Asian Metal: Thanks for accepting the interview. We understand Yunnan Grand Silicon Logistics Co., Ltd. and Yunnan Guichu Logistics Co., Ltd. are now working in close cooperation. Could you please tell us how this is currently progressing and share with us your latest ideas?

Ding: After discussions lasting more than a year, the two companies were officially merged on 1st June, 2014. Currently, we are operating under the two company names, but the warehousing & logistics business and finance are under unified administration.

Xie: The merger of the two companies will see the following boost to competitiveness. Firstly, the storage costs will decrease and we will see the benefits of scale. Secondly, following the resource integration, we should be able to popularize the Yunnan “Alipay-like” pattern of silicon metal trading to other areas. When we reach our targets, we could try to impose the O2O pattern on silicon metal and intend to benefit from the international pricing power of the material.

Asian Metal: Please briefly introduce the silicon metal trading pattern in Yunnan.

Xie: Briefly speaking, the trading pattern for silicon metal in Yunnan is as follows:

1）Buyers are able to obtain the materials -- without the risk in payment

2）Sellers are able to receive payment -- without the risk in selling materials

3）Inspection by a third party – without the risk in quality

The trading is like Alipay, and the difference is that we only keep the materials and do not keep the cash. But it offers benefits to both the sellers and the buyers. The requirements for this pattern are:

1) The products must be kept in the warehouse of the third party to ensure supply.

2) Every bag of silicon metal has a “Bar code” to ensure uniqueness and controllability.

This trading pattern has remained in place for around 20 years in Yunnan and the above two factors are the key reasons.

I think this trading pattern could be exported from Yunnan to other areas in China because:

1) The cash and products are safe – “Alipay-like” pattern

2) Ensure the quality of products – inspection from the third party

3) Ensure the safety of the financing side – supervision of the warehouse

4) Ensure the accuracy and promptness of the information – prediction on the future market trend

5) Ensure the convenience and quickness of logistics – saving customers time and capital costs

Asian Metal: As one of the major silicon metal production areas in China, the silicon metal output in Yunnan has increased continuously over recent years. What are the advantages of silicon metal production in Yunnan?

Xie: The major advantages of silicon metal production in Yunnan lie in the electricity price, silica and charcoal. However, the advantages are vanishing now as the electricity prices are increasing, supply of charcoal is becoming tight and the quantities of high-quality silica are decreasing. Another big advantage is that we have a safe trading platform, the “Alipay-like” pattern, which ensures the safety of cash and products for both buyers and sellers. This is also one of the main reasons why many buyers prefer to purchase silicon metal from Yunnan.

Asian Metal: As we have discovered, the policy covering silicon metal production is stricter in Yunnan this year. What difficulties are Yunnan silicon metal smelters facing right now?

Ding: Local government in the Dehong area of Yunnan published a very strict environmental-protection policy earlier this year, and smelters which did not meet the standard were not allowed to open. Therefore, in the rainy season, some silicon metal smelters resumed production late and several have not resumed production even now.

Asian Metal: Most silicon metal smelters in Yunnan are located in Baoshan, Dehong, Nujiang and Wenshan, where the rainy season arrives in late May and early June. What is the electricity price level for silicon metal smelters in the rainy season?

Ding: The electricity price is in line with the silicon metal price fluctuation this year. The point is that when silicon metal resumed production in May, silicon metal prices were at a high level and the electricity price in Dehong was around RMB0.38/kwh (6.18cent/kwh). The electricity price in other areas is a bit lower.

Asian Metal: What is the operating rate for silicon metal smelters in Yunnan at present?

Ding: As we move further into September, aside from several plants which do not meet the environmental protection standards, almost all the silicon metal smelters are in production.

Asian Metal: When you attended our “2nd World Silicon Forum” in May in Xiamen, you mentioned that the total stocks of silicon metal in Yunnan were only around several thousand tonnes at the time. With silicon metal smelters resuming production gradually in the rainy season, how are the current market sales situation and stocks volume looking?

