Wang Zhengdong: Chinese cemented carbide industry should establish rational mechanism for positive development

----Interview with Wang Zhengdong, General Manager of Ganzhou Vanguard Cemented Carbide Co.,Ltd

Asian Metal: Good afternoon Mr. Wang. Thank you for accepting our interview. Can you give a brief introduction about your company?
Wang: Our company was set up 9 years ago, and the registered capital was RMB6 million. We have two production lines with annual outputs of 200 tons of cemented carbide and 500 tons of catalyst products. We are running at about 60% of the full capacity now and produced about 120 tons of cemented carbide in 2010, and we plan to expand production capacity and update equipment next year.
Asian Metal: What are the main products of your company?
Wang: Our main products are abrasion resistance alloy and cemented carbide pellets. We export the materials to Middle East and Japan. The output of cemented carbide pellets is around 40 tons per year, and the materials are highly competitive in the world market.
Asian Metal: How much do you invest in R&D of new products every year?
Wang: There are many varieties and specifications of cemented carbide. For meeting consumers’ demands, we invest about 4% of our annual sales in researching new products and technologies.
Asian Metal: Many producers stated that the volumes of cemented carbide output and sales have kept increasing from the beginning of 2010. In your opinion, demands from which industries increase more than others?
Wang: Tungsten industry was heavily damaged during economic crisis in the first half of 2009, and the demand for cemented carbide was sluggish. Global economy kept recovering in 2010, and the consumption of cemented carbide increased year on year. A report shows that the output of cemented carbide was 15,000t in China in the first three quarters of 2010, up by 35.14% year on year. Domestic economy grew and the industries of steel, automobile, energy, mining, machinery, construction and etc flourished, brought many opportunities to cemented carbide industry.
Asian Metal: The price of tungsten concentrate kept increasing from the beginning of 2010, and reached the peak in November at RMB115,000/t, but price of cemented carbide did not follow the trend immediately and the increasing rate is much slower compared with that of raw materials. Could you analyze the reasons behind?
Wang: Tungsten is an important strategic metal and the resource is gradually exhausted. The rising prices represent its true value as it was undersold for a very long time. Raw materials price skyrocketed, but cemented carbide prices only rose slightly for the following two reasons.
1. Many large-scaled cemented carbide producers have long production chains, and each stage has stockpile of raw materials which were purchased when prices were lower. They did not lift the prices of cemented carbide at first as the production cost did not increase immediately.
2. Cemented carbide industry cannot adjust prices entirely according to the prices of raw material as there are many other aspects need to be taking into consideration. Giving an example, consumers refused to accept rising prices. The current price of cemented carbide is much lower compared with its contribution to GDP, and there is large room for the price to go up.
Asian Metal: Please summarize the current supply situation in Chinese cemented carbide market?
Wang: Most cemented carbide products in China have low added value, e.g., mining, cutting, and construction tools, and the production capacity is much higher than the actual demand, resulting price war between producers. We refuse to accept orders of mining and cutting tools unless old customers ask for it. The profit margin of this type of products is less than 5%, and there is very limited room for price to move upwards.
Asian Metal: The structure of Chinese cemented carbide industry needs to be reformed urgently. The majority of the products in China are still traditional cutting and mining tools, which have very low added value. The technology of producing high-end products falls behind compared to foreign manufacturers, and the market of these products has big space to grow. Comparing with foreign manufacturers of cemented carbide, what advantage or disadvantage do you think Chinese producers have? Is there any suggestion for the market to develop in healthy direction?
Wang: We only have the advantage of resources that China has rich reserve of tungsten concentrate, but our production equipment and researching power are much behind compared with the foreign manufacturers of cemented carbide. The imported cemented carbide products in China are mainly the top technology contained products, and normally we need to buy in sets with continuous replacement of the parts. Many Chinese producers already have their products of good qualities exported to overseas market, but the exportation is restricted by qualities, varieties and functions.
There are many restrictions keep Chinese cemented carbide from developing, such as disordered competing mechanisms. Some areas pursued GDP, and expanded local cemented carbide production capacity blankly, causing repeated production of low classed products. The phenomenon mainly appears in the market of middle and low graded products, and the production capacity increased drastically; the price war become tougher. The vicious competition occurs not only among the middle and small-scaled producers, but also within large companies or between large and small companies. The competition of the lower class products caused low profit margin of companies, and the companies do not have enough fund to invest in R&D. Therefore, if we want the industry develop in positive direction, we must establish effective and rational mechanism.
Asian Metal: How was the export situation in 2010 of Vanguard?
Wang: Our export volume was normal in the first half of 2010, but it decreased greatly in the second half. There were two reasons. First, China cancelled the 13% export tax rebate of cemented carbide products from 1 July 2010, so we do not get subsidized from the government; and secondly, Chinese RMB appreciated sharply against USD and we had to raise price in export market, but foreign consumers, especially consumers in Japan, refused to accept the rising prices.
Asian Metal: How was your operation status in 2010? Was there any problem? And how did you cope with the difficulties?
Wang: Our company ran into many difficulties in 2010. The biggest problem was from the pressure in the international market. We followed the market closely and adjusted products structures according customers’ needs. Furthermore, we paid a lot of attention to the Chinese domestic market as well, and our operation became stable later in the year after all the efforts. The overall production situation of our company, Vanguard, went well in 2010.
Asian Metal: Large numbers of cemented carbide producers are located in Jiangxi, Hunan and Guangdong provinces. There are only several large-scaled stated-owned corporations, and the rest are small private smelters. Do you have any suggestion to the private cemented carbide producers?
Wang: I have worked in the industry for more than 20 years, started own business 12 years ago, and manage three companies at present. I think it is important for a company to analyze its conditions, and find a suitable profession with characterized products. Companies must pay great attention to the quality of the products and technological innovation, and need be flexible to the market changes.
AM: What is your expectation for the cemented carbide market in the long term perspective? And do you think there will be any change in government policies?
Wang: I am looking forward to the cemented carbide in 2011 that it will develop in positive direction with rapid speed. I hope government will continue to help and encourage cemented carbide and tungsten downstream processing industries, especially in the export aspect. For example, recover export tax rebate on high value added and high technology contained cemented carbide products.
AM: Thank you again for accepting the exclusive interview from Asian Metal, and we wish your company becomes better every day.
Wang: Thanks!