Wang Hongfu: Low margins on magnesium metal boosting magnesium alloy deep processing

Asian Metal: Mr. Wang, thanks for granting this interview. Please introduce the distribution pattern and status of the production briefly for your company.

Wang: The head office for Hui-Ye is located in Ningxia, and other plants are located in Wuhai, Inner Mongolia and Fugu, Shaanxi respectively. 1) The yearly output for magnesium ingot in Ningxia is about 30,000 tons, 10,000 tons of magnesium alloy, 40,000 tons of ferrosilicon, 1 million tons of cement, 200 million degrees of electricity, 300,000 tons of semi-coke, 20,000 retort and 1 million pieces of die casting products, meanwhile, the production capacity for extrusion materials is 1,000 tons. 2) There about 20,000 tons of ferrosilicon in Wuhai, Inner Mongolia. 3) It is about 35,000 tons of magnesium ingot and 300,000 tons of semi-coke in Fugu, Shaanxi with full production.

Asian Metal: Judging from the cost of production, Ningxia region does not have competitive advantage, but Hui-Ye Magnesium stands out in magnesium industry and also wins high reputation from domestic and overseas clients. Could you tell us how Hui-Ye gets the endorsement from consumers and how to guarantee the proper profits in sluggish market?

Wang: 1) Our operating philosophy is: Think everything for the sake of customers, in good faith to attract customers, win customers by quality, service to retain customers. In the maintenance for overseas buyers, the most important thing is credit; we could guarantee the excellent quality, on time delivery. Secondly, providing good service and finalize the H.S.E annual audit cooperated with foreign clients. Thirdly, being active in daily business communication and reduce misunderstanding. In sluggish market, we also pay attention to energy-saving and cost-reducing to improve the market competitiveness. Meanwhile, we also use the advantage on low cost in Shaanxi office through increasing the production volume in Shaanxi and maintain the output in Ningxia. It could guarantee that our company operates well in equilibrium state without loss.

2) Commenting on our profit margin, we mainly depend on the development of circular economy and establish the circulation industry chain, from mining to magnesium products, including cement—generate electricity—magnesium ingot—magnesium alloy—magnesium slag—cement; another line is semi-coke—ferrosilicon—tail gas—magnesium products, which could guarantee the saving cost and proper profits.

Asian Metal: In 2014, price of magnesium ingot remains at low level with thin buying activity, meanwhile, the average concluded prices are about RMB1,500/t (USD245/t) lower than that of last year. How do you think the reasons for price low and market slack?

Wang: It mainly is because the recovery of European and American economy is slow, individual economies still having the risk of repeat. Emerging economies adjust slowly, the degree of relying on the developed economies does not alleviate. With domestic macro economy declining, real economy is lacking confidence in general and just as declining profitability is widespread, it is difficult to secure finance. In addition, investment enthusiasm is largely frustrated. Third, poor domestic demand, most industries in the stage of excess capacity, the weak demand for downstream restrain the market activity. Forth, it’s difficult for new technology R&D, downstream development is weak. Fifth, this year it is difficult for magnesium metal plant to get bank loan, funding constraints, vendors have a strong desire for shipments, bidding trend is obvious on market, this situation repeatedly decrease the price of magnesium ingot.

Asian Metal: Even though price of magnesium ingot has glided to low level, however, price reduction could be seen continually after National Holiday on weak demand from domestic and overseas markets, what’s your opinion on the market trend in the remainder of Q4?

Wang: Magnesium metal market goes slowly on sluggish economic state. Even though some buyers place orders in October, oversupply is still obvious, which lower the prices continually. Commenting on the market trend in the remainder of Q4, I think magnesium ingot price will remain at low level owing to oversupply but slow demand. What’s worse, if plenty supply continues, it follows that price reduction is likely to be seen continually.

Asian Metal: In recent years, magnesium metal export market has suffered a lot in poor market environment, low price competition forces most conventional exporters cut export proportion, some of them even exit market. How does Hui-Ye Magnesium adjust sales strategy on such fierce market competition? In sales part, how to determine the proportion of sales at home and abroad?

Wang: We win by differentiation through small deals, special orders and sporadic, which could guarantee proper prices. In addition, deals from overseas market are few; we just adjust the proportion according deals on hand.

Asian Metal: Nowadays, we have known that Hui-Ye is going to establish magnesium alloy deep processing base with RMB300 million, please introduce the project briefly.

Wang: The project is slated to turn out 10,000 tons of magnesium alloy processing. The project team is located at the head office, and I will be the group leader.

Project products plan is magnesium alloy deep-processing products, specifications are: magnesium alloy ingots billets are 10,000 tons/year, magnesium alloy die castings are 5,000 tons / year, magnesium alloy extrusions are 5,000 tons / year. The overall construction area is 9000m2, including: annual production capacity of 10,000 tons AZ, AM series based magnesium alloy ingots (bars) production workshop is 1000 m2; annual production of 5,000 tons of various types of magnesium alloy die-casting workshop is 2500 m2; annual production of 5,000 ton extrusion production workshop is 2500 m2, magnesium alloy products finishing production workshop is 1800 m2; magnesium alloy ingots and other products testing center is 800 m2; and other ancillary building area is 400 m2.

Project technical support: Tsinghua University. The project construction is divided into three phases, including: the first phase of the project is to construct the annual production of 10,000 tons magnesium alloy production line and infrastructure which will provide raw material for magnesium alloy die casting and extrusion; the second phase of the project is to construct the annual production of 5,000 tons of magnesium alloy die-casting production line; the third phase of the project is to construct annual production of 5,000 tons of engineering extrusion production lines and supporting inspection and testing facilities.

Asian Metal: From the market trend and price level in magnesium alloy market, we could find that demand from die casting, extrusions and 3C industries is not strong, what’s worse, buying activity from overseas market is dull as well. Given this situation, how does your company get increasingly competitive in magnesium alloy market?

Wang: The magnesium alloy project for Hui-Ye is strategic. Investment cycle is long, from small to big, cultivate the market gradually. Frankly speaking, we are focusing on a new project for the future time.

Asian Metal: Mr. Wang, thank you for accepting the interview. We wish Hui-Ye Magnesium a flourishing future.

Wang: Thanks!