Bin Gao: First of all, I’d like to thank Asian Metal (AM) for providing us with such a great opportunity for gathering together to exchange views. AM data shows that magnesium metal prices have hit an eight to ten-year low, which is surely a rather difficult situation for every one of us. And I’d advise against us feeling pressured about the discussion as everyone is similarly troubled by the market situation, just as we are all troubled by China’s football team. Generally, what concerns us most is always the price trend, so I’ll start with the price. We all know about the current prices, but our views about the future price trend might vary, so firstly, I’d like to invite Mr. Zhu from Tianlong Magnesium to brief us about his opinions. So Mr. Zhu, are you achieving good sales of magnesium ingots?

Zhiwei Zhu: Well, our situation varies in terms of sales, but judging from the condition of our company, things are good.

Bin Gao: No wonder you are about to raise the prices. Except for higher prices, are there any other strategies that you will take?

Zhiwei Zhu: What I’d like to emphasize as a premise is that my company is not the one that calls for any price increases; rather, we are just trend followers. As the common wish of the whole magnesium industry in Fugu is to raise the prices, it’s unreasonable to go against it as a member producer. And we simply follow the market trend with no special strategy; those who are familiar with us will know about this. Another thing I want to clarify is that, whenever it comes to Tianlong, everyone will say our prices are too high, but the facts are not as they seem. As a long-established magnesium company, we have unique experience and methods with regard to production and management, especially when it comes to product quality. We’ve gained recognition from many customers in this industry, and all of these things put us in a better place when it comes to the price. For example, even though the condition of the sponge titanium industry is also none too encouraging, their requirements for higher quality magnesium ingots have never dropped and they are ready to pay higher prices for the products. And the same thing applies to other industries that have special requirements for crude magnesium. So, high-end products are one of our development directions as they enable us to achieve better profits. And our prices for ordinary magnesium ingots are in line with the market prices, RMB13,000/t (USD2,094/t) ex works by cash, at the moment.

Bin Gao: In terms of prices, we care not so much about the trend, as about the reasons behind the trend. So, Mr. Zhang from Credit Magnesium, would you like to share with us your ideas?

Guangning Zhang: As far as I know, there are three fundamental factors that determine the establishment and development of a magnesium company: the capital, which basically determines your existence; the management, which determines your production cost; and consumption, which determines the demand for your products.

Back to the price trend you just mentioned, I think 2015 will be a year full of challenges for every one of us in the magnesium industry: users, producers, traders, inside China and overseas, whatever your identity and wherever your location, it is going to be an extremely difficult year. Why? Because the price is too low for us to make any profits, and we’ve even had to sell below cost in order to stay in operation. And this common situation also brings about a lot of variables for the future trend. I think the biggest challenge for the industry will begin this June, and May will serve as a transitional month. If the higher prices in Fugu can be maintained after the May Day holiday, then prices might really be pushed up. But if we cannot maintain them after May, then the situation will be rather less promising. Why? Because of the large volume of stocks. Stock means existence, and we all take existence as a priority, without which we’ll lose our self-esteem, so we all try hard to keep producing, which leads to even larger stocks. So now what really matters to us producers, no matter whether we are in Shanxi or Fugu, is to protect the price alliance: if it can be maintained, then the prices will go up later on. And to be honest, I think higher prices will benefit us all here and lower prices will leave us with no opportunities, whatever kind of products you produce: magnesium powder, magnesium alloy or magnesium metal. If the price can be raised, then the whole industry will be able to develop in a healthier way, and right now it is so far from being healthy that it seems like we are dancing with barely any clothes with the risk of going short at any time.

But we are still in the traditionally hot season, and according to history, the price will always experience challenges in early May, as well as in the summer, and there will be three in particular. The first brings us back to capital, which is the basis of any enterprise; the second involves security and environmental protection, which is the strictest challenge the industry faces; and the third is that, with summer approaching, this usually leads to output reductions because of the rainy weather, while the market might see hope of a recovery because of the tightening supply. But, of course, the real market conditions will be the final judge of whether I’m right or not.

