Evaluation on the Soybean Crush Project Collaboration
Between Oil Company and Lanshan Group
I．              Basic Situation of the Project
i.                    Basic Information of Lanshan Group
Shandong Province Gaogang Lanshan Group is a modern large-scale enterprise integrated with food oil processing, protein further processing, feed and cultivation industry, meet processing, real estate, and property. The Group’s total asset is RMB1.8 billion and has 3100 employees.
ii.                  Information of the Collaboration Project
The soybean crush project of Lanshan Group started construction in Aug. 1997, and went into production in Dec.1998. The occupancy area is 92 Chinese acres, including: extraction workshop’s building area is 1700 sq.m., the building area of pre-processing workshop is 1400 sq.m., the building area of refining workshop pis 1864 sq.m.. There were 4 cement silos of raw material, the capacity of which is 10000 MT; there were 6 product oil tanks, the oil capacity of which is 9000 MT; one soybean cake granary, the building area of which is 6000 sq.m.. The Group established laboratory room and owned testing equipment, and established one power distribution room of 35000 KV, and 3 transformers, the total capacity is 2600 KVA. The plant is equipped with one Electric Scale of 120 MT, 11 office rooms, and established repair workshop, spare parts warehouse and equipments for water supply and power supply. It is known that due to the severe fluctuation of the market and other factors, this project did not operate continuously with little production, the basic processing output of soybean extraction was 600-700 MT/day, there was almost no production from the last year up to now. The equipments of the plant need entire design and renovation according to the requirement of the market before production.
 
The Lanshan Group is responsible for the construction of the renovation project needed for the re-start of production, the main content of renovation includes the renovation of pre-processing, the investment of which is RMB7 million, the renovation of extraction workshop, the investment of which RMB 3million, and adding the system of secondary crush of soybean cake and peeling, the investment of which is RMB 1 million, the total investment if RMB 11 million. The concrete scheme has been appraised by the professional personnel of our company and given appraisal opinion. The attainable effect after renovation is as follows:
 
1.       Production: stable 1200MT/day and above, the annual soybean cake production is 320thousand MT, the oil output is about 70 thousand MT (28 days of monthly processing, the processing volume: 28000-30000 MT of soybean; the yield ratio: soybean cake 79%, soybean oil 17%)
2.       The adaptability of raw material: domestic and imported soybean, impurity≤2%, the moisture is 10-14%;
3.       The quality of product: 43%, 46% extrusion crushed soybean cake, the color is light yellow and even, the moisture is 12-13.5%, urase 0.05-0.25 PH; the total volatile matter of crude oil is 0.2%;
4.       Economic index: residue oil of soybean cake≤0.1%, solvent consumption≤1.5kg/MT; steam consumption≤330kg/MT; power consumption≤36kw.h/MT; water consumption≤100kg/MT.
After the completion of renovation, among the domestic plants with a soybean crush scale of 1200-1400MT/day, the equipment situation and the management level of this project can reach middle grade.
 
iii.                The Analysis on Target Market
There is no large-scale oil production enterprise within the range of 200km around Gaotang County, so this range is the target market. There are about 8 million people in this range.
1.       The Demand Analysis of Oil and Soybean Cake of the Target Market
(1)    The Oil Demand of the Target Market
The population is about 8 million in the target market, the main consumption type of edible oil is soybean oil, peanut oil and cotton seed oil. Calculate by 5kg soybean oil consumed by each person per year, the whole year soybean consumption volume of the target market is 40,000 MT, including some small package consumption.
 
According to the soybean oil sales overview over the recent years provided by Lanshan Group, within the scope of the target market, the demand volume from the pharmaceutical factories is 10,000 MT, and the demand volume from the chemical and paint companies is 20,000 MT.
 
       (2) Demands on Soybean Cakes from the Target Market
Liaocheng and Dezhou areas are the major birds, eggs and live pigs breeding areas of Shandong Province. Neihuang and Qixian County in the surrounding Henan Province are also major table hen breeding and processing bases of China. The consumption volumes of soybean cakes from these areas are large.
 
The annual soybean cake volume of the feed processing enterprises under Lanshan Group is 60,000 MT. The demand volume from Hemei Feed Company in Gaotang County is 200,000 MT.
 
There are about more than 200 small feed factories in the target market area, and the annual demand volume is 400,000 MT.
The annual demand volume from the other individual breeding farmers is about 100,000 MT. The sales volume to other surrounding areas is more than 100,000 MT.
 
The total annual soybean cake demand volume of the target market is 860,000-900,000 MT.
 
2. Analysis on Soybean Cake and Oil Supply from the Target Market
(1) Oil Supply
There are not large oil processing companies in the target market area, the oil supply of the target market area mainly comes from suppliers from other areas and the bulk edible oil produced by small companies sold on rural markets.
 
(2) Soybean Cake Supply
The soybean cakes supplied to the target market mainly come from Tianjin, Rizhao, Qingdao and other extracting companies from the surrounding areas of the target market.
 
