Pessimistic outlook for zinc oxide market in 2020

Asian Metal: Hello Mr. Li, thanks for accepting the interview of Asian Metal. Firstly, please make a brief introduction to your company.

Mr. Li: Thank you. Jiewei Zinc was founded in 1995, and now focuses on production of zinc oxide 99.7%min via indirect process out of raw materials of zinc ingot and zinc slag. Using large gas furnace, we produce quality products. With an annual capacity of 10,000t for zinc oxide, we actually produce about 20tpd and about 600tpm.

Besides zinc oxide, our first product, we have developed into a group after years of development, and our seamless steel tube plant (covering an area of 200mu, with an investment of USD49.01 million) and steel tube insulation plant (occupying an area of 200mu, on the opposite side of steel tube plant) are prospering.

Asian Metal: Where is your zinc oxide mainly used now?

Mr. Li: We do not supply it to consumers in tire and rubber industries due to low prices and long payment collection period despite large demand. Instead, we are focusing on such high-end industries as phosphatizing liquid, petroleum additive, fertilizer, painting and glasses, and some of our cooperate clients are PetroChina, Sinopec, AVIC, and glass plants in Qinghuangdao.

Asian Metal: What do you think are the reasons for weak demand for zinc oxide at present?

Mr. Li: Zinc oxide market was sluggish in the past year due to unfavorable environment both at home and abroad. One the one hand, the exports of tire and other downstream products decreased affected by the China-US trade war, leading to less demand for zinc oxide, and the trade frictions contributed more to the decrease; on the other hand, many small plants shut down or reduced production as a result of economic downturn and strict environmental inspections in China, resulting in decreased supply and demand for zinc oxide.

Asian Metal: With every production company facing the environmental inspections at present, what have you done in terms of environmental protection? And do the frequent environmental inspections have any negative impact on your operation?

Mr. Li: We totally support environmental protection, a good thing benefiting both the country and its people. We obtained all environmental protection certifications required by the central government in 2012 and our equipment have been replaced with large gas furnaces. With green area reaching 50% in our plant now, we become a standard in our county. Environmental protection department of the city and the province and even Ministry of Ecology and Environment of PRC ever came here and supervised. Environmental inspections have little negative impact on our operation.

Asian Metal: In your opinion, what kind of effect does the environmental inspection have on the whole zinc oxide industry?

Mr. Li: In my opinion, environmental inspections surely promote the healthy development of the industry. Taking a look at our plant, environmental inspections accelerated upgrade of the old equipment and our backward concept, and the government would provide aid in the upgrade process, so companies bear much less capital pressure. As to the product, along with new equipment utilization, the quality of our zinc oxide improves a lot and we could earn more profit by cooperating with state-owned enterprises of PetroChina, Sinopec etc. Companies which are unwilling to invest in environmental protection equipment and produce secretly and illegally are doomed to be phased out even though they could get profit for the time being.

Asian Metal: Zinc oxide produced via direct process still makes up certain market shares, so what do you think of its market outlook?

Mr. Li: We do not produce zinc oxide via direct process, but it accounts for large market shares in Chinese zinc oxide market. Widely used in ceramic industry, it is produced out of recycled raw materials of zinc ash and zinc slag, which is supported by related policy of the country. Environmental pollution is the biggest problem faced by companies which produce zinc oxide via direct process now, so the product has a bright future as along as their equipment meet the environmental protection requirement after equipment and process upgrade.

Asian Metal: In your view, where will the zinc oxide market go in Q4 2019 and 2020?

Mr. Li: I believe the zinc oxide market would keep weak in a year. From the perspective of demand, the impact of China-US trade war would continue, so the demand would not substantially rise; from the side of zinc oxide companies themselves, companies not up to environmental protection standard would face the risk of elimination under strict environmental inspections, while it takes time for those investing more money to buy new equipment and upgrade new technology. Therefore, I believe zinc oxide companies would experience a hard year, but I am also surely optimistic about the market outlook after the hardship.

Asian Metal: Prices for raw material zinc ingot are closely bound up with those for zinc oxide, so what do you say about zinc ingot price trend?

Mr. Li: Zinc ingot prices stand at RMB18,500-19,000/t (USD2,590-2,660/t) now, and companies in the zinc industrial chain including zinc oxide companies could earn very thin profit. Along with the economy to pick up, I believe the demand for zinc ingot from related industries would rise, so zinc ingot prices would fluctuate up in the future. I expect the price would be at around RMB20,000/t (USD2,800/t).

Asian Metal: Please share your company vision.

Mr. Li: We will provide quality product to our clients in the future. We are the only one zinc oxide producer in Cangzhou and have stable orders, so we will keep steady production of the material in the future. Besides, we will put more efforts in steel tube and steel tube insulation operations.

Asian Metal: Thanks again for your time, and wish your company a bright future.

Mr. Li: Thanks.