Bin Gao: Thanks Mr. Zhang for the analysis. I believe this shows the experience of his having worked in this field for so many years and will be very helpful to us all. And he mentioned three major factors just now: capital, management and the market. Obviously, it is of huge significance to bring in more capital during this difficult period, and as for the management issue, my understanding is we need to integrate the existing industry on the basis of capital and face up to the new price challenges. Mr. Qi from United Magnesium has had a lot of experience in terms of capital integration. So Mr. Qi, what do you think about the gloomy situation in the magnesium industry? Do you consider it an opportunity?

Xiangmin Qi: Having been in this industry for quite a long time, I’ve worked on the production and trading of primary magnesium, magnesium alloy and die casting magnesium, as well as capital integration. Mr. Gao and Mr. Zhang made some very good points, but I’m afraid that I cannot agree with Mr. Gao. I’m still quite optimistic about the future of the magnesium industry. To me, a qualitative change within the magnesium industry has just begun, and I consider 2015 to be the first year of this, as there is no further room for the prices to fall, we have been at the bottom of the curve for quite a while. More importantly, the investment enthusiasm in the upstream industries remains high and the demand from downstream industries is still pressing, so I can think of no reason for saying this is not a good time. And I have two more reasons as to why now is a good time. The first refers to the wider environment, domestically and internationally, especially the opportunities brought about by the Internet. How we adjust ourselves to this wider trend matters greatly. No one thought of reform or transformation several years ago in 2007 and 2008 when the magnesium industry was in very good condition, but now the situation is different, everyone is thinking about change and improvement, so this is a real opportunity for us to make adjustments. Right now the biggest problem is that we haven’t found an appropriate way to change, all of us together. We have kept discussing, trying and assuming, but haven’t figured out a way that is good enough, so this time I want to talk to you about how we should be united and pull through this difficult time towards a promising future for the magnesium industry. And I suggest we should adopt the trading format of large commodities and co-operatively build a business platform. Through doing this, two problems that have long haunted us could be solved, which are the financing difficulties and the credit problem: making deliveries and payments on time. All of the things that happened in the magnesium industry these past few years have greatly impacted our end users, who might want to use the product but daren’t. During all of this time, we haven’t benefited much from the magnesium price increase, nor did we quit the market quickly because of the price reductions. And if we don’t wake ourselves up now, then some larger magnesium programs, such as the one in Qinghai we mentioned in the morning, will take advantage of their lower costs and squeeze some of us out of the market. So I agree with Mr. Jianyong Cao, General Manager of Chongqing Shengmei Magnesium Co. Ltd., who said the magnesium industry is about to witness a renaissance, the conditions this year are a really good sign, and we should join hands in facing up to it. And United Magnesium is willing to be a founder of the platform I mentioned just now and to move toward a brighter future together with everyone.

Bin Gao: Mr. Qi is always full of positive energy. I hope your platform begins construction soon and is a blessing for the whole of the magnesium industry. In fact, a complete and normative trading system will surely be of great help to the whole industry, just like those for aluminum and zinc, and Mr. Qi’s opinion is worthy of deep consideration. But as the discussion calls for some different perspectives, I’d now like to invite Mr. Li from Hebi Jianglang Metals to share with us his opinions about magnesium powder. So Mr. Li, are there any new things or changes within the magnesium powder section? What do you predict the future magnesium price trend will be?

Zhenjiang Li: I entered the magnesium powder industry in 1995. Magnesium powder consumption makes up one third of the total demand for magnesium. Before 2013, magnesium powder had been mainly provided to steel mills, but after 2013, a number of other industries’ consumption of the material increased, including the chemical industry, and especially the domestic chemical industry. Last year, 80 percent of our output went to steel mills, with the remaining 20 percent going to the chemical and pharmaceutical industries. Judging from the present trend, demand from the chemical industry will increase. If we look at it in terms of customers, foreign demand used to occupy a dominant position before, but as the structural adjustment at domestic steel mills progresses, the output of crude steel will shrink, while that for pure and refined steel will be on the rise, so I think magnesium consumption will grow in the long run. Due to the neutralizing effect of falling international demand together with increasing domestic demand, this year’s consumption will be maintained at a similar level to last year. But I believe it will end up increasing as time moves on. And the current low prices will also help in expanding the applications for magnesium metal.

