Brown fused alumina price to stay high on raw material shortage

Asian Metal: Mr. Zhao, thank you very much for accepting the interview of Asian Metal. Firstly, please make a brief introduction to your company.

Mr. Zhao: Founded in 1989, our company totally has a long history of 30 years. We focus on producing brown fused alumina, aiming to supply high-quality raw materials for downstream abrasive companies. We own two tilting furnaces of 7,500KVA and a total number of twelve production lines for high-temperature calcined brown fused alumina, iridium-plated sand, F sand and P sand. With a total annual production capacity of 70,000t, our actual output is 40,000tpy.

Asian Metal: Your company has created the famous Ant brand of brown fused alumina over 30 years of development. Would you like to let us know where your major customers come from?

Mr. Zhao: Our brown fused alumina products can be sold both at home and abroad thanks to 30 years of development and gradually accumulated reputation within this industry. 65% of our products are sold in the domestic market while the rest 35% are exported to overseas customers. We have established stable cooperation with major grinding wheel and cutting piece producers and other abrasive producers both at home and abroad for a long period of time owing to strict control on our high quality products.

Asian Metal: We learned that the Chinese brown fused alumina market saw tight supply in past two years as most producers had to lower their outputs due to decreased supply for high-quality raw materials and great pressure caused by strict environmental inspections. Can you tell us the output of your company in 2018 and the planned output in 2019?

Mr. Zhao: We produced about 40,000t of abrasive grade brown fused alumina in 2018 when strict environmental inspections were carried out strictly all over the country. We plan to keep our output unchanged in 2019.

Asian Metal: As an outstanding representative enterprise in the Chinese brown fused alumina abrasive industry, how does your company stand out in the fierce competition and grow stronger? We learned that the production technology and processing equipment owned by your company are more advanced than many other domestic abrasive enterprises. Would you please make a specific introduction about them to us?

Mr. Zhao: We have been adhering to principles of ensuring long-term stability of product quality and serving customers so as to help customers solve related problems and make our company be competitive. In 2017, we introduced advanced automated production equipment and processing technology. Our latest production line is designed based on following principles: firstly, the investment in environmental protection equipment must meet the requirements of the government and even exceed the current requirements of the government; secondly, we must ensure the investment in automation equipment to minimize the labor cost; thirdly, we must enhance the yield and control the cost through transforming equipment and training employees as it's very important to control cost against the backdrop of limited profits generated by brown fused alumina now. In fact, we have been insisting on controlling costs on the premise of improving the product quality and production efficiency, which is the only way for domestic industrial enterprises to realize development.

Asian Metal: We learned that the Chinese brown fused alumina market sees sluggish demand now, but prices for the material have been stable at a high level for a long period of time. Some domestic and overseas purchasers merely wait on the sidelines now for prices to go down. Would you like to share with us your opinion about the current market condition of brown fused alumina?

Mr. Zhao: Firstly, we must admit that prices for brown fused alumina are indeed relatively high now. However, we also must realize that profits for both brown fused alumina smelters and processors in Henan are very low. Prices for the material have declined to around the cost line from early 2019 to now. We mainly attribute to the current relatively high prices of brown fused alumina to substantial increase of prices for abrasive grade calcined bauxite, the raw material. At present, mining is the most profitable business in this production chain. High prices and tight supply for raw material also put the brown fused alumina industry in a dangerous situation to a certain extent. Specifically speaking, many customers replace brown fused alumina with white fused alumina, which is a major reason for the demand of brown fused alumina to be weak. In order to control the production costs and ensure the quality of high-quality brown fused alumina, we brown fused alumina enterprises are eager to solve the problem of raw material of brown fused alumina by importing abrasive grade calcined bauxite and homogenizing abrasive grade calcined bauxite. That's how we can realize the healthy and sustainable development of the brown fused alumina industry.

