Shares of Shandong Head Group fell after the Chinese maker of cellulose ether products said it plans to invest up to CNY500 million (USD68.6 million) on a new vegetable capsule factory in the United States to mitigate trade risks and better meet regional demand.

Shandong Head [SHE: 002810] closed 2.7 percent lower at CNY14.20 (USD1.95) a share today. The broader Shenzhen market dipped 0.4 percent. The stock has fallen by a third this year.

The new factory will have an annual production capacity of 20 billion vegetable capsules, Shandong Head announced late yesterday. That may increase once the plant goes live depending on demand, the Zibo-based company said.

Vegetable capsules are a new product line developed by Shandong Head, leveraging its proprietary raw material advantages in pharmaceutical and food-grade cellulose ether. The product has become one of the company's high-growth revenue streams.

The project is expected to greatly boost Shandong Head's market share and bargaining power in the US and neighboring markets, the company said, adding that it can also help the firm to navigate the volatile international trade landscape.

Construction work is scheduled to take 20 months, with full operations targeted to begin in 2026, and the project requires approval from Chinese and US authorities, it added.

Shandong Head sold 11 billion capsules last year, generating revenue of CNY246 million (USD33.8 million), accounting for roughly 16 percent of its total annual income, according to its earnings report. Its annual vegetable capsule production capacity was 35 billion as of the end of last year.

Vegetable capsules align with the values of environmentalists, vegetarians, and certain religious groups, aiding rapid market uptake in North America, Europe, Western Asia, and other regions where these demographics are more prominent. 

The global market for vegetable capsules was worth around USD1.2 billion in 2020 and will likely reach USD1.6 billion by 2026, according to Global Info Research.