AM: Thank you very much for accepting this interview. Firstly, Would you like to introduce your company briefly?

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Mr. Ji: The company focuses on production and sales of nickel and ferronickel. It has two furnaces of 12,500KVA for ferronickel 10%min production, with full capacity of 2,500tpm.

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AM: Generally speaking, demand keeps soft and ferronickel prices continue to decline. What is your opinion on the current ferronickel market?

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Mr. Ji: Most participants are under great losses in ferronickel market at present. Ferronickel prices decrease further as nickel prices fall. We are unable to obtain profits neither and only maintain operation. In addition, stainless steel producers have reduced their ferronickel purchasing volumes, such as Jiuqian Steel, who will decrease purchasing volume of raw materials due to examination during August 5 to 25. As long-term supplier of Jiuquan Steel, our company is expected to be significantly influenced. Nickel market is worse than 2008 when financial crisis broke out. Most participants are losing confidence in the market as ferronickel market continues to decline and it is hard to know if it has reached the bottom line. European financial crisis continues influencing the market and the economic situation has no signs to improve. Hence, I am still concerning about the market outlook in a short period.

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AM: What is your opinion on the situation that high-grade ferronickel prices keep lower than low-grade ones? Whether high-grade ferronickel development possesses advantages?

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Mr. Ji: Taiyuan Steel sets the purchasing price of high-grade ferronickel at RMB1,210/mtu delivered for August while figures of middle-grade ferronickel at RMB1,260-1,280/mtu on the same basis, staying higher than the former. Demand for stainless steel 304 shrinks and prices decline as nickel prices drop and stainless steel market slows down. Hence, high-grade ferronickel demand softens and prices follow to drop. However, end users prefer to purchase cheaper stainless steel 200 to substitute stainless steel 304, which spurs demand for raw materials such as middle-grade ferronickel to increase. In addition, some producers of middle-grade ferronickel have reduced or stopped production as there is limited space for them to obtain profits, resulting in tight supply of middle-grade ferronickel. Hence, prices of middle-grade ferronickel keep higher than high-grade ferronickel price.

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As far as I can see, development of high-grade ferronickel still possesses advantages. In the long term, demand for stainless steel 300 is sure to recover gradually due to its higher quality. That is to say, demand for high-grade ferronickel will follow to increase at the same time. In addition, production cost continues to decrease with the development of smelting technology. Therefore, high-grade ferronickel production is still promising in the long run.

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AM: As a major ferronickel smelting base, what advantages does Inner Mongolia attract producers to build plants here? Would you please offer suggestions?

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Mr. Ji: Firstly, electricity prices keep stable and electricity supply stays sufficient in Inner Mongolia due to its rich coal resources. The comprehensive electricity prices are RMB0.438/KVA at present. Local government issued preferential policy for electricity price with RMB0.03/KWH discount and the discount is likely to be larger as operation rates keep at a low level and electricity supply is sufficient. Secondly, as a major rich-resource region, preferential policies are mainly reasons for smelters to build plants here. Thirdly, transportation fee keeps at a low level as Inner Mongolia is near to major stainless steel producers.

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In terms of plant construction, construction costs are high at present in Inner Mongolia. There are several negative factors as follows: firstly, transportation fee of lateritic nickel ore is high as Inner Mongolia is far from major ports; secondly, production condition is not satisfactory here. I am thinking about returning to Wenzhou and build a plant in new emerging industrial park where is near to port and electricity prices may be lower as new nuclear power plant was put into production. Of course, all factors are under investigation.

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AM: Taiyuan Steel decreased ferronickel purchasing prices for the first time this month, symbolizing that ferronickel market softens further. What about the production and operation condition of Baotou Xinxing?

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Mr. Ji: Ferronickel prices decrease further and we cannot guarantee reasonable profit at the current price level. Our production has decreased as only one of the two electric arc furnaces of 12,500KVA is operating with the other one under maintenance. Ferronickel prices continue to decline and we hold more than 2,000t of inventory in hand at present. Main products are supplied to Jiuquan Steel. The electric arc furnace that is under maintenance will restarted after the overhaul and the other one then will stop production for examination in turn.

