The pure capitalist tends to drool a bit at the mere mention of a captive market. The opportunity to sell into a marketplace that has only a few favored suppliers is a dream come true. In most instances, captive markets are few and far in-between, but when they do show up, it’s an opportunity to take advantage.
To suggest China as a captive market, hinged on knowing the right people with the right permits, may or may not be a stretch. It is, however, a process/tradition that is an important part of doing business in China. Finding a Chinese company that has a solid position within the Chinese business infrastructure is one such opportunity where an investor may be able to do a little drooling, even when the rest of the world is looking for a solid footing.
Gulf Resources Inc., a bromine/specialty chemicals manufacturing company, works to develop and market bromine and specialty chemicals within the Peoples Republic of China. Currently, all of the company’s products are consumed within China. Although the company’s product base is quickly expanding through the versatile nature of its specialty chemicals business, it is still a company dedicated to providing bromine and other associated chemicals to the paper, agrichemical, oil field and refrigeration industries.
Gulf Resources is one of six companies in China that have been granted a license to mine and develop bromine deposits in China. The company is also working diligently to take advantage of crude salts found near and around the company’s bromine deposits. These deposits are used in the oil and gas drilling process and should add to the company’s ability to compete domestically and internationally. Additionally, the compounding of the company’s base materials is quickly making it a “go-to” company for its versatile specialty chemicals. From all appearances, the company has a customer base that will be buying almost all the company can produce, past how the government dictates production.
As the United States and other industrialized countries work to reestablish markets, China is infusing capital to maintain a 7%+ growth scenario for its domestic economy. As such, the company should essentially be shielded from overly large swings in demand as it sells almost entirely to domestic customers. This is not to suggest that the company will be immune over the coming years to a slower demand curve, but it will certainly mute current global conditions.
In the third quarter 2008, the company saw an increase in net revenue of 7.3% to include a period of restriction brought about by the Olympic Games. The quarter was also impacted by a certain amount of margin squeeze for raw materials and energy prices. According to the company, sales and prices have managed a solid return after the imposed restriction with a solid forecast for coming quarters. With these events and figures in mind, it appears that Gulf Resources should be able to maintain and grow its somewhat captive market into a steady flow of profit and further expansion.
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