Asian Metal: Mr. Zhong, thank you for spending your precious time to accept an interview by Asian Metal. Currently, the global economy has been recovering, but the consumption is still going slowly, when do you think the macroeconomic environment will turn better obviously?

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Mr. Zhong: Yes. At present, the macroeconomic situation hasn’t turned better obviously, and export market hasn’t got any improvements so far, especially stainless steel markets in Europe and Japan still remain slow. Low employment rate still exists in many countries, and companies are still cutting off staff and salary. According to the current situation, macroeconomic will not improve quickly in the short term. Personally, I think macroeconomic situation will be severe in the first quarter of 2010, but we should hold hope in the second half of 2010. Stainless steel plants are expected to see an obvious turn, thus, to increase the consumption of nickel concerned products.

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Asian Metal: It seems that macroeconomic situation is still not favorable in the short term. Mr. Zhong, could you give a brief introduction to the operation condition of Xuzhou Jinxiang Metallurgy Co. Ltd, the subsidiary of your company.

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Mr. Zhong: Our ferronickel plant keeps two electric furnaces running with a power of 25,000kwh, and the current operation is Ok. If nickel price in spot market keeps at RMB126,000-128,000/t, we can make profits temporarily. The current output of our plant remains at 2,200-2,400tpm, and if we do not avoid the high power charge, the full capacity can reach 3,000tpm. We plan to start another two furnaces at the end of 2009, and the output can reach 6,000tpm then. Actually, we planned to expand production in October, while as the transformer got wrong, we had to delay to the end of this year. Our sales of ferronickel are not as good as that in second and third quarters, as the stainless steel plants in South China hold large stocks, like Wuxi, and are forced to reduce production. On the other hand, nickel price keeps volatile, and 3-month nickel on LME has dropped to below USD17,000/t and the stocks on LME have increased to above 130,000t.

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Asian Metal: Mr Zhong, you know that some plants produce 400 series stainless steel, and the consumption for nickel from stainless steel plants decreased greatly. Most participants hold pessimistic attitudes towards the future market. How do you think about this issue?

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Mr. Zhong: It is not only 400 series stainless steel but double-direction one, and both the above two stainless steel contain few nickel, which is the future trend of stainless steel. As we all know, there is 8% of nickel in 304 series stainless steel and 18% in 316 series one. 400 series stainless steel mainly use chrome and manganese flake as raw materials. However, I don’t think that 400 series stainless steel will substitute 300 series one and 300 series is still the prevailing product in the future. Seen from the malleability, 300 series stainless steel products have its own advantage compared to 400 series one. 400 series stainless steel only substitute low-grade one. In the next few years, 300 series stainless steel will be the prevailing product and nickel price fluctuation is the major factor to affect the prices and capability. Therefore, we should show confidence in the future stainless steel market.

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Asian Metal: As we all know, global financial crisis depressed ferronickel market a lot in 2008 and most plants suffered a lot. However, your company kept production normally and I prefer to know how do you control the operation cost successfully?

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Mr. Zhong: One of the advantages is that we are nearer from Lianyungang port and the transportation charge is only RMB40/t delivered to the plant. Therefore, we reduced the production cost greatly. The disadvantage is that the power charge is high, but as we only kept production at low charge. It is that we closed part of high charge and the whole power fee was lowered. Ferronickel plants such as Ningxia and Inner Mongolia are running with low power charge of RMB0.3/kwh, while our power charge in East China is as high as RMB0.68/kwh. After we control the production time, our average charge remains at RMB0.56-0.57/kwh, and on the other hand, our transportation charge is much lower than them.

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Asian Metal: Seeing from the current situation, the output from Chinese stainless steel plants expand too much and moreover, the export of stainless steel remains slow. Participants hold pessimistic attitudes towards the future market of stainless steel and the demand for nickel concerned products. How do you think the demand from stainless steel plants in the near future?