Bin Gao: What you shared with us just now was mostly from the perspective of the market, but some other topics have been touched on in this particular conference, such as production management, which was mentioned in the report from Taida Carbonification Co. Ltd. this morning, as well as applications. Right now, many magnesium enterprises are paying great attention to developing and raising standards of internal management. So Mr. Wen, with regard to the technical and management issues, what should we do to cope with the present situation in the magnesium industry?

Tao Wen: Firstly, please allow me to extend my appreciation to Asian Metal for providing us with such a good opportunity for communication. To be honest, the technology doesn’t matter so much in the current situation, nor do the prices. But the industry management standards, and how to raise them sufficiently to satisfy the needs both inside and outside of China, are a real problem. Having been in this industry for more than ten years, every time I talk about magnesium metal, I feel a sense of heaviness. Magnesium metal was being sold at slightly over RMB10,000/t (USD1,611/t) when I first entered the industry, but the production cost was relatively low at that time with the adoption of the Pidgeon Process. Now that we’re back to where we used to be, no sense of easiness can be felt in view of the present cost, especially for producers such as us, who also do trading. Those of us who have survived all the changes and transitions through the years have witnessed the emergence of many new enterprises, as well as the fading away of many glorious enterprises which are still on the decline, and we cannot help feeling sorry for them, as well as viewing it as a warning. And this difficult situation, is it purely an issue of prices? I don’t think so.

For so many years, China’s magnesium industry received little support from all sides, its development was mostly dependent on us private enterprises. Characterized by its limited concentrations and small size, the magnesium industry often sees drastic price changes: soaring with no cap and slumping with no bottom. In early April, the Shanxi Magnesium Association and the producers in Fugu called for price unity. Of course, there was nothing wrong in this, as we all wish the price would fluctuate within a reasonable range instead of dropping continuously. However, this reasonable price should be determined not by subjective assumptions or hopes but rather by the market conditions. From this perspective, I think price unity has some problems. The first is the issue of timing, which I personally consider to be inappropriate. Objectively speaking, the best time to achieve a price unity would have been the period right after the Chinese lunar new year, in the first half of March, during which the spot inventories were at a relatively low level as large numbers of inquiries received from the international markets were set to be delivered and many domestic deals made before the holiday also called for delivery. If we could have formed a price unity at that time, the effect would have been great, but unfortunately, we missed it.

I believe we all remember that prices lingered above RMB13,000/t (USD2,094/t) after the holiday up until 10 March. However, from 15 March through to early April, magnesium ingot prices saw repeated slides, all the way toward RMB12,500/t (UD2,014/t) ex works by cash. Of course, we understand that each of the producers had their own reasons for lowering prices: some might have been short of capital, some might have had a large volume of stocks, etc. And when Fugu’s prices went down to this level, we got to discover that producers’ abundant inventories and the continuing price falls had suppressed consumers’ interest, as they were waiting for lower prices. And when we came up with the idea of forming a price unity at such a time, it was just like a man carrying his children and wife to race with an unburdened bachelor, it was doomed to failure. Another issue is that of unbalanced supply and demand, while a third concerns capital, especially as we don’t have large enterprises in the magnesium industry. To cope with all of these problems, we have had to raise the sense of self-discipline and limit our production, which has affected the overall supply and demand situation.

In my opinion, the magnesium industry should build a price information warning system. Oversupply exists in almost all the industries in China, and while some industries are in good shape, some are barely surviving, and the difference lies in the sense of self-discipline. Take the coke industry of Shanxi province as an example: In spite of the negative impact from reduced steel capacity, larger coke producers’ outputs have remained stable, which should be attributed to the self-discipline and well-ordered state of the whole industry. Half a month ago, I heard that many enterprises in Shanxi had intended to limit or suspend production, but from what I know now, only a small number of enterprises actually did so and most of these are small in size. So for now, the large inventory and tight capital are still the major obstacles that are holding us back. None of us doubts the bright future of the magnesium industry, but not all of us can wait for this day to come. What’s worrying many enterprises now is that no new investment will enter this industry if it keeps losing money. So taking this opportunity, I’d like to call for more self-discipline for a better chance of survival for us all. We should consider ourselves as the masters of the industry and limit and reduce our outputs, as we all know that every time mainstream prices fall off, it starts from some individual enterprises who encounter either capital issues or stock issues, while larger enterprises will only follow suit after that. In one word, we should really give close thought to how we get through this difficult situation before the new dawn.

