HaiKe Chemical Group said Friday it was likely to report an annual loss as weakened demand presented challenges for Chinese operations last year.

The China-based chemical and biochemical business said oil refineries were impacted by a sluggish economy for the year to December 31st.

A deterioration in market conditions affected trading in the last quarter, particularly in December, despite a strong start to the first half.

Tighter margins and lower utilisation rates in the refinery division also pushed down results.

The group's subsidiary Hebang was expected to report losses following a lower than forecast utilisation rate as a result of the change in the market for its first product Trichloroethylene, which suffered price drop and cost rise.

The second phase of construction at Hebang is ongoing and is expected to complete in March after which it will produce new products, namely caustic soda and epichlorohydrin, which are used to produce aluminium and epoxy resin respectively.

However, the company improved sales and marketing efforts in refined oil products, which helped HaiKe achieve record high group turnover.

Speciality, salt and biochemical divisions all recorded volume gains but prices fell in 2012.

HaiKe's gross margin halved in 2012 compared to the previous year as selling, general and administrative expenses surged due to enhanced marketing efforts.

"[Last year] was a difficult year for the refinery industry in China," said Xiaohong Yang, Executive Chairman.

"Despite the anticipated easing of the pricing mechanism, we expect the operating environment and domestic economy to remain challenging for refineries in the current year.

"The speciality/salt and biochemicals divisions, our core growth businesses, delivered a profitable performance and looking forward, the board remains focused on the company's long term growth by continuing to develop and expand its higher margin speciality chemicals which we believe will improve the profitability of the group."

Shares plunged 22.83% to 17.75p at 9:26 Friday.

RD

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