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Gulf Resources announces the receipt of closing notice of bromine factories in China

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Hydrocarbon Engineering,

Gulf Resources Inc., a manufacturer of bromine, crude salt, specialty chemical products, and natural gas in China, today announces it will have to close its three bromine factories pursuant to a closing notice received from the People's Government of Yangkou Town, Shouguang City dated 21 September 2018.

An unofficial full translation of the closing notice, issued by Gulf Resources, is set forth below:

“According to the requirements imposed on Shandong bromine production enterprises by the national environmental protection inspection and the transformation and upgrading of the chemical industry in 2017, all bromine production enterprises must meet the goal of co-production of bromine and crude salt. After the bromine is extracted, the brine water must be treated with sun-dried salt and cannot be discharged directly. For bromine production enterprises that fail to meet the requirements for co-production of bromine and crude salt, they will be forced to close.

"Recently, the city formed a joint inspection team to conduct a comprehensive on-site inspection of the city's bromine production enterprises. Most of the crude salt fields surrounding your company's Factory No.3, Factory No.4, and Factory No.11 have been reclaimed as cultivated land or construction land. Under this circumstance, your company's Factory No.3, Factory No.4, and Factory No.11 cannot meet the requirements for bromine and crude salt co-production. After research and consideration, it’s decided to shut down your bromine Factory No.3, Factory No.4, and Factory No.11. Your company should handle the production equipment and facilities by itself. The land lease agreements signed by and among the company and the local villages should be settled by negotiation. For the remaining bromine factories with the area of crude salt field that can be matched with bromine production of those bromine factories, they can start production after the completion of the project approval, planning approval, land use rights approval and environmental protection assessment approval in accordance with the 'Notice on Accelerating the Special Renovation of Violating Chemical Enterprises' (Lu Jing Xin Yuan [2018] No. 205). Production should be carried out in accordance with relevant government regulations and bromine and crude salt co-production requirements.”

The management of Gulf Resources had expected that these three factories might be forced to close if it could not find a solution to address. The co-production of bromine and crude salt based upon the new requirements that were implemented in 2017. As a result, the company did not spend as much money on rectification for these factories as it did on the others.

In closing these factories, the Company expects to take a write-off; although the amount is difficult to estimate at this time. These factories have a net asset value of approximately US$23.7 million (including approximately US$382K spent on rectification). Gulf Resources may have to bear the cost of dismantling these factories: approximately US$200 000 – 300 000.

Liu Xiaobin, the CEO of Gulf Resources stated: “The government is forcing the closure of many factories in Shandong Province. While we would have preferred to retain all of our factories, if we can maintain operations and production at 7 out of our 10 factories, we believe we will be doing better than many of our competitors. We also believe that with the closing of many factories, pricing will remain high and that we can operate the seven factories at higher levels of utilisation, to partially compensate for the closed factories.”

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