Magnesia prices to rise in H2 2021

Asian Metal: Hello, Mr.Dong! Please make a brief introduction about your company firstly.

Mr. Dong: Founded in 1996, Donghe New Material is a leading company focusing on comprehensive application of magnesite resources. Its main products include caustic calcined magnesium oxide, fused magnesium oxide, monolithic refractory and refractory brick and it supplies services of design and manufacturing of refractories used in various kilns to steel mills. The company owns over 600 employees with total registered capitals of RMB133.53 million (USD18.97 million), covering over 130,000 square meters. It was granted the title of Provincial-Level Engineering Technology Research Center in 2014, the only one Demonstration Engineering Company for Comprehensive Application of Magnesite by MIIT in 2015 and the High-Tech Company in 2016. It was listed in New Three Board in 2016 with the security abbreviation of Donghe New Mateial and the stock code of 839792 and is applying for listing on the Growth Enterprise Board (GEM) in 2021. Donghe New Material is now a company with complete industrial chain, strong competitiveness and vibrant development. Haicheng Donghe Taidi Metallurgical Furnace Material Co., Ltd. is a wholly-owned subsidiary of Donghe New Material.

Asian Metal: Would you please introduce the magnesia market price trend in 2020 in brief and analyze the reasons?

Mr.Dong: During Q1 to Q3, the downstream demand shrank due to the outbreak of corona virus. Most consumers mainly used inventory. Therefore, the magnesia prices kept decreasing until in early Q4 when consumers used out the stocks and start to replenish inventory. On the other hand, as the environmental inspection in Liaoning got strengthened in Q4, most caustic calcined magnesia producers and dead burned magnesia producers halted production. The market supply contraction stimulates the downstream customer to increase the purchase quantity, supporting magnesia prices to increase rapidly by the end of 2020.

Asian Metal: At present, the environmental inspection in Liaoning remains strict. How about the operating rate of the local magnesia producers?

Mr.Dong: Inspection by the central environmental protection inspection group already ended in early May, but inspections by the local government already became the norm. Most producers of caustic calcined magnesia and dead burned magnesia resumed production successively last month after finishing the installations of environmental protection equipment. As the production of fused magnesia mainly consumes electricity and the pollution is much limited, most fused magnesia producers keep in regular operating rate.

Asian Metal: The supply of explosives didn’t resumed yet this month. Does it have any influence on the supply of magnesite?

Mr.Dong: On the one hand, most magnesite mines owners keep machinery mining. On the other hand, most magnesia producers beyond medium scale have sufficient magnesite stocks. Therefore, the market doesn’t witness tight supply of magnesite. Most mining companies have no hurry to sell and hold the magnesite prices firm in April.

Asian Metal: How about the magnesia market price trend in May?

Mr.Dong: The prices of magnesite and coal increased slightly in May, but most magnesia producers kept the prices stable.

Asian Metal: Please briefly analyze the market trend in 2021 from the perspective of supply and demand. Would the prices continue increasing?

Mr.Dong: On the one hand, the total output in 2021 of caustic calcined magnesia and dead burned magnesia would decrease from last year as most producers still remain in suspension due to the regular environmental inspections. On the other hand, with the global macroeconomic recovering, the demand in 2021 would increase from 2020. In April, with the demand recovering, the market witnesses an obvious increase in inquiries and deals. In general, we believe that the mainstream prices of magnesia would move up by about 30% from late Q3 in 2020 and the prices of H-Ca fused magnesia 97%min would increase to over RMB4,000/t (USD625/t) EXW by the end of 2021.

Asian Metal: Do you have any plans to expand foreign markets this year?

Mr.Dong: Before 2020, we used to sell about 70% of our products to overseas market and the rest 30% in domestic market. But we switched the ratios in 2020 as the domestic market resumed better from the epidemic compared with overseas markets. In 2021, we would rather focus on maintaining regular clients than spend too much on developing overseas market and looking for new clients.

Asian Metal: What challenges would the market face this year? As one of the main magnesia producers in China, how would you deal with them?

Mr.Dong: There would be no huge market risks in 2021 as the magnesia prices would move up due to the shrank supply and resuming demand. As production enterprises, magnesia producers should better not expand or speculate blindly, but maintain clients with good quality and reputation.