Asian Metal: Thanks for granting this interview. Firstly, let’s have a brief introduction about your company and primary focus.

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Wang: We engage in nickel and ferronickel production and sales since 2007. With two furnaces of 12,500KVA, we produce ferronickel 10%min with a capacity of 2,500tpm. We stopped our production to relocate to new plants and we have finished the construction of new plant and are considering recovering production after facility maintenance.

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Asian Metal: As you said, you are considering recovering production as soon as market rebounded; how soon do you expect this to happen given the slow pace of growth in global economy? And what is your opinion about current market?

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Wang: One furnace is prepared for production recovery while the other is still on maintenance. Recovering lost production is dependent upon market rebound and future development of our company. In my opinion, future market trend is unclear and the market can only rebound there is zero margins in the mine-shipment-ferronickel production-stainless steel production line. The market does not reach the bottom level if any aspect can achieve reasonable profits. I expect ferronickel market to rebound at the end of this year if it does not increase in September or October.

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Asian Metal: Some consumers keep watching the market and are holding back purchases due to declining nickel prices. How about the demand and supply in ferronickel market?

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Wang: Ferronickel enterprises were holding much stock at present as they did not release the material at lower price due to high production costs; we also held some stock at hand. Therefore, high grade ferronickel supply keeps adequate while demand still dull as raw material demand from stainless steel mills kept sluggish due to softening stainless steel industry caused by declining nickel prices. However, Chinese stainless steel demand will increase in the long-term with the development of economy and the industry. Raw material demand from China has a huge impact on international economic environment and performance. Ferronickel demand will increase following the pace of future stainless steel market.

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Asian Metal: As a raw material of stainless steel, what leverage does ferronickel have? Will high grade ferronickel help to develop according to the prices variance between high and mid-grade ferronickel?

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Wang: Stainless steel market prefers ferronickel to steel scrap due to its pure quality and iron purchase is without charge. In addition, ferronickel can be substituted with nickel cathodes when ferronickel prices increased, mills can purchase nickel cathodes as their raw material and vice versa. Nickel prices are stroked since the appearance of ferronickel in 2006 and 2007; ferronickel will be a long-term and favorable material to downstream consumers.
Mid-grade ferronickel prices are higher than high-grade ferronickel due to limited supply and it is mainly used in 200 grade stainless steel production. 200 grade stainless steel demands are better than 300 series stainless steel due to its cheaper prices in situation of weak stainless steel market, so as the raw material of 200 series stainless steel, mid grade ferronickel demand is better and values are higher. But in the long-term, market prospect of 300 grade stainless steel is better than the other due to its better quality and demand of the material in future market will keep increasing as it is entering our lives gradually.

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Asian Metal: In your opinion, will ferronickel industry be worse compared with that in 2008 economic crisis as economic growth is now below initial projections and forecast?

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Wang: Ferronickel market kept sluggish this year, but it is different from what happened in 2008 when some big investment banks went into bankruptcy. Economy and debt problems appeared in many European countries due to European debt crisis, downstream market kept declining followed the pace of economy. So we are less confident with current market trend.
Ferronickel industry is undergoing natural readjustment and reorganization due to fierce operating environment. Some plants merged into, or were acquired by, several large enterprises like Xinhai Science and Technology and Qingshan Share Holding Company. I expect some enterprises to quit the market as economy is worse than that in 2008. Many companies can only maintain production as stainless steel mills reduced raw material purchase; therefore, we can only make our company stronger in order to stand up in the market fluctuation.

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Asian Metal: Prices for ferronickel drop markedly beat down by declines in nickel price, but production enterprises run with thin margins due to the high production cost. So may I ask how to curb the production cost of ferronickel?

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Wang: Manufacturing enterprises are currently operating at losses due to the high cost of ferronickel. The cost of producing one ton of ferronickel includes about 7,000KVA electricity and about 9.5t of lateritic-nickel-ore, the major cost. In addition, the logistics and freight cost totals RMB120/t (USD19/t) for transporting lateritic-nickel-ore from Tianjin port to Dalad Banner with high cost for lime, electrode, managerial fee and cost. There is almost no profit with the cost of producing 1t of high grade ferronickel amounting to about RMB1,150/mtu (USD180/mtu) with additional capital cost. The production is rather complex with high dynamic cost, the loss in transportation of lateritic-nickel-ore, changes in quality and the change in power consumption. As far as I am concerned, we have to do something in the price for lateritic-nickel-ore and quality to curb the cost.

