroad when the sovereign debt crisis in Europe is already hurting demand, raising the prospect of a global glut of goods and falling prices and weak production around the world.

Corporate hiring has slowed, and jobs are becoming less plentiful. Chinese exports, a mainstay of the economy for the last three decades, have almost stopped growing. Imports have also stalled, particularly for raw materials like iron ore for steel making, as industrialists have lost confidence that they will be able to sell if they keep factories running. Real estate prices have slid, although there have been hints that they might have bottomed out in July, and money has been leaving the country through legal and illegal channels.

Interviews with business owners and managers across a wide range of Chinese industries presented a picture of mounting stockpiles of unsold goods.

Business owners who manufacture or distribute products as varied as dehumidifiers, plastic tubing for ventilation systems, solar panels, bedsheets and steel beams for false ceilings said that sales had fallen over the last year and showed little sign of recovering.

“Sales are down 50 percent from last year, and inventory is piled high,” said To Liangjian, the owner of a wholesale company distributing picture frames and cups, as he paused while playing online poker in his deserted storefront here in southeastern China.

Wu Weiqing, the manager of a faucet and sink wholesaler, said that his sales dropped 30 percent in the last year and he has piled up extra merchandise. Yet the factory supplying him is still cranking out shiny kitchen fixtures at a fast pace.

“My supplier’s inventory is huge because he cannot cut production — he doesn’t want to miss out on sales when the demand comes back,” he said.

Part of the issue is that the Chinese government’s leaders have decided to put quality-of-life concerns ahead of maximizing economic growth when it comes to two of the country’s largest industries: housing and autos.

Premier Wen Jiabao has imposed a strict ban on purchases of second and subsequent homes, in the hope that discouraging real estate speculation will improve the affordability of homes. The ban has resulted in a steep decline in residential real estate prices, a sharp fall in housing construction and widespread job losses among construction workers.

At the same time, the municipal government in Guangzhou, one of China’s largest cities, has sharply reduced this summer the number of new car registrations it allows so as to reduce traffic congestion and air pollution.

Municipal officials from all over China have been flocking to Guangzhou to ask for details. Xi’an, the metropolis of northwestern China, has already announced this month that it will limit car registrations, although it has not settled on the details.

The Chinese auto industry has grown tenfold in the last decade to become the world’s largest, looking like a formidable challenger to Detroit. But now, the Chinese industry is starting to look more like Detroit in its dark days in the 1980s.

Inventories of unsold cars are soaring at dealerships across the nation, and the Chinese industry’s problems show every sign of growing worse, not better. So many auto factories have opened in China in the last two years that the industry is operating at only about 65 percent of capacity — far below the 80 percent usually needed for profitability.

Yet so many new factories are being built that, according to the Chinese government’s National Development and Reform Commission, the country’s auto manufacturing capacity is on track to increase again in the next three years by an amount equal to all the auto factories in Japan, or nearly all the auto factories in the United States.

“I worry that we’re going down the same road the U.S. went down, and it takes quite some time to fix that,” said Geoff Broderick, the general manager of Asian operations at J. D. Power & Associates, the global consulting firm.

Automakers in China have reported that the number of cars they sold at wholesale to dealers rose by nearly 600,000 units, or 9 percent, in the first half of this year compared to the same period last year.

Yet dealerships’ inventories of new cars rose 900,000 units, to 2.2 million, from the end of December to the end of June. While part of the increase is seasonal, auto analysts say that the data shows that retail sales are flat at best and most likely declining — a sharp reversal for an industry accustomed to double-digit annual growth.

“Inventory levels for us now are very, very high,” said Huang Yi, the chairman of Zhongsheng Group, China’s fifth-largest dealership chain. “If I hadn’t done special offers in the first half of this year, my inventory would be even higher.”

Manufacturers have largely refused to cut production, and are putting heavy pressure on dealers to accept delivery of cars under their franchise agreements even though many dealers are struggling to find places to park them or ways to finance their swelling inventories. This prompted the government-controlled China Automobile Dealers Association to issue a rare appeal to automakers earlier this month.

“We call on manufacturers to be highly concerned about dealer inventories, and to take timely and effective measures to actively digest inventory, especially taking into account the financial strain on distributors, as manufacturers have to provide the necessary financing support to help dealers ride out the storm,” the association said.

Officially, though, most of the inventory problems are a nonissue for the government.

