On April 24, 2008, China Clean Energy Inc. (OTCBB: CCGY) announced in a press release they have suspended the production of biodiesel. The company has decided to focus on their historical business of development and manufacture of specialty chemical products made from renewable resources. Such a decision was made in relation to increased price of raw material feedstock used for the production of biodiesel. The Chinese government has not yet decided on the increase of biodiesel price which currently makes the production of biodiesel unattractive. China Clean Energy has the ability to quickly change their business focus as the company has the required technology both for the production of biodiesel and specialty chemical. China Clean Energy has announced they will equip Jiangyin production facility with the ability to produce specialty chemicals as well as increase the current refinery's productivity of Dimer Acid to 3,000 tons per year. The company expects that with such adjustments they will be able to achieve $14 million of net income in 2009. The Jiangyin plant is currently under construction and is only expected to start production by January 1, 2009. The facility has originally been planned to only produce biodiesel.
China Clean Energy's revenue has been increasing at a sustained rate for the last year as did the net income. Still the company's stock has been on the slight downtrend since November, 2007 despite the ever increasing results in performance. The halt of biodiesel production had a further negative effect as China Clean Energy's stock dropped more than 20% in just one day on April 25, 2008.
The company has taken much criticism for shifting to specialty chemical production. However, Mr. Tai-Ming Ou, Chairman and CEO of China Clean Energy has stated they done so in order to retain profitability and called such a maneuverability of the company its strength: "Our ability to shift production from biodiesel to specialty chemicals is a key strength of our business model, and shifting our focus to higher value- added environmentally-friendly specialty chemical products is in the best interest of our shareholders in the current environment".
The production of specialty chemical puts a company in the safe position as the price of specialty chemicals is higher than biodiesel's and it is not regulated by the Chinese government. The temporary halt of biodiesel production should not affect the company's revenues too much. Also the fact that company plans to resume the production of biodiesel once its price increases, suggests the stock can definitely make a move up once it happens.
Referencehttp://www.chinacleanenergyinc.com/
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