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Asian Metal: Oversupply of lateritic nickel ore and disordered quotations in the spot quotations as well as some problems in stocks at Tianjin port flood the market. So how does your company solve the problem of procuring the raw material? What is to be noted in buying lateritic nickel ore?

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Wang: We mainly procure spot material for immediate use at the port. There is great risk to order futures due to high price of lateritic nickel ore and issues bordering on quality. It is impossible to make margins once the purchase price is poorly controlled. The production of ferronickel is greatly influenced by the quality of lateritic nickel ore. We still receive lateritic nickel ore with great difference in quality although we procure spot material at ports and inspect ourselves. The nickel content directly has influence on the production and quality of ferronickel.
There are many stocks at Tianjin port. We still have to test the index for lateritic nickel ore cautiously although we understand that many traders cannot master the quality and it is not the responsibility of suppliers when issues come into surface as of the quality. Moreover, there is still no unified national standard in the quality of the material. I suggest that you should sign contracts with suppliers of good standing and try to detect the index comprehensively as it is still hard to know the real quality although we test it ourselves.

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Asian Metal: Many a ferronickel project will go into operation in succession, bringing with it increased capacity. So in your opinion, what advantage do mills in Inner Mongolia have? How to develop in the future?

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Wang: Cheap electrovalence, support of government and convenient transportation guarantees the advantage of establishing smelters in Inner Mongolia. The freight cost is relatively low as once the coal is transported by truck form Inner Mongolia to Tianjin port, the empty truck will be back with full lateritic nickel ore. However, the advantage is influenced as the coal market remains slow, leading to fewer trucks transporting coal from Inner Mongolia. Thus, it is hard to get trucks full of lateritic-nickel-ore to Inner Mongolia.
We can weather the economic fluctuations and seek long-term development only if we enlarge the ferronickel production enterprise and seek stable source and sales channel for lateritic nickel ore.

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Asian Metal: As a burgeoning industry, what kind of problems exists in the ferronickel industry?

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Wang: I think the unified quality standard should be formed, which is to say large enterprises craft out the unified standard to secure the margin room. It is no good for the production standardization when different steel mills require different quality although the purchasing index from large steel mills affects the price for ferronickel. The quality and price fixing are determined by steel mills. Thus, it is crucial to make unified standard for the ferronickel industry. The extensive production without unified standard and stable qualify is detrimental for the survival and long-term development of the industry.

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Asian Metal: Some enterprises plan to establish smelters in Indonesia due to the new export policy of lateritic-nickel-ore in Indonesia. What is your plan in face of the current lateritic nickel ore market?

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Wang: The demand for the raw material will limit the development of the ferronickel market. The influence that the new export policy in Indonesia exerts on the market is limited. But domestic ferronickel trend is likely to change once supply for nickel ore continues dropping. Consequently, it is of great importance to source for stable supply. We hope to cooperate with mines overseas and make a big difference in the ferronickel market.
Moreover, I believe that there is little chance to forbid export of lateritic-nickel-ore from Indonesia in 2014 as the poor infrastructure and electrical facility cannot support the production in smelters. We have not considered establishing mills there; first to avoid risk and to watch the future development of policy in the country. We mainly procure spot material to avoid the risk of raw material.

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Asian Metal: What is your opinion on the market trend in the short and medium-term as the ferronickel and nickel market enter into the off season early.

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Wang: We get no margins in the weak market. Meanwhile, the demand for lateritic nickel ore market remains dim. Thus, the entire market and industry slow down. I think the economy and policy in China will exert great influence on the future market trend. The market is likely to be supported by the economic policy in China. Moreover, improvements in the real estate market are likely to excite the entire economy, drive the development in the steel industry. The ferronickel market is going to turn round only if the real estate market expand domestic demand maximally and pull the downstream market to improve.

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Asian Metal: Thanks for your interview with us and the support for Asian Metal. I believe, the comments you made will guide participants. Wish your company a promising prospect!

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