Yesterday, China GengSheng Minerals, Inc. (“CGS”) announced the signing of a full-services refractories supply contract with Fushun New Steel Corp. Under the agreement, CGS will provide Fushun with refractory materials, installation and on-site support, and revenue will be based on Fushun’s production volume. Shipments began in January 2011, and should continue through December of 2012; revenue contribution is expected to begin in Q1 2011. CGS expects to receive revenues of approximately $10 million over the length of the contract.
CGS, founded in 1986 and based in the Henan province of China, develops, manufactures and markets a broad range of high-tech industrial material products, including monolithic refractories, industrial ceramics and fracture proppants. CGS sells these products directly to the iron and steel industries as components for steel-making furnaces, kilns and other high-temperature industrial equipment. CGS has more than 200 customers in various construction, industrial and chemicals industries, located in China as well as internationally.
CGS began full service programs for its refractory clients in 2003, including refractory product installation, testing, maintenance, repair and replacement, as well as product sales. These programs are typically carried out under similar one or two year contracts, and have the advantage of not only being stable revenue streams, but providing higher margins than product sales on their own. CGS’ full service programs accounted for 52% of their total refractories sales for the first nine months of 2010, through nine full service clients.
“Our full service programs are an ideal solution for steel manufacturers who face an increasingly challenging market environment, as they are able to adjust purchasing and implementation based on output,” said Shunqing Zhang, CEO of China GengSheng Minerals. “This offering has been well received by customers since its introduction, allowing GengSheng to build additional brand equity and grow our share of the refractories market. In addition, full service programs enable us to develop deeper relationships with customers, allowing us to better understand their needs and increase the value we bring to the industry.”