Zhang Baoyu: Industry diversification should be considered whilst waiting for cobalt potential turnaround

Asian Metal: Hello Mr. Zhang! Thank you for agreeing to do this interview with Asian Metal. We know that main products of your company are cobalt chloride, cobalt oxalate, cobalt sulfate, cobalt carbonate and cobalt powder, etc.. Please tell us the advantages and disadvantages of the product diversification strategy.

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Zhang: The advantage is that we can adjust products structure according to the demand from downstream industries. Under the condition of losses of most cobalt salts producers, we choose to produce the products which make us lose less. The disadvantage is that it is a little difficult to manage.

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Asian Metal: Affected by sluggish economy, demand is generally weak, especially from cemented carbide and pigment industries, resulting in low operating rate of cobalt salts factories. Please briefly introduce the common situation of current cobalt salts factories.

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Zhang: Generally speaking, 2012 is a difficult year for us. Impacted by slow global economy, supply exceeds demand in cobalt industry. In the past several years, China imported large quantities of cobalt concentrates, leading to a large stock. As far as I know, many cobalt enterprises are at a loss with decreasing output. Some producers cut output by a half and some reduce output by around 2/3.

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At present, cobalt producers face a tricky problem of slow capital turnover speed. I used to work in industrial enterprises, the velocity of money was usually 3-3.5 times, but the velocity of money is 1-1.5 times in cobalt sector now. When we sell cobalt salts products, some downstream clients ask for delayed payment and acceptance payment. For example, if users pay for cobalt chloride in the terms of payment of one month’s delayed payment and six months’ acceptance payment. It needs 3-4 months from importing cobalt concentrates by signing a contract to put the raw materials into production. It needs about one year for the fund from input to withdraw.

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Asian Metal: At the present time, cobalt concentrates import is decreasing while cobalt hydrometallurgically intermediate products import is rising. What’s your opinion about the change of raw materials import structure?

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Zhang: It should be said that there are the pros and cons respectively to import cobalt concentrates and cobalt hydrometallurgically intermediate products. The leading raw materials of us are cobalt concentrates with the ration of cobalt and copper of 1:0.5-1:0.8. In 2012, copper market is strong and the profit got from copper market can subsidize the loss in cobalt market to some extent.

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Some cobalt slats producers would like to use cobalt hydrometallurgically intermediate products as raw materials. There are three reasons: firstly, cobalt grade is higher in intermediate products than that in cobalt concentrates (Cobalt grade is generally 6-8% of cobalt concentrates, while cobalt grade is 22-32% of crude cobalt hydroxide and cobalt carbonate.). Freight is reduced by importing intermediate products; secondly, percent yield of intermediate products is 95-96%, higher than 92-94% of cobalt concentrates; thirdly, the governments of cobalt concentrates exporting countries encourage cobalt concentrates suppliers to process cobalt concentrates into intermediate products in order to help to increase the local tax and solve the labor employment problems to accelerate the local economic development. In recent years, the practice has shown that cobalt concentrates imports still exist. I think that Chinese cobalt salts producers will import both cobalt concentrates and cobalt intermediate products in the future.

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Asian Metal: As far as Asian Metal learns, Xiongfeng produces both cobalt and copper products, so you would rather to import cobalt and copper associated ore. Please talk about your two businesses:

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Zhang: Except for cobalt salts and cobalt powder, etc., we produce copper sulfate, with an output of about 200-250tpm. As I mentioned just now, copper sulfate market is active this year and the price is about RMB60,000/t if we calculate by metal tons, which can make up the loss in cobalt market to a certain degree.

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Asian Metal: Under the circumstance of weak market, what’s the biggest problem do you meet?

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Zhang: I believe that most private enterprises face the problem of shortage of high-end talent. The key of enterprise development is talent, especially for technical and management talents. Though we own many outstanding talents, we still need more. We need to develop new products continuously to stand out.

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Asian Metal: How do you deal with the current weak cobalt market?

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Zhang: Cobalt market moves slowly this year and we also reduce output correspondently. Our production capacity of cobalt products is 150 metal tons per month and we only produce 60-80 metal tons per month on the average. We are patiently waiting for strong cobalt market coming in the long run.

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At the same time, we have a new project of producing powder metallurgy products with a yearly production capacity of 1,500 metal tons. We may extend the business to stainless steel industry in the future.

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Asian Metal: What’s your expectation towards the future cobalt industry?

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Zhang: In the past several years, the profit margin was relatively high in cobalt market. However, the market is oversupplied at present. Cobalt market will be in a phase of adjustment in the next two years.

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Now cobalt market is weak, but I still have confidence in the future market because cobalt is one of the scarce resources, just like coal and oil. After all, the U.S. economy begins to turn better. We also wait for the opening of the 18th National Congress of the Communist Party of China and the government is expected to issue the new policies to stimulate the economic development.

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Asian Metal: Thank you again for taking the time to do this interview with Asian Metal!

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Zhang: Thank you!

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