Asian Metal: Hello, Mr. Shi. Thank you very much for accepting our interview. Could you please introduce your company first?

Mr. Shi: It’s my pleasure welcoming you on behalf of our company which was founded over 20years ago and started on a small scale workshop with clear focus on deep processing of abrasives the coating industry with the developments of ball-milling, Barmac, acid pickling, water scrubbing and calcination in scale production.

Our overall development has impacted positively on the industry despite low sales due to sluggish fused alumina market as fixed cost and overheads like salaries, ocean freight, packing expense and alumina prices increase. While it is the normal market adjustment and reaction of oversupply, it is good for the company as it can also adapt to changing market environment as many enterprises have suspended operation due to exponential development of fused alumina market. We are currently in cooperation and collaboration with Henan University of Technology and Henan University of Science and Technology and will soon sign agreements with the latter on two-year Graduate programs.

Abrasive materials are widely used in various industries with numerous varieties despite being a small industry. Deep processing is needed to develop professionally and differently, or no characteristics will be found if everyone smelts and builds smelting furnaces. At this moment, one thinks it is not in our country’s best interest to cancel the quota of silicon carbide, which will lead to more resource outflow. This reminds me of anti-dumping initiated toward Chinese brown fused alumina segment sands by US in 2004, and the deep processing enterprise was the first victim affected with losing many US consumers. Chinese resources were controlled by others, indicating the country did not pay much attention to the material. US anti-dumping can not be carried out if Chinese domestic ports also increase duty.

Asian Metal: Brown fused alumina market has been on slow trend these two years. Enterprises keep low operating rates, and some producers even shut down. What problems do Henan-based fused alumina producers face presently?

Mr. Shi: Total demand for fused alumina does not decline, while actual domestic demand increases, and exports keep stable with large volumes despite declining demand from Europe due to financial crisis. The market activity is slow mainly because of serious oversupply. Henan-based fused alumina enterprises plummeted when electrolytic aluminum enterprises emerged in the market two years earlier. The company was ever the backbone enterprise in Henan and one of 20 well-known ranked enterprises in Luoyang in 2004, while the ranking position dropped with the cancellation of discounted electricity prices when electrolytic aluminum enterprises began to develop. Meanwhile, Shanxi and Guizhou started to attract investments, and brown fused alumina had the chance to develop there. Furnaces in Sanmenxia also developed at that time, and I took part in the construction of project of Sanmenxia Mingzhu Smelting. With sufficient electricity and low electricity prices, 50-60 furnaces were constructed in the short-time in Sanmenxia, and other areas of Henan also began to set up and build furnaces. Unified electricity prices were adjusted with the cancellation of discounted prices in 2008, and the price reached to RMB0.7 per kWh, and it was difficult for brown fused alumina enterprises to operate immediately. It is unrealistic for all Henan-based brown fused alumina enterprises to turn to deep processing because of limited market and huge investments. Henan-based brown fused alumina enterprises will encounter difficult operating without electricity subsidy and resources from the country, and they should only seek ways for deep processing, multispecies, differentiation and diversification.

Asian Metal: Oversupply had been seen in brown fused alumina market, while some Guizhou-based enterprises built over ten furnaces in 2012, what is your take on this?

Mr. Shi: Guizhou-based enterprises still encountered difficultly in finding right mix of inputs and output despite they have constructed new furnaces, resulting in more serious oversupply. Guizhou-based and Guangxi-based enterprises will continue to build new furnaces if only we Henan-based enterprises make profits, thus Henan-based enterprises have no advantages in smelting and can only do well in deep processing. However, deep processing also begins to develop in Guizhou, such as Art Abrasives Company which developed and owns unique techniques and have sufficient funds. We also have good techniques, while we are still waiting for investment, thus we will insist on deep processing in the future. On the other hand, there are many private enterprises in Guizhou who ramp up production when electricity prices are low in raining seasons but just sustain operation when prices are high in dry seasons with discounted electricity prices in raining seasons.

Asian Metal: Brown fused alumina market continued to decline in the second half of 2012, with worst performance recorded in September and October. Do you think the market will recover in 2013?

Mr. Shi: I think the market will continue its trend of 2012 without any recovery this year, while it is also important to see if positive policies will be announced after the 18th National meeting. In my opinion, the market may improve a little in June, while no significant changes will be seen. China’s economic growth is expected to be at only 7.5%, thus the micro economy will be beset with difficulties, while the whole market will be positive owing to huge overall scale economy of the country. Brown fused alumina enterprises can survive with huge economic aggregate like 2012, while enterprises have not lived through the hardest times, and the market will not recover before numerous enterprises shut down due to serious oversupply. Facilities of brown fused alumina will be left unused during weak market demand and be operational when demand is strong. “The grass cannot be burned out by a prairie fire but grows again with the spring breeze" can well be used to describe small brown fused alumina enterprises. Production capacity kept low in the past, and recovered economy driven up the market, while rapid economic development can easily meet requirements with increasing production capacity and scale, thus the market has not seen vigorous situations of the past. Moreover, local government will not eliminate enterprises due to serious regional protectionism.

Asian Metal: Thank you for accepting our interview. Wish your company a flourishing future.

Mr. Shi: Thanks.