Guangning Zhang: I’d like to make some comments about the self-discipline Mr. Wen just mentioned. As far as I know, there are three ways to achieve industrial discipline: regulation of industrial associations, regulation of government, and the self-discipline of enterprises whose production capacity is higher than 20,000tpy. Without these methods, industrial discipline is just empty words. Because each plant has its own troubles to deal with, it’s impossible and unreasonable to require them to take the same action. However, we should really observe and learn from those who do well in this business. Take Yulin Tianlong Magnesium as an example. Tianlong has insisted on high product quality which makes their products popular and they don’t have to worry about sales. If we could all pay enough attention to quality, our products would also be more competitive. What’s more, we could diversify our products on the basis of good quality. There are all kinds of magnesium products that have different specifications and are in demand both domestically and internationally. So varying the purity, the shape and the trading volume are good ways to strengthen our risk-resistance capabilities. And you might get the chance to regularize your orders in the end.

Bin Gao: Thanks to Mr. Wen for his analysis. It’s certainly unclear whether many plants are limiting production or not, but we should understand that even if they choose to reduce output, it is a very hard decision to make as there are still loans and wages to pay, and equipment to maintain. So back to where we were, I think the market itself is the best warning system, it will weed out those of inferior quality and monotonous portfolios in a diversified market of good quality, just as Mr. Zhang said, so it’s very important for enterprises to keep innovating and advancing.

Zhiwei Zhu: I think today’s discussion has been very well-organized, and Mr. Gao has contributed a lot with his lively and relaxed hosting style. And we would also like to hear from Mr. Gao. So I’ll represent all of us and ask Mr. Gao a question: as the most representative listed magnesium enterprise in China, what’s your opinion about the present market conditions? How do you predict the future market will go?

Bin Gao: OK, I’ll share my opinions with all of you. Generally speaking, I think the major factor that determines the magnesium price is still the supply-demand relationship. And the basic situation is, supply is greater than demand and demand is generally stable. Consumption from the auto industry might see a slight increase, but this will be offset by the decline in the 3C industry, so there won’t be any great fluctuations in terms of demand, which means that the fluctuations on the supply side will completely determine the market trend. So going back to what we discussed before, it’s hard to say whether there are companies voluntarily reducing or stopping production as each has different conditions. For instance, our company produces around 3,000tpm of crude magnesium, all of which is used for the metallurgy of alloys. From our perspective, we are not likely to choose to stop production because of the high cost of suspending furnaces: resuming a furnace will cost hundreds of thousands, and all the accompanying equipment and raw materials such as the rotary kiln and calcined dolomite will also be impacted, and we still have to pay the workers’ wages and conduct maintenance on the equipment, so basically, we will not choose to stop production voluntarily if it’s not necessary. I guess this applies to every company, whatever different situation they are in, and it’s very unlikely that any plant will choose to stop production voluntarily, most of the production suspensions are forced by low prices and big losses, and this is my first observation. And then, going back to the prices, against a background of oversupply, I don’t expect any big price improvements through price unity, but a small-scale increase is probable.

The second issue I want to stress is that of innovation and survival. Right now in the magnesium industry we have three different business sections: the first section is the part in which dolomite is made into crude magnesium; the second part transfers crude magnesium into magnesium alloys and recycles the magnesium wastes; and the third section is the processing of magnesium alloy into different parts and components. So what are the basic conditions within these three sections? Section one is facing big losses, while section two has marginal profits of several hundred Yuan as its processing cost is more than RMB1,000/t (USD161/t), no matter whether it is magnesium alloy or magnesium powder. And section three, the deep processing part, still has reasonable profit rates of 10-20 percent; some companies’ profit margins have even gone beyond 30 percent. So what does this mean? It means that the deeper the industry chain goes, the bigger its profit is. That explains why so many enterprises have started to focus on the casting and processing of magnesium alloys. Just like the topic of application research we talked about before, we should put more investment, personnel or materials into development of the downstream market, which is wider, more meaningful and has greater openings, and Mr. Wen also believes in its bright future. If we could make this come true, then all the problems we mentioned before will disappear.