II. Analysis on Competitiveness Advantages of Project in Gaotang Project
i. Analysis on Independent Operation of the Extracting Project Regardless of the Factors from the Reserve Supply
 
1.       Comparison with Costs of Various Oil Extracting Factories in the Regional Markets （see table）
 
Comparisons of Competitiveness Advantages for the Project in Gaotang
                                                                      Unit: RMB yuan/MT

Names of Factories	Geographical Location	Domestic Transportation Cost of Imported Soybeans			Comparison of Transportation Cost for Products Selling				Comparison of Comprehensive Costs
		Destination Port			Soybean Cake	Soybean Oil			Soybean Cake	Soybean Oil
		Tianjin	Rizhao	Qingdao	Target Market	Target Market	Shijiazhuang	Taiyuan	Target Market	Target Market	Shijiazhuang	Taiyuan
Lanshan Group	Gaotang	70	90	95	30	50	80	150	86-102	64	98	168
Dafu Bazhou	Bazhou	55			70	80	60	200	114	91	71	211
Qingdao Bohai	Qingdao			10	95	120			103	122
Rizhao Xinliang	Rizhao		10		90	110			98	112
Tianjin Jiusan	Tianjin	8			85	100			91.4	101.6
Huifu	Sanhe	53			120	140			162.4	150.6
Xiangchi Boxing	Boxing			70	70	90			126	104
Bangji Sanwei	Rizhao		10		90	110			98	112
Jining Jiaguan	Jining		85		80	100			148	117
Qihe Hongri	Qihe			80	30	50			94	66
Zhucheng Delisi	Zhucheng		40		80	100			112	108

 
Remarks: 1. In the comprehensive cost comparison, the transportation cost of the soybean cakes in the total transportation cost of the imported soybean is 80%, and the transportation cost of the soybean is 20%.
2.        The central and eastern parts of Shangdong are not chosen as areas beyond the target market, for the competitions of large oil extracting factories in Rizhao and Qingdao of these parts are very fierce.
 
The statistics in the table indicate that the factory has a certain advantage in the transportation cost for the local soybean cake selling. After the increase of the transportation cost to the comprehensive import of soybeans, the disadvantage of selling soybean cakes in the regional markets is minor. The local selling of soybean oil has remarkable advantages in cost, however, it has no advantages in the areas other than the target market.
 
2. The production scale is small, which has caused some difficulties to the purchasing of raw materials. A ship of imported soybeans could be processed in about 2 months under the circumstance that the project is running by full-load, the excessive expenditures in warehousing and financial costs shall be avoided, the small scale importing shall be combined with the domestic purchasing in raw materials purchasing, in this way, LCL with other companies shall be employed in soybean importing, so that generally the cost is higher than the whole-vessel shipping; the domestic purchasing could only be made by spot goods, plus the domestic supply is limited, and it’s difficult to guarantee the supply sources. Such an operation mode has very high requirements on the business level and management level of the operation team.
 
ii. Analysis on circumstances considering the reserve factors. First, make up the operation risk by means of the supply stability and timeliness of the reserved soybean; second, obtain the time advantage with the vacancy period of the rotational reserved soybeans, so as to save some financial costs and to increase the operation flexibility of the oil extracting factories.
 
According to statistics, the reserve soybean inventory within the range of 150km around Gaotang Area is about 250,000 MT.
 
 
 
                                                                                    October 20, 2009
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Prediction of Processing Cost of Shandong Province Gaotang County
Soybean Processing Plant
1.       Processing Cost
Commission processing cost of 1500MT: (28 days of monthly processing, processing volume: 28000-30000 MT soybean; yielding ratio: soybean cake 79%, soybean oil 17%, oil content of soybean is calculated as per 44% protein soybean cake )

Items	Consumption Low Protein High  Protein	Unit Price	Amount(yuan) Low ProteinHigh Protein	Remarks
1. Unloading cost	0.79MT 0.17MT	6.0yuan/MT 1.2yuan/MT	4.00	Soybean in packaging bags
2.        Loading cost ----soybean cake -----soybean oil			3.3          3.2	The soybean oil is directly put into the soybean cakes and load for sales
3. Labor Cost			4.08          4.08	Rated headcount: 68 people, refer to remarks; monthly salary: RMB 1800 RMB/person
4. Electricity cost kwh/MT	26            28	0.7yuan/kwh	18.2          19.6	Including underground water cost
5. Gas cost MT/MT	0.28          0.3	203.4yuan/MT	57             61	Steam outsourced
6. Solvent Kg/MT	1.2            1.2	8.0yuan/kg	9.6            9.6	Solvent price: RMB 8000/MT
7. Repair cost			3.00	Including maintenance cost, hardware parts
8. Packing	11.3 bags	1.13/bag	12.77	PP woven bag, seaming threads
9. Examine & test			0.9	Including costs for  test, inspection and pressure instruments
10. Annual audit of Certificates			0.10
11. Pollution charge			0.02
12. Depreciation			3.70	11 million RMB/9/11/30000 MT
13. Profit			15.00
Subtotal			127.87      136.16
Total			110.07      117.16	Self-provided boiler, and the steam is calculated by 140/MT

 
Remarks:
1.        Rizhao Xinliang RMB 86/MT; Rizhao Bangji USD12/MT; Huanghai RMB73/MT, the cost innovation is different. If the packaging cost is not included in Bangji, and the situation of the other factories is to be checked and confirmed!
2.        According to the old factories acquired by China CHINATEX CORPORATION, after the transition period of 3-4 months from various aspects, the output will reach 1500MT/day after extrusion, and the quality of soybean cakes is stable.
3.        The daily processing volume should be flexibly arranged according to the expanded capacity of market, 3-4 days of maintenance shall be arranged per month and one month of overall should be arranged per year, so as to guarantee the stable start-operation.
4.        The unloading cost 4RMB/MT could be reduced if the soybeans are shipped to the factory in bulk.
 
2. Organization Structure and Staffing
       Rated staff headcount: 68 people
       1. Working in 3 shifts, 21 people in each shift; 4 people in pre-treatment workshop; 3 people in extracting workshop; 3 people in soybean cake warehouse (one team leader, one inventory staff, and one shipment inspector); 1 people in soybean oil warehouse; 3 people in refining workshop; 2 maintenance staffs; 1 tester; 2 weighing staffs; 1 electrician; 1 security guard.
       2. Other staffs: 1 production manager; 1 workshop statistician; and 2 warehouse keepers of raw materials, ingredients and finished products.

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