Asian Metal: Mr Tian, I really appreciate that you are able to accept this interview given your busy schedule.

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Firstly, could you please share your opinion on the influence on silicon carbide given by recent macroeconomic trends and relevant policies in China?

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Mr Tian: There are no obvious changes in polices in macroeconomic aspect in the latter half year, keeping chiefly on economic restructure and industrial upgrading and optimization. The main economic principal is to advance economic development actively and steadily, which is the target in 2011. More efforts should be made on the economic transition and stricter requirements on energy-saving and emission-reduction in environmental protection. Therefore, policies in 2011 will be more strictly.

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Asian Metal: Whether energy-saving and emission-reduction target will continue the trend of the last year on the beginning year of “Twelfth Five-year Plan” or it will be distributed to each year?

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Mr Tian: From the beginning of 2011, the “Twelfth Five-year Plan” will be monitored every year, as well as the strict index examine on energy-saving and emission-reduction. Under such circumstance, the influence on silicon carbide in Ningxia will concern the production capacity control. It is likely to see that many small-scale companies shut down due to the low-profit and administrative control by central and local governments. The next measure named discriminatory electricity price, aiming at different industries will be carried out to improve the standard of highly energy-consuming and high pollution industries. The present electricity price is higher than that of civilian use ( RMB0.44/kwh). Therefore, the discriminatory electricity price is too high for small-scale companies. The manufacturing technique is different in accordance with the different scale, as well as the different price, which are unfavorable to small-scale companies.

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Asian Metal: Tianjing Group had merged three big-and-middle-sized silicon carbide mills, Tianneng, Longding and Chenguang. Could you please introduce the effect on your group and this industry of this intensive integration?

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Mr Tian: Tianjing Group possesses three silicon carbide plants and six ferrosilicon plants which all assigned to Tianjing Group Metallurgy nowadays, with production at the previous place. In this way, the effectiveness of management will be strengthened. Meanwhile, the new company can allocate human resources and improve their ability mutually, so the labor power and technique can improve a lot advanced by group.

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The uniform management by metallurgy company can provide an unite arrangement for future development, which means the investment in new project will develop in accordance with the integrated plan instead of by each company. By adopting the centralized planning development in a certain time, the company can carry on the program step by step based on each region. Considering the current situation of this factory, it is possible to move some regions to other suitable place for the purpose of concentration.

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Asian Metal: Please talk about the plan of silicon carbide production?

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Mr. Tian: We plan to concentrate our plants to form a larger scale in order to get efficiency and benefit. Our plants are able to form a scaled-production , but the direction of the market, national policies and local economy should be taken into consideration so it may take a while to complete.

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Asian Metal: Would you mind sharing your outlook on domestic market next year with us?

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Mr. Tian: Some companies are reported to expand production, but we don't think they will carry out the plan in 2011. The annual output of SiC is 500,000t which could meet the demand more or less these years, but it has grown to 800,000-900,000tpy by January 1st 2011. There will be about 300,000t left if the capacity is fully released in 2011. Companies had planned to expand capacity, but they may hold back the the plan in light of the trend of 2011's market. New-building or expanding production lines should be on the basis of a bright market, so the investment will be limited given the unchanged demand and little profit of silicon carbide.

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Asian Metal: About blind expansions, it is not so serious in Ningxia, but plenty of duplication in Gansu without market research and analysis.

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Mr. Tian: Producing of silicon carbide does not require a high technology and is not limited by national policies. It is quite easy for private enterprises to build and produce silicon carbide with enough capital. As investors are heading for profits, they won't spend money on silicon carbide in 2012 because the price in 2011 should not rise significantly with oversupply of black silicon carbide. Therefore, they may switch to other industries with higher returns, and some small plants may be eliminated by the market this year.

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Asian Metal: The supply of silicon carbide for export will not meet the demand due to the limited export quotas unless the market is as stagnant as that from Q4 in 2008 to Q3 in 2009, so what do you think of the export market trend in 2011?