Asian Metal: We learned that a safety production accident happened in a brown fused alumina company in Dengfeng on June 1st, forcing all local smelting companies to halt production. Has this accident brought serious influence on local brown fused alumina companies so far? How many furnaces used to smelt brown fused alumina in Dengfeng? Would you like to tell us the production capacity and output of the material in Dengfeng and their proportions among the national total?

Mr. Zhao: Yes, an explosion accident happened in a local brown fused alumina company in early June unexpectedly. Results of spot investigations conducted by related governmental departments indicated that it was completely caused by mistakes of relevant operators and on-site management personnel. All local smelting companies have been forced to suspend production for rectification since the happening of the accident, leading to sharply decreased output of brown fused alumina in Dengfeng. The accident also stimulates brown fused alumina companies to pay more attention to training workers. Furnaces of our company are under acceptance check now. We expect that a large number of smelting companies would successively resume production in late June after passing related acceptance check.

There are about 50 furnaces used to produce brown fused alumina in Dengfeng and the daily production capacity of the material in this region is about 1,700t, accounting for 30% of the national total. Most domestic smelters merely keep 50% of operating rates now due to tight supply for raw materials, high production costs, soft demand in the market and constantly squeezed profits.

Asian Metal: What are main problems in current brown fused alumina industry in your opinion and what's the most important one?

Mr. Zhao: I think the most important problem is about whether the supply of abrasive grade calcined bauxite, the raw material, can be maintained continuously. I hope that related associations, governmental departments and smelting companies will work together to solve the problem that the value of abrasive grade calcined bauxite is not decided by market law. If abrasive grade calcined bauxite prices go up further, they will be close to alumina powder prices and this will accelerate the research and production of homogenized abrasive grade calcined bauxite. In addition, considering the current prices for white fused alumina, we also hope that prices for brown fused alumina will return to a reasonable level as soon as possible.

Asian Metal: Do you think it's feasible to transfer brown fused alumina industry to overseas countries now when we face great pressures caused by strict environmental inspections in China, restrictions on bauxite mining and higher labor costs?

Mr. Zhao: I think it's not impossible for us to transfer brown fused alumina production to other countries if there are low power prices and sufficient abrasive grade calcined bauxite supply as it is the market law. However, I believe that we would develop brown fused alumina industry based on China's market, take advantage of complete supporting facilities for industrial development and depend on mature smelting and production technologies in China in the near future.

Asian Metal: We heard that the news about the integration of brown fused alumina industry exists in Henan for a long period of time. Is it true and what's your opinion about the integration?

Mr. Zhao: This news comes from a governmental report, which asks to integrate furnaces used to produce brown fused alumina into five-ten companies by 2021. The specific integration plan hasn't been released yet, but we estimate that the government would formulate integration rules on environmental protection, safety production, outputs, taxes and others in the future. As far as I am concerned, the integration will benefit both companies which will be responsible for integration and which will be integrated. To some extent, the integration will help integrate resources, enhance usage rate of resources and make the market develop healthily and orderly.

Asian Metal: What do you think of the current development trend for brown fused alumina industry as a representative producer for brown fused alumina with long history?

Mr. Zhao: I think whether the brown fused alumina industry can keep healthy development will depend on the supply and prices for abrasive grade calcined bauxite. Due to mature technologies related to smelting and particle formulating, the gap of production costs of brown fused alumina with the same quality among different producers in the same region won't be more than RMB150/t (USD21.79/t). I think it's possible that a new kind of brown fused alumina with alumina as the raw material will appear in the market in the near future. This new kind of brown fused alumina will have all advantages of traditional brown fused alumina, and more importantly, can solve the problem of supply shortage for abrasive grade calcined bauxite.

Generally speaking, the relatively high prices for brown fused alumina in China don't mean that producers can realize high revenues or profits as whether producers can realize high revenues or profits are mainly decided by raw material costs. We think that brown fused alumina prices would remain at a high level in the future as a result of the supply shortage of abrasive grade calcined bauxite.