Aim at full magnesium production chain for better market competitiveness

Asian Metal: Mr. Wen, thanks for taking the interview by Asian Metal. Please introduce your business briefly.

Mr. Wen: Our company founded in 2009 and has more than 750 employees. With an annual capacity of 20,000t of magnesium ingot, 20,000 pieces of reduction tanks, 600,000t of semi coke, 50,000t of ferrosilicon and 2X6 megawatts of exhaust heat power generation projects, we own a relatively circular economy industrial chain in Fugu County. In 2019, we also established Shaanxi Hongtai Yuanhe Magnesium Industry Co. and have an annual output of 50,000t of magnesium die-casting project.

Asian Metal: As the first plant to build the whole industrial chain of magnesium ingot, magnesium alloy and die casting in Fugu County, what’s about your development philosophy?

Mr. Wen: As a Shaanxi magnesium plant, we use the tail gas produced by producing semi coke to produce magnesium ingot, which belongs to environmental cyclical production model. So we have outstanding advantages in energy cost. On this basis, we put into magnesium alloy production and extend the chain to magnesium die casting products. On the one hand, we have advantage for production cost; on the other hand, we follow the government requirement to start the downstream products, transform to new products and upgrade our material, so we could pursue higher added value production.

Asian Metal: Entering 2020, magnesium industry suffered under the impact of COVID-19, and mainstream Chinese magnesium ingot prices kept hovering at the cost level. From the middle of October, the situation changed and prices for magnesium ingot showed an upward trend. What do you think the main reasons to support magnesium ingot prices to go up?

Mr. Wen: Entering 2020, magnesium market suffered caused by COVID-19, and related downstream market demand weakened. In addition, more than 50% of magnesium products exported to different countries and the consumption volume also reduced a lot. Given these situations, prevailing Chinese magnesium ingot prices kept decreasing and even reached the production cost level, and some plant had no choice but to stop or reduce their output. Since the middle of October, the foreign economy recovered slightly and the market entered the peak season for buyers in the domestic and foreign markets to purchase, so market movements increased. In addition, we received the support of interest-free loans from local government and it relieved our pressure on funds and stocks. Meanwhile, a big trading company in Fugu also started their stockpile, which also alleviated the pressure of plants. Fourthly, in view of rising upstream ferrosilicon and coal prices, the production cost for magnesium ingot increased sharply. Fifthly, as you know, mainstream prices for aluminum ingot are below magnesium ingot for around RMB1,500-2,000/t (USD229-305/t), while the situation this year is totally different. So, suppliers rejected price cuts and began to lift quotations. Sixthly, the main reason is the relationship for demand and supply, currently we confronted strict environmental protection policy and had to reduce the output of semi coke and then decreased output for magnesium ingot. The supply tightened and prices had room to go up. Therefore, mainstream Chinese magnesium ingot prices showed an increasing trend from the middle of October and cheered insiders’ confidence. It is worth to mention that the suddenly price rise has also alerted some export companies to consider the huge risk for signing long orders at low prices. It is better to follow the rules of the market.

Asian Metal: In terms of the current magnesium ingot price, what about Fugu plants’ operating conditions? Do you plan to increase the output of magnesium ingot?

Mr. Wen: Frankly speaking, we could get proper profits at the current price level. Nevertheless, as we suffered loss in the first three quarter of 2020 and the current short-term price rises couldn’t cover previous losses. In addition, due to rising upstream coal and ferrosilicon prices, the production cost increased and our profits just stay in a reasonable range. We totally have no plan to increase output. Due to the double pressure caused by rising coal prices and strict environmental protection policy, we will suffer heavy pressure. In order to cope with the current situation, some plants even consider reduce their output to cope with the current state. As for us, we will sustain the current state and hold stable output on the whole.

Asian Metal: How do you think about the price trend for magnesium ingot in Q1 of 2021?

Mr. Wen: Entering 2021, I think the main factor to affect price trend should be the relationship for demand and supply. As for the supply, most plants would hold stable production and run high operation rates, and only few of them intend to stop or reduce output caused by rising coal prices. On the whole, the supply for magnesium ingot in Q1 of 2021 will remain stable. As for the demand, the demand from Europe stays gloomy caused by continuously COVID-19 and rising freight. Meanwhile, Asian buyers intend to buy the material as scheduled and market movements would stay stable. In addition, most buyers from domestic aluminum alloy plants, magnesium powder plants, magnesium alloy plants and titanium sponge plants would purchase the material actively, while the volume will decrease YOY on the whole. Most suppliers would have strong intention to recoup funds before the holiday Given these situations, mainstream prices for magnesium ingot prices would show a downward trend and market would see price competition. After the holiday, mainstream prices would hover at a production cost level and some plants would consider decreasing output accordingly.

Asian Metal: What about your magnesium alloy production state? Is it only for self-produced die casting products? Do you also plan to sell magnesium alloy to downstream die casting plants and also focus on some processing orders?

Mr. Wen: We just set up one magnesium alloy production line in early December, with a fully operation rate for 900t a month, and now it enters the trial production period. Our magnesium alloy could be used by ourselves to produce die casting products, and we also sell the metal to downstream clients. As for processing order customers, it will be adjusted flexibly according to our spare amount. We began to produce die casting products from this April and welcomed by clients. Now we have auto engine parts, electric vehicle wheel hub, motorcycle engine parts, new energy auto parts, safety helmet and helmet.

Asian Metal: What are the advantages for your whole chain production?

Mr. Wen: For our company, the biggest advantage in the full production chain is production cost, which improves our market competitiveness. In addition, we have more energy and funds to increase our product’ quality and technology. Moreover, our local government offers more support and promotion. Meanwhile, our production model belongs to an environmental state and also have more relaxed policies for production.

Asian Metal: Do you think the development of the whole chain will become the development direction for magnesium plants?

Mr. Wen: As a plant, we know that the only way for plants to improve market competitiveness and seek reasonable profits is develop downstream products and avoid the competition for homogenized products. As for Fugu Magnesium plant, we have a prominent cost advantage in the production for magnesium ingot. However, the current supply belongs to a over state and the competition is fierce. In order to seek reasonable profits, the production for magnesium alloy and magnesium die castings in the downstream is a main way to deal with the current market situation. Meanwhile, our local government also offers assistance for us to carry out the development mode for the whole industrial chain.

Asian Metal: Thanks for accepting Asian Metal’s interview. We wish Jinchuan Hongtai a more prosperous future in 2021!

Mr. Wen: Thanks for your attention to Jinchuan Hongtai. Let's work together and look forward to a better magnesium market trend. In addition, we also expect that Asian Metal sticks to the principle of objectiveness and timeliness in providing clients with better information about the magnesium market. We would like to join hands together and continue to serve in magnesium industry.