The Public Security Bureau, for example, has halted the release of data about slumping car registrations. Data on the steel sector has been repeatedly revised this year after a new method showed a steeper downturn than the government had acknowledged. And while rows of empty apartment buildings line highways outside major cities all over China, the government has not released information about the number of empty apartments since 2008.

Yet businesspeople in a wide range of industries have little doubt that the Chinese economy is in trouble.

“Inventory used to flow in and out,” said Mr. Wu, the faucet and sink sales manager. “Now, it just sits there, and there’s more of it.”

http://www.nytimes.com/2012/08/24/busine...h_20120824

[Stockerman]

James Chanos had predicted huge amt of unsold goods back in Nov 2010 - Now we are seeing it - Soon the whole world will feel the ripples...

In January, 2011, the NY Times wrote an article on James Chanos, who predicted the Enron collapse, Tyco and other major financial issues. The article quoted him as telling Politico in November, 2010, “The Chinese are in danger of producing huge quantities of goods and products that they will be unable to sell.”

Now in 2012 we have the NY Times headline, China's economy besieged by buildup of unsold goods.

This is just the tip of the iceberg, says Chanos.

His fund has over 6 billion dollars bet on the Chinese economy collapsing.

--------------------------------------------------------------------------------
Life and career
James Chanos was born in 1957. He was born into a Greek family living in Milwaukee.[1] he graduated from Wylie E. Groves High School, and then Yale in 1980. He describes his investment strategy as being based on "intensive research into stocks"[2] looking for fundamental and large market failures in valuation, typically based on underestimated or previously unreported failings in the business or market of a stock. Followed by committing to a (usually large) short-position which he is willing to hold for long period of time—almost the mirror image of Warren Buffett's reputed "fundamentals+long stay" investment strategy[citation needed]. Because of this model, his investments function more like those of a whistle-blower than most typical investments. Examples of this include short-selling companies such as Baldwin-United, and more recently Enron Corporation.[3]
He rose to fame in the 1980s as a short seller. After working as an analyst in several firms, he founded Kynikos (Greek for "cynic") in 1985 as a firm specializing in short selling. A critical position taken at Kynikos was his shorting of Enron.[4]
In October 2000, Chanos started research into the valuation of Enron Corporation. He examined their use of mark-to-model (opposed to mark-to-market) accounting, which, in Chanos' view, results in management overstating earnings, as well as what appeared to be a worryingly low (6-7%) return on capital investment. Enron stock declined from $90 in August 2000 to a low of $1 near the end of 2001.[5] Over this period, Chanos was a short seller of Enron during 2001, increasing his short position as more information surfaced. Kynikos profited greatly and Chanos himself became something of a celebrity as a consequence of his early awareness of Enron's problems.[6]
In 2010, James Chanos warned that China’s hyperstimulated economy was headed for a crash, not a sustained boom.[7] He questioned the stability of Chinese economy, stating that historically analogous evidence points especially to a housing bubble, mentioning commercial real estate in particular.[8]

[Underdogger]

All time low at 4.8 cents and starch price still below 7000 to 7300 RMB level, the level below which the company will not make any net profit..

Can Essence withstand another net profit loss for the FY?

[jzk]

No way they could live with FY 2013 loss. Cash is already critical, DBS credit still unsolved and partial CB paybacks looming every six months. They simply must produce positive cash flow to survive. So far I'm not judging it impossible, but soon we will see. They have three options:
1) Starch production volumes go substantially down, which pulls starch price up next winter.
2) They invent some sort of magic trick to hoard enough potatoes to cut overhead expenses down.
3) Go out of business.

I'm expecting a sort of mid-term report some time late september, since by then they should know enough about production tonnages and DBS.

[Underdogger]

Hi

May I check ur definition of cashflow?

Net operating CF?
Free cashflow (after capex)?
overall cash increase?

Operating CF = net income + depreciation + interest expense , etc

Even if net income is negative, the operating CF can still be positive if depreciation is greater than the loss in net income...

No way they could live with FY 2013 loss. Cash is already critical, DBS credit still unsolved and partial CB paybacks looming every six months. They simply must produce positive cash flow to survive. So far I'm not judging it impossible, but soon we will see. They have three options:
1) Starch production volumes go substantially down, which pulls starch price up next winter.
2) They invent some sort of magic trick to hoard enough potatoes to cut overhead expenses down.
3) Go out of business.

I'm expecting a sort of mid-term report some time late september, since by then they should know enough about production tonnages and DBS.