Asian Metal: Thanks for taking our interview, Mr. Su. Would you please give a brief introduction about the latest development of your company?

Mr. Su: Thanks. I am glad to have the opportunity to be interviewed by Asian Metal. Our company is mainly engaged in businesses related to magnesium ingot. Currently, our daily output of magnesium ingot is 89t, including 76t of 7.5kg magnesium ingot and 12t of 300g magnesium ingot. In addition, we produce about 900t of semi coke and 90t of oil tar per day. With the approaching of Spring Festival holiday, our production volume will move down and the operation rate will decrease by about 30-40%. In addition, we plan to start the production of ferrosilicon on 2nd March and the daily output will be about 120t.

Asian Metal: In the past 2017, the prevailing magnesium ingot prices fluctuated sharply. How about your production state and profit status over the past year? Especially, in Q4 of 2017, on account of the rising ferrosilicon prices but slack magnesium ingot market, most magnesium ingot plants suffered great loss and some even suspended their production volume to avoid the production inversion. How did your company seek to survive in market adversity?

Mr. Su: The annual production volume of our plant is about 30,307t in 2017. I just started to sell the material from February of 2017, owing to lack of experience; I sold the material on market demand and kept low level stocks of magnesium ingot and ferrosilicon. The total profits were around RMB30 million in H1 2017. Following are my opinions in H2 2017.

From August 2017, the prevailing ferrosilicon prices increased from RMB5,500/t (USD873/t) EXW D/P to RMB9,200/t (USD1,460/t) EXW D/P within several days, therefore, the mainstream magnesium ingot prices also followed suit and moved up to RMB18,000/t (USD2,857/t) EXW D/P. Nevertheless, only 200t of the material were finalized at the high price level. As for our plant, we purchased about 1,500t of ferrosilicon at more than RMB8,500/t (USD1,349/t) EXW D/P. From 23 August, the prevailing ferrosilicon price showed the downward trend and the magnesium ingot market saw slack transactions for around 20 days. We experienced a harsh period.

In December, the upstream ferrosilicon prices moved up by about RMB4,000/t (USD634/t) to RMB10,600/t (USD1,682/t) EXW D/P in four days, but the magnesium ingot prices just increased to RMB16,000/t (USD2,539/t) EXW D/P. We had no choice but (to) reduce the capacity by about 45% at this period; the output of magnesium ingot moved down by 1,500t in December and accordingly the purchase volume of ferrosilicon decreased by about 2,000t at high price level. In line with this week, we decrease the loss for about RMB6 million. The loss for magnesium ingot was about RMB2.4 million.

Asian Metal: Entering January 2018, the mainstream ferrosilicon 75%min prices kept firm and buyers purchased the material on demand. Nevertheless, owing to the declining exchange rate of US Dollar against RMB, the export market saw slack transactions. How about Xintian's market transaction? What about your stock level?

Mr. Su: Entering 2018, we went through the harsh period over the past 2017 under the high production cost and thin buying activities of magnesium ingot. We were active to sell magnesium ingot from 1st January to 20th January and only held light stocks on hand. From 20th January, the prevailing magnesium ingot prices showed the upward trend on rising ferrosilicon and concentrate purchase from buyers, our plant kept selling the material at the different price level. Up till now, we held no stocks and even ordered 400t of the material in advance.

Asian Metal: Restricted by the production inversion and slow demand in magnesium ingot market, many plants in Shanxi, Ningxia, Xinjiang and Inner Mongolia suspended their production after November 2017. Meanwhile, some plants in Shaanxi also reduced or stopped their production. According to the current demand and supply status, how do you think about the market trend after the Spring Festival holiday?

Mr. Su: In December of 2017, as the upstream ferrosilicon prices went up to more than RMB10,000/t (USD1,587/t), some magnesium ingot plants suffered heavy pressure from the production cost and moved down or stopped their production accordingly. Some Shaanxi plants even decreased the output of magnesium ingot and increased the selling volume of ferrosilicon. Entering January 2018, the prevailing ferrosilicon prices hovered at around RMB7,500/t (USD1,190/t) D/A 30 days, nevertheless, the demand in magnesium ingot market remained slack. Even though the mainstream magnesium ingot prices edged up to RMB15,000/t (USD2,380/t) EXW D/P, most plants earned tiny profits on high production cost. >From the whole view, the reduction volume of magnesium ingot in 2017 December, 2018 January and February is around 60,000t. I think the prices would remain firm at RMB15,100-15,300/t (USD2,396-2,428/t) EXW D/P before the Spring Festival holiday and will keep unchanged after the holiday. The market trend in coming quarters depends on the market demand and supply state. If the exchange rate of US Dollars against RMB goes up, the export volume of magnesium ingot will increase.

Asian Metal: Under such a background of oversupply of homogenized magnesium ingot products and vehement competition among low-priced products, how do you do to enhance your competitive strengths?

Mr. Su: Yes, we really had pressure from market competition. Confronting the demand risk and environmental risk, Xintian will increase the production volume of 200g, 100g and 99.95%min magnesium ingot to improve the competitive ability in magnesium industry.

Asian Metal: How do you think of impacts from environmental protection policies upon magnesium ingot production and the price trend?

Mr. Su: First of all, though magnesium smelting plants in Fugu adopt a recycling economic development model which can be described as high-efficiency, energy-saving and environmentally friendly, they still need to keep improving their environmental protection performance in line with strict requirements and high standards from environmental authorities. Just as one saying goes, there is no such a thing as the best but only better. Secondly, Chinese government has initiated an anti-air-pollution campaign in full swing. On January 16, 2018, the Ministry of Environmental Protection unveiled the Administrative Requirements on Air-pollutant Discharging by Cities around Beijing-Tianjin-Hebei Region. The requirements will go into force on October 1, 2018. Some Shanxi cities such as Taiyuan, Changzhi, Jincheng and Yangquan, which have magnesium mines and smelting plants, are located within the Beijing-Tianjin-Hebei Region. Take Wutai county as an example. It is also located in the region and therefore its dolomite mining is likely to be affected by government policy on production limitation. Yangquan city is a major production base for refractory bricks and its raw materials, and production limitation policy will directly affect maintenance costs for reduction furnaces and rotary furnaces of Yangquan-based magnesium smelting plants; moreover, supply of dolomite and refractory bricks in Fugu mainly comes from Yangquan. Finally, as we all know, ferrosilicon producers underwent dramatic production suspension in December 2017 affected by rigorous environmental inspections. Claiming that environmental authorities frequently carry out inspections, ferrosilicon plants usually maintain certain amounts of stocks to guard against risks; as a result, ferrosilicon supply might decline to some extent in the near future. In sum, magnesium ingot production is subject to impacts from factors including ferrosilicon and dolomite, and so it's inevitable for its prices to undergo ups and downs.

Asian Metal: How do you think about the market trend in Q2 2018? Will the market demand and supply change sharply?

Mr. Su: In my opinion, the main factors to influence the production cost of magnesium ingot are as follows: supply of dolomite and the production volume of steel. On the one hand, the supply of dolomite will be influenced by the environmental and safety policies. On the other hand, the prices of steel would increase after March, which will stimulate the supply of steel. Therefore, the demand of ferrosilicon will move up accordingly. If the demand of magnesium ingot in Q2 2018 is the same or increases slightly against the purchase volume in Q2 2017, the prevailing magnesium ingot prices will show the upward trend.

Asian Metal: Thanks again for taking our interview. Wish your company better development in the future.

Mr. Su: Thanks. We also hope that Asian Metal sticks to the principle of objectiveness and timeliness to serve clients with better information about the magnesium market.