Ding: The stock levels for silicon metal in Yunnan in the first half of 2014 were the lowest they have been during this period over the past few years. Moreover, some silicon metal plants were forced to postpone their resumption due to the strict environmental protection policy. Therefore, the market supply was relatively tight and sales were strong, even in the rainy season. The current stock volume of silicon metal in our warehouse is less than half of the sales volume. Generally speaking, the current stocks are not large.

Asian Metal: Chinese low-grade silicon metal prices decreased between June and the first half of August before picking up in late August. What were the reasons for the price fluctuations?

Xie: The reasons for the price drop in the first half of the rainy season were as follows. The silicon metal price level was high before the rainy season and most silicon metal smelters resumed production during the rainy season, especially those in Xichang, Sichuan (smelters there mainly produce 5-5-3). The tight supply of 5-5-3 was alleviated and supply gradually exceeded demand. The price for 5-5-3 dropped sharply in the second half of July, when there were only stocks of 5-5-3 in our warehouse, with very limited stocks of oxygen-blown silicon metal. The prices for 5-5-3 dropped to RMB11,500/t (USD1,870/t) delivered to Kunming in late July and early August, around RMB1,000/t lower than the prices for 5-5-3 oxygen-blown. The considerable price gap between 5-5-3 and 5-5-3 oxygen-blown was RMB500-600/t (USD81-98/t). However, the sharp price drop witnessed by 5-5-3 failed to drag down the prices of oxygen-blown products because the inventory for oxygen-blown silicon metal was low and demand was stable.

Chinese silicon metal prices rebounded recently. Firstly, the price gap between 5-5-3 and 5-5-3 oxygen-blown reached RMB1,000/t (USD163/t) and some traders began to build stocks of 5-5-3. Secondly, the possibility of high-grade silicon metal price falling was low and demand was strong. In conclusion, the prices for 5-5-3 moved up to RMB12,000/t (USD1,951/t) delivered to Kunming in early September. I don’t think silicon metal prices will decrease in the near future.

Asian Metal: The low-grade silicon metal prices fell sharply in the rainy season this year, while the prices for high-grade silicon metal were relatively firm. What were the reasons for this? What is the current inventory of 3-3-0-3 and 2-2-0-2 in Yunnan? Will the prices maintain the firm trend in the near future?

Xie: The overall output for high-grade silicon metal in Yunnan decreased this year as the high-quality silica supply is dwindling and charcoal consumption has been forced to decrease. The demand is strong. Therefore, prices for high-grade silicon metal have been firm this year. Right now the stock levels for 3-3-0-3 and 2-2-0-2 are still low and buyers have to book materials beforehand. Based on current stocks, I think the prices for 3-3-0-3 and 2-2-0-2 will not decrease in the remainder of this year.

Asian Metal: What are your thoughts about the silicon metal market in the second half of the rainy season?

Xie: As per our above analysis and the recent market trend, I think silicon metal prices will be firm in September and October and prices will not decrease. Looking ahead to the market for the remainder of the year, we are also optimistic and think that prices will not see large fluctuations.

Asian Metal: We are seeing many disputes over silicon metal quality at present. What are the reasons for the variations in quality? Do you have any suggestions that might lead to smoother trading of silicon metal?

Xie: One of the major reasons for the quality variation is that liquid silicon sees segregation during pouring, which will result in quality differences in different parts of the same silicon ingot. The silicon metal will then be crushed and packaged. During inspection, sampling different parts will get different results and this will cause quality disputes.

To solve these quality disputes, I think we should pay attention to the following aspects.

From the smelters’ side, change the “pouring” technology and make the thickness of silicon ingots less than 150mm, while it would be even easier to control it at thicknesses below 100mm. This is the key way to solve the problem. From the buyers’ side, sample more parts for inspection (sample more bags and choose from the top, middle and bottom). If the sampling ratio could reach 20% or higher, the disputes would decrease.

Asian Metal: Thanks for sharing your views and supporting Asian Metal at our silicon metal forum over the past two years. We wish your company a bright future.