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Mr Zhong: I personally show little confidence in the stainless steel market in the first and second quarters,2010. The stainless steel plants in China will continue to consume the previous stocks, and I’m afraid that it is not possible for nickel market to see improvements if the stocks cannot be consume out. As nickel price keeps going down, stainless steel market changes so fast. As the incomplete estimated, nearly 15-20% stainless steel plants have reduced or halted production for maintenance in the fourth quarter and it is predicted that there are few stainless steel plant resuming production in the first quarter. It is sure that the volatile nickel market influences the stainless steel plants a lot, and meanwhile, the demand from stainless steel plants affects nickel price. If 3-month nickel on LME keeps moving down in the future, and most stainless steel plants have to adjust the schedule of production. Therefore, I think the stainless steel market will keep slow in the first quarter and may resume in the second quarter, which may give a support to the market in third quarter. On the other hand, how stainless steel market will resume will influence nickel price a lot. If the export of stainless steel increases in the second quarter, it is hopeful for nickel market to resume.

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Asian Metal: Mr. Zhong, You may have heard that Indonesian government approved a new mining policy at the end of 2008, saying that they should restrain the export of Mn ore, Cr ore and Ni ore. Do you think this law may take some unfavorable effect on ferronickel plants in China?

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Mr. Zhong: Yes. The new law applied at the end of 2008 should take some time of within five years to take effect. It said that exporters should process nickel ore to primary products or semi products, while I think the situations keeps volatile now and moreover, the new mining law is controversial in Indonesia. Five year is not a short time for a law to change, so I believe that the law may not always effective. We have no choice but to keep watching. Generally speaking, I guess that it is not easy for the new mining law to take effect before 2013, and the export will stay at the current situation.

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Asian Metal: You know, Chinese government encourages enterprise to invest overseas nickel resources, such as Jinchuan Group and Ji’en Nickel both have nickel investment projects in other countries. I prefer to know if your company has the plan to invest the overseas resources?

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Mr. Zhong: Not yet now. As I know, some countries like Indonesia and South Africa also tend to make laws that if foreign countries plan to invest the mining in their country, they must set plants meanwhile. You know that the current economic situation is very complicated and rapid, and I think it is very risky to make investment. Therefore, we prefer to take conservative policy and make trading of nickel ore temporarily. Our company also has a blueprint to develop a production line from raw materials to stainless steel within several years, which is a fundamental way out for us. We primarily decided to set a new ferrochrome production line and then set a stainless steel production line. It is estimated to take around two years and a half and we have to realize the target pace by pace.

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Asian Metal: I hope that your company have a promising development way. You know that ferronickel is the small one among ferroalloy, and there are few regulations for offers and test. Do you think there is need to take according measures to regulate the whole market?

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Mr. Zhong: That’s right. Ferronickel market is very chaotic now. As I know, ferronickel is the newest item in Chinese Ferroalloy Association and there is no a designed association to regulate the market, especially the regulations for ferronickel finished products. Only some companies have their own regulations to test the products, let alone international test regulations. On early November, APOL held a meeting in Ningbo and participants in lateritic nickel ore market began to discuss the regulations of test. Some big-sized test associations such as CCIC and SGS made discussion about how to test the products. Moreover, if they can get a mature decision, they will negotiate with governments. There is really a need to make regulations for the market, while it may take a long time to realize this goal now.

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Asian Metal: We hope that lateritic nickel ore market would become normal. Finally, how do you feel like ferronickel market trend in the first half of 2009. Please give proper suggestions to the fellow participants.

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Mr. Zhong: I hold little confidence in nickel market in the first quarter, while it is hard to give a exact prediction. We are satisfied if 3-month nickel on LME remains at USD17,000-18,000/t, but it is only our hope. Actually, nickel price was pushed up by the demand recovery in Chinese stainless steel plants, such as Europe and Japan cannot keep full production now, while the whole economy situation will recover gradually and I hope that participants are not blindly pessimistic about the future market. It is a wise way for them to save the production cost and keep production, and we hope that nickel market will see great improvements in the third quarter.

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Asian Metal: Thanks for your continuous support to Asian Metal and we wish your company business flourishes.

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Mr. Zhong: All right. Wish that we could develop and make progress together.