Significant Concentrations and Risks

6 Months Ended

Jun. 30, 2013

Significant Concentrations and Risks [Abstract]

SIGNIFICANT CONCENTRATIONS AND RISKS

12       SIGNIFICANT CONCENTRATIONS AND RISKS

At June 30, 2013 and December 31, 2012, the Group held cash and pledged bank deposits in financial institutions of approximately $299 million and $225 million, respectively. They were primarily held in major financial institutions located in mainland China and the Hong Kong Special Administrative Region, which management believes have high credit ratings.

As of June 30, 2013, sales to major customers, which individually exceeded 10% of the Group’s total net revenue, were as follows:

Three months ended June 30, 2013						Three months ended June 30, 2012
Largest Customers	Amount of Sales		% Total Sales			Largest Customers	Amount of Sales		% Total Sales
	($’000)						($’000)
	(Unaudited)		(Unaudited)				(Unaudited)		(Unaudited)
Customer A	$	11,738		13	%	Customer B	$	40,695		21	%
Customer B	$	9,694		10	%

Six months ended June 30, 2013						Six months ended June 30, 2012
Largest Customers	Amount of Sales		% Total Sales			Largest Customers	Amount of Sales		% Total Sales
	($’000)						($’000)
	(Unaudited)		(Unaudited)				(Unaudited)		(Unaudited)
Customer A	$	38,024		13	%	Customer A	$	52,844		14	%
Customer B	$	29,168		10	%

The Group currently buys a majority of its heavy oil, an important component of its products, from three suppliers. Although there are a limited number of suppliers of the particular heavy oil used in production, management believes that other suppliers could provide similar heavy oil on comparable terms. A change in suppliers, however, could cause a delay in manufacturing and a possible loss of sales, which would affect operating results adversely. Purchases (net of VAT) from the largest three suppliers for the three months ended June 30, 2013 and 2012 were approximately $67 million and $155 million, respectively. These purchases represented 64% and 83%, respectively of all of the Group’s purchases for each of the three months ended June 30, 2013 and 2012. Purchases (net of VAT) from the largest three suppliers for the six months ended June 30, 2013 and 2012 were $246 million and $275 million, respectively. These purchases represented 80% of all of the Group’s purchases for the six months ended June 30, 2013 and 2012, respectively. The Company’s largest supplier accounted for approximately $52 million and $148 million, or 50% and 72% of total purchases for the three months ended June 30, 2013 and 2012, respectively. The Company’s largest supplier accounted for approximately $187 million and $237 million, or 61% and 70% of total purchases for the six months ended June 30, 2013 and 2012, respectively.

The Company commenced trading of heavy oil in April 2013. For the three months ended June 30, 2013, the trading of heavy oil consists of purchases of approximately $140.9 million and sales of approximately $140.53 million, resulting in a trading loss of $0.37 million which loss is recorded in other income (expenses).

In addition, We had short-term financings from our supplier from June to December, 2012, which was fully repaid in May 2013.  We are not currently aware of any terms of letter of credit with banks which may be violated as a result of our supplier’s providing us with short-term financings.

The Group’s operations are carried out in the PRC. Accordingly, the Group’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC, as well as by the general state of the PRC’s economy. The business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittances abroad, and rates and methods of taxation, among other things.