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Mr. Tian: In my opinion, the market will generally keep stable and the material for export will be relatively tight in 2011 based on the export in the last two years. Foreign customers have fully solved problems involved with inventory due to the economic crisis in 2008 and 2009. The material for export is likely to increase as the inventory keeps low if the economy gradually cheers up.

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The limited quotas lead to the fact that price of export license occupies a large proportion in silicon carbide export price, so there is a price gap between delivered price and the quota, but they have to carry out contracts at little-to-no profit as they had poor negotiation ability at first. Therefore, restricted by numbered export quotas and many private producers without export quotas, export price was speculated higher and higher.

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Asian Metal: I think the export situation for black silicon carbide will worsen as there are increasing orders for green silicon carbide, so many exporters even do not accept orders for first grade black silicon carbide. I learn that the export volume of green silicon carbide powder to Japan amounts to 80,000t at least in 2010 and is expected to increase further in 2011.

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Mr. Tian: This is mainly because of related policies and imbalanced development of industries. The Ministry of Commerce stimulates the export of green silicon carbide to some extent by limiting the price and volume of export quotas available. Meanwhile, the strong demand from photovoltaic industry leads to skyrocketing production of green silicon carbide.

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Though the current price of green silicon carbide is relatively high, it is not high enough. It is not reasonable for China to earn foreign exchange at the expense of limited resources and environment, so we should not attach too much importance to the project.

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Asian Metal: The government has not formulated any policies listing silicon carbide into a restricted industry, indicating that the industry is still a very small part in the entire industrial system.

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Mr. Tian: Yes, we still have not any policy to restrict silicon carbide, but the environment will be suffered eventually.

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Asian Metal: Few state-owned enterprises have set foot in the industry as many private enterprises have put the production line into operations. So what is your opinion about the phenomenon?

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Mr. Tian: The reason lies in that the government cannot tightly regulate the private enterprises, so it is easier for them to build new projects. Besides, state-owned enterprises have to get the approval of environmental from government, while private enterprises can get the approval without real protection measures.

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Asian Metal：We find the production capacity of silicon carbide is expanding, and so is in green silicon carbide market. The supply and demand statistics told us that the overall production capacity is surplus. Many plants, expand their production capacity on one hand and upgrade their furnaces on the other hand. The number of furnaces (above 20,000 KVA) increases, and that above 50,000 KVA is at about 5. How is your opinion on this？

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Mr. Tian: This is a complicated problem and the bigger of the horsepower does not mean the better. Productive technology and production cost should be taken into consideration. As for furnace type, I do not think furnaces of 8000KVA,10000KVA and 12500KVA differ in production cost, and some bigger furnaces may consume more power than the little one, however, the products of the larger one may be better in their bulk density. The difference of power consumption between the larger furnace and the smaller one is at about 200 degrees. This may occur with good power management, that is to say, good management in power may save RMB100/t. We should have a comprehensive opinion about this matter.

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The survivor will be the fittest. Those plants which cannot gain larger margin will lose their market. The furnace is not the only factor to survive, I mean, only effective plants could survive. Larger furnaces mean higher in costs. If the management is out of date, it means a higher cost.

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Asian Metal: Please make some suggestions to government?

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Mr. Tian: 1. Supervising and bringing regulations to the silicon carbide production.

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2. Eliminating low production capacity furnaces and plants and control the overall output to follow the market rule.

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3. Reducing export quota. Only by this way can the government control the market and investments. There are two aspects of this: firstly, the reduction of the overall output. In this way, we can protect the environment and resources. It is not profitable to sacrifice the resources, environment and human resources to get foreign exchange. Secondly, reducing the quota to foreign trading companies. They earn without much efforts, while many plants have little margin but a lot of work. Crude resources, however, should be produced by plants. To reduce quota, although very arguable, is necessary. The reduction must be controlled on a level, or it will cause chaos on the market.