Wang Weifeng: Magnesium enterprises in Shaanxi need to be cautious to overcome current industry challenges

Asian Metal: Thanks for granting access to conduct this interview. It is well known that the magnesium market has been seriously affected and many plants have lowered outputs to support prices given the sluggish economy since 2012, but you chose to expand production in 2013 against the market trend. Could you please simply introduce the production advantages within your company?

Wang: Our company is located in the center of Shenfu Coal Mine in Shaanxi and saves on transportation costs with self-production to satisfy consumption, supported by a circular industrial chain economy. We have strong competitiveness with lower logistics costs through producing ferrosilicon and semi coke ourselves and lower ferrosilicon production costs as we generate electricity all by ourselves as well. In addition to the relatively low costs of building plants amid the gloomy economy, we are able to expand our magnesium production line by 10,000tpy at present, while still making profits.

Asian Metal: Magnesium prices have continued to move down since mid-May due to weak demand and pressures on lending. Has the pressure eased as prices rebounded after bottoming out recently? There are rumors that Shenfu may become the second Erdos and easy loans are set to collapse. Will your company be affected by the difficulties in raising loans due to the aforementioned factors?

Wang: The price reduction is primarily caused by an imbalance between supply and demand which can only be solved by competitiveness. Loan issues do exist in Shengfu, especially with those enterprises involved in blindly expanding their business which rely on inter-bank lending instead of concentrating on operations, while most businesses that concentrate on operations are running well on the basis of the resource advantages in Shenfu. We are feeling no pressure at present with a debt ratio of less than 3% .

Asian Metal: Magnesium enterprises in Shaanxi have basically formed complete circular industrial chain economies, but it has been reported that some plants were forced to close down and carry out overhauls due to environmental protection recently. I wonder if your company also has any environmental protection improvement issues. Will the local government roll out new requirements on environmental protection in the near future?

Wang: The local government does release new requirements as environmental protection has become a major aspect of fundamental national policy with desulfurization and denitration projects in progress.

Asian Metal: Magnesium enterprises in Shaanxi have started to produce semi coke by raw coal and magnesium metal by tail gas since 2008. This not only realizes waste gas recovery but saves on fuel costs. The circular economic pattern brings increasingly prominent advantages to magnesium production in Shaanxi. However, current magnesium production is always frustrated by stagnant sales of semi coke, and some plants have even been forced to shut down due to insufficient gas supply. What do you think about this problem? Is the problem of the semi coke market becoming a bottleneck influencing magnesium metal production in Shaanxi?

Wang: Certainly, Asian Metal has a good understanding of the magnesium industry. The semi coke market has become a problematic bottleneck influencing magnesium metal production in Shanxi right now, and the key problem is overcapacity in semi coke production, which has led to extremely fierce competition in this sector. Therefore, enterprises should enhance their competitiveness through strengthening management, as well as transformation and partial upgrading of capacity. Otherwise, they will be eliminated. Faster and better transformation really matters.

Asian Metal: Magnesium production in Xinjiang is continuing to improve right now by virtue of competitive raw coal prices and loose policies on environmental protection. The Salt Lake integrated magnesium metal project in Qinghai is under construction and its capacity will reach 400,000-600,000tpy for magnesium metal in ten years. Will this threaten the leading position of Shaanxi in the magnesium metal market? How will you cope with challenges from this market?

Wang: We will solve the development-related problems through development and I believe that there will be no problems after our efforts are perfected. The feasibility of the Salt Lake project and poor quality of coal in Xinjiang are still to be proven, and will only be verified in practice.

Asian Metal: The rigid demand from the magnesium metal market has been relatively stable in 2014. However, prices have fluctuated frequently. What do you think is the reason for this fluctuation? How do you pursue a balanced point for profits amongst such market changes?

Wang: With this problem, we can recognize and trace the cause to magnesium enterprises that display a lack of self-confidence and panic in reaction to initially small price adjustments. Some producers lower prices after suffering an imbalance between supply and demand, as well as overcapacity. However, magnesium enterprises also feel uneasy in spite of stable demand and steady output. Why should they panic? Each enterprise has its own break-even points and safety margins.

Asian Metal: Magnesium ingot prices rebounded after bottoming out in early June and the market saw favorable deals. What do you think about the supply-demand relationship and magnesium prices in Q3?

Wang: In view of the current trend, the market has to stay at low levels without significant rises and falls in Q3. After bottoming out in May, however, the market will gradually increase in general.

Asian Metal: Does your company plan to develop downstream products in the near future, such as magnesium alloy and die-casting products? What are the short and long-term development programs?

Wang: We will focus on improving magnesium ingot products and will not blindly march into downstream industries, except where choosing reliable strategic cooperative enterprises achieves win-win results.

Asian Metal: Mr. Wang, thank you for accepting the interview. We wish Taida Coal & Chemical a flourishing future.

Wang: Thanks!