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AM: Ferronickel prices continue to decline as nickel prices drop sharply. Operation rate of ferronickel keeps low and some producers have stopped production in Baotou. However, your company insists on producing. How do you control production costs efficiently?

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Mr. Ji: We have reduced output while some other producers stop production. We insist on producing even though we bear great losses and intend to maintain normal production if losses are within acceptable range. Firstly, we have regular buyers which guarantee cash withdrawal. Secondly, costs will be high when we restart if I stop production, and experienced workers are hard to employ. Hence, we will maintain normal production due to strong supports from good development prospect.

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In terms of production cost, lateritic nickel ore procurement is a problem for us. Stable supply and high quality are hard to be controlled. Hence, production costs are mainly determined by lateritic nickel ore purchase.

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AM: How do you solve problems of raw materials procurement when lateritic nickel ore supply exceeds demand? What kind of problems in the procurement at present?

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Mr. Ji: We mainly purchase lateritic nickel ore in spot market at ports or place orders for futures through agents. Considering the current production situation, the company consumes 20,000tpm of lateritic nickel ore. The market is in chaos as there are no uniformed standards for lateritic nickel quality. The company takes samples from materials purchased from ports and tries hard to seek high-quality nickel ore. However, nickel content differs even though the material is from the same batch. In addition, nickel ore losses in quantity at Tianjin port due to management confusion. On the other hand, quality of nickel ore purchased through futures is harder to control. Hence, we look forward to stable lateritic nickel ore supply all the time.

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AM: Stainless steel capacity exceeds in China and mills are unwilling to purchase. What is your opinion on the current relationship between demand and supply of ferronickel ?

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Mr. Ji: Market supply is still sufficient even though some producers have reduced or stopped production. In terms of high-grade ferronickel, most producers hold large quantity of inventories mainly because production costs keep at a high level in the previous period, and they refuse to sell at lower prices even though ferronickel prices decrease sharply. We hold 2,000t of inventory in hand at present but have no plan to sell at this price level.

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AM: Some enterprises plan to build plants in Indonesia and Chinese government also encourages domestic enterprises to invest overseas due to positive export policies in Indonesia. What is your plan considering the current lateritic nickel ore market situation?

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Mr. Ji: In my opinion, Indonesian government will not ban lateritic nickel ore export before 2014. Indonesia wants to attract foreign investors despite out-dated infrastructure construction but supply of energy and electricity is hard to meet demand from new plants. Hence, energy problem should be solved if Indonesia plans to attract overseas investors. In addition, minister of Indonesia Mining Department will leave office in 2013, resulting in more uncertainties for new policies. In addition, Indonesia is in shortage of well-qualified talents and cost bringing human resources from overseas market is too high. Hence, I think it is better to build plants after state-owned enterprises have started infrastructure constructions in Indonesia. The company also started to make feasibility report but there are so many risks cooperating with Indonesian mines as nickel reserve is uncertain.

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I think that more enterprises will get right to build plants in Indonesia and then smelting equipments will be installed. Whether the lateritic nickel ore can comply with export standard is the most important factor to consider followed by the possibility that whether the material is suitable for smelting.

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AM: What’s your opinion on the market outlook in a short period as ferronickel market steps into off-season earlier this year?

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Mr. Ji: Ferronickel market has kept dim since March and April, and prices decrease sharply, which depresses participants’ confidence. However, positive policies may occur to spur economy as traditional busy season comes for stainless steel industry in September and October, and new lection will start. I think that the market is likely to rebound at that time due to so many positive factors. Hence, we will insist on normal production and wait for the market to recover.

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AM: Thank you again for accepting this interview. Your opinion is of guiding significance for other participants. At the same time, I wish the company to develop healthily in the future.