Zhiwei Zhu: Mr. Gao mentioned price unity again, so I want to say something more about it. Above all, I think it’s necessary to make it clear that my company doesn’t actually advocate price unity, we are just a follower. And I’ll explain, from my personal understanding, why this happened in early April instead of at some other time. As you all saw, before 31 March when the price unity activity happened, magnesium prices had dropped to RMB12,500/t (USD2,014/t) ex works by cash, and were still on a downward trend. Happening at this time, to me, the activity was not a price boosting activity taken by Shanxi magnesium producers who make up 60 percent of the market share, but rather a life and death measure that may have seen large numbers of magnesium enterprises squeezed out within the next six months to a year had it not been taken. If this cannot be done, many companies will try any means to ensure survival by lowering prices and being more competitive, which had already been the case by the way. So as for price unity on this occasion, I hope you will show understanding and leniency because the market has come to a historical turning point. Just as Mr. Qi mentioned, 2015 is the year we will see a new start for the magnesium industry, and I’m all for that. However, we should really slow ourselves down and take a breath before we figure out what to do next, for if we don’t, nobody will bother to think about how to integrate resources and how to develop the market as many can barely guarantee their existence. But of course, this kind of price unity is just an emergency measure which should not be taken often.

I have never quite agreed to any price protection measures before, but this time, I want to make a pitch for it because of the cruelty of the situation. However, we should try our best to keep more resources for the industry in a legal, reasonable and fair way that might create a win-win situation instead of only keeping some of the larger enterprises. As far as I am concerned, the magnesium industry is quite young and has infinite possibilities. It will generate lots of opportunities and development directions, and will create more jobs. However, we should always avoid low-level competition and homogeneous competition. And the magnesium platform Mr. Qi talked about just now is a very good way to avoid these things. For example, suppose we have 30 magnesium enterprises in the Fugu area and we divide them into three different groups, each group will choose one enterprise for compulsory production suspension for a certain period of time and all the other enterprises will take turns over suspensions after that. And then, we regulate a price for all the enterprises, say RMB15,000/t (USD2,417/t) ex works by cash, which will definitely attract some customers. But to do this we have to build an industrial association first. The association will be in charge of the price and make sure it fluctuates reasonably with the changing production cost so that you can always achieve the same profits and don’t have to worry so much about your suspension periods as we do now. But of course, this is just an immature concept that needs thinking through, the thing I want to say is that all of you should be more lenient towards price unity this time.

However, it doesn’t necessarily mean that the prices will have to go up after this measure. Frankly speaking, it just provides us with an opportunity to clear out our thoughts, and in the end, the prices will still have to be determined by the market conditions. Right now the buyers and suppliers have a misunderstanding: the buyers put off procurement and the suppliers lower their offers in advance as both think the prices are definitely going to fall. We all understand the rule of buying a product when the price is about to rise and not buying it when it still has room to decline. Now, if everyone expects the price of magnesium to rise RMB100/t (USD16/t) every day, then there will immediately be a doubling of inquiries, so we shouldn’t take the demand as being absolutely good or bad. Right now, demand is at a low level, but this is not the best level because many customers are holding back their inquiries and waiting for the prices to bottom. In my opinion, I think there is no more space for further price declines now, it is going to level off at least. And this is what I want to say for the magnesium enterprises that are finding it difficult to remain in existence at present.

Bin Gao: Today’s discussion has been very meaningful, we’ve had an in-depth conversation in terms of the status quo and the future development strategy of the magnesium industry. But in spite of all the exchanges on, and views about, the market, after this meeting, we will still have to operate or purchase in accordance with the inquiries we get, as the saying goes “the ideal might be encouraging, but the reality is always depressing”. There are a lot of issues, reasonable or unreasonable, interlaced within the magnesium industry, and the same goes for the overall manufacturing industry of China. While all of us here are quite troubled, our premier Keqiang Li is also quite troubled. So we don’t have to worry so much about the future as we have talked a lot about it today. As for the specific future price trend, leave it to time and to Asian Metal, let them unveil the answers for us. I believe Asian Metal is quite well qualified to do this as its rich and reliable news and market information has been of great help to us, which has also been proven by the success of this conference. Time flies, we will end up here today, thanks to all of you for participating!