Synutra hits year low on rival's formula recall

Shares of Chinese infant formula maker Synutra International Inc. plunged to a new year low Tuesday, as a rival company was investigated after an industrial chemical was discovered in its milk powder.

The tainted product from Sanlu Group Co. reportedly sickened 1,200 infants and was linked to two deaths. China's health ministry has determined that the chemical melamine was found in powdered milk, Sanlu said the product was added by the suppliers who sold the raw milk.

Sanlu received complaints about the products as early as March, and tests confirmed the presence of the chemical in August.

Synutra stock fell $18.32, or 54.5 percent, to $15.29. The stock earlier traded as low as $14.16.

In client research, Susquehanna Financial Group analyst Adele Mao said Chinese authorities took samples from 17 Synutra products, and eight of them tested positive for melamine. The chemical was likely added because it makes formula appear to have a higher protein content when tested. She expects Synutra to recall all the affected products _ but said it is not clear which brands are affected, although one of its major products, Super Series, passed inspection.

Mao said the recall will hurt all Chinese-based infant formula brands in the short term, and help international companies like Wyeth and Nestle.

"In our view, these testing results are catastrophic for China's domestic infant formula industry, as restoring reputation for consumer products (particularly infant formula) is a long-term uphill battle," she wrote.

She suspended her rating on Synutra.