ShengdaTech is China's only approved supplier of nano precipitated calcium carbonate (NPCC) products to the domestic tire industry. NPCC, which is a functional filler used in rubber, plastics, paint, ink, automobile tires and PVC building materials, is made from limestone broken down to particles of ~100 nanometer (nm) in size, smaller than the wavelength of visible light. Combined with a strong presence in the agricultural chemicals sector, the company has secured a 10% share of the US$150 million domestic automobile tires market for NPCC. With record third quarter earnings of $27.2 million in the bag, up 44.4% from the third quarter of 2006, the NASDAQ-listed company is eyeing to pick up a larger slice of the domestic pie and expand into offshore markets. CEO Chen Xiangzhi talked to Amy Cheung from The China Perspective about China's domestic chemicals sector and the company's expansion plans.

The China Perspective: According to your Q3 earnings report, ShengdaTech has launched five new nano precipitated calcium carbonate (NPCC) production lines and begun construction on three more lines at the NPCC factory in Xianyang city. What is driving your expansion, and do you plan to further expand capacity?

Chen Xiangzhi: Undoubtedly, China’s rapidly growing manufacturing industry offers a great opportunity for our NPCC products. Our NPPC particles are produced using the most advance technology – membrane dispersion technology – which produces one of the highest quality and most stable NPCC particles on the market today. Because of the unique properties of our NPCC particles we are the only manufacturer to produce NPCC for use in tires. Currently, 47% of our revenue generation is from NPCC used in tires. Through our R&D efforts, we intend to continue pioneering new applications for NPCC.

Our new NPCC lines will have a production capacity of 60,000 metric tons per year, and it should reach full capacity four to five months after launch, which will be in July or August 2008.

Regarding further expansion plans, we will consider that after the new lines reach full capacity. Once the company makes any decision on that, we will update our shareholders and the public.

TCP: Your stock on NASDAQ seems to be on a downward trend despite record 3Q07 results. What is your view on this phenomenon?

CXZ: We don’t comment on the market fluctuation on our stock price. We believe that if we continue to consistently grow our business, maintain strong gross margins and profitability as well as remain committed to our investor relation program, the market will provide a fair valuation for our stock.

TCP: What is your guidance for Q407 and 2008 earnings?

CXZ: We have not provided guidance for Q407 or 2008. Our guidance for the full year 2007 is for revenue to be in the range of $96 million to $98 million and net income to be in the range of $23.0 million to $24.4 million with fully diluted earnings per share of $0.43 to $0.45.

TCP: ShengdaTech’s key products are used in tires and fertilizers. Going forward, what is your view on the outlook for these sectors?

CXZ: So far, we are the only NPCC manufacturer whose NPCC products have been successfully applied to the tire industry in China. The tire industry, like so many industrial sectors, is still in its early growth stage. In addition to the major metropolitan markets, the markets in rural areas have also opened up because rural consumers there, including farmers, now have higher earning power and are able to afford cars. According to recent national population research, 807.39 million people live in rural areas in China, making up 63.91% of the total national population. With that, we believe suburban and rural areas will be a huge market for China’s automotive and auto part industry.

The majority of our chemical products are used in farming areas, for instance chemical fertilizer. As a big agricultural country, agriculture, farms and farmers are still critical to China’s economic development. The central government has issued many policies that favor the agriculture sector and it’s believed that the PRC will continue to support the industry with favorable policies. This has created great opportunities and huge potential for the agricultural products industry.

The management is confident in the growth opportunity for NPCC and even though the chemical businesses is a mature market, we remain open to acquisitions opportunities should they meet our requirements.

TCP: ShengdaTech has appointed new R&D and finance executives. What does this mean for the company? Do you foresee further changes in key posts?

CXZ: It reflects our effort to develop new products and retain high-quality professionals with international background in order to meet international standards and build our presence in international markets. We will continue looking for international professionals in various areas, such as sales and marketing, as we push forward our exporting business plan to European and North American countries.

TCP: Is it likely that China’s domestic chemical sector will consolidate in the future through M&A activities?

CXZ: We do believe that China’s chemical industry will consolidate through M&A, but it depends on market conditions in the different sectors and regions. China’s government has successful experience in upgrading and consolidating traditional industries through working with private-owned enterprises, and we believe the government will apply the same strategies to the chemical industry which will offer us great opportunities.

TCP: ShengdaTech is the only company approved to sell NPCC products to the Chinese tire market, but the company has only secured a 10% share of the US$150 million NPCC market in China. Do you have any plans to increase your market share?

CXZ: We have established a strong reputation in the tire industry for the use of NPCC in tire manufacturing. Doublestar, the largest tire manufacture in China, submitted a dissertation at the 14th China Technology Research Conference on Tire manufacturing. The dissertation was titled “Application of Active Nano-Calcium Carbonate in Tires” and was published in Tire Industry magazine. We will continue providing first-class products and services to our customers and develop new applications within the tire industry to maintain and grow our market share.

In the meantime, we will explore new applications in areas such as rubber, painting, latex and other industries, with the ultimate aim of establishing the same dominance in these new areas as we have achieved in the tire industry. China’s NPCC market is an emerging market; the key characteristic of the market is that there are many producers of NPCC but they do not provide the consistency or quality of product that we do. Moreover, there are no defined industry standards or regulations. Under such circumstances, we intend to set the industry standard for NPCC products and build the dominant position. Already we are the largest manufacture of NPCC in China and we are continuing to increase our capacity. The increased capacity will enable us to work with larger manufactures in the future.