Asian Metal: Nice to meet you, Mr. Chu. Thank you for your time with Asian Metal. Please give a brief introduction on the current magnesium ingot market.

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Chu: Nice to meet you, too. Since 2010 January to August, the magnesium ingot price has been staying at RMB16,000/t ex works with little fluctuation, which was very rare in recent years. This situation demonstrated that demand was quite stable but slow and the price of RMB16,000/t ex works was acceptable to both suppliers and demanders. Meanwhile, export market was stable too and export volume increased little by little. However, affected by the energy-saving and emission-reducing policy issued at the end of August, the magnesium price surged by more than RMB1,000/t. Because the price increased too fast, buyers generally reported difficulties in swallowing. As a result, the current magnesium ingot market remains quiet.

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Asian Metal: Please share your view on the energy-saving and emission-reducing policy.

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Chu: Energy-saving and emission-reducing is an essential task in the current society. From 2006 to 2010, the ‘”Eleventh Five-Year Plan” is implemented well as a whole. Large increase occurs in GDP, state revenues and people’s income. However, most provinces do not meet the requirement on energy-saving and emission-reducing, despite lots of endeavor. 2010 is the last year of the “Eleventh Five-Year Plan”, it is a must to take great efforts for governments to complete the task. Besides, restrictions on enterprises with high energy consumption, high pollution and resources cost will be more and more in the long run, but current policy is quite unclear. Implementation of the policy is different from province to province. For instance, Ningxia pushes harder than Inner Mongolia on ferrosilicon industry, which causes uncertainty to ferrosilicon price.

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Asian Metal: How much indeed dose the ferrosilicon price influence that of magnesium ingot?

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Chu: The magnesium ingot should increase by more than RMB100/t in line with an increase of RMB100/t of ferrosilicon, the raw material. However, in the current circumstances, magnesium ingot price increase does not make up for that of ferrosilicon. If the ferrosilicon price cannot hold still at RMB8,000/t ex works, the magnesium ingot price will fall back to RMB17,000/t ex works. If ferrosilicon output in Inner Mongolia declines significantly under the request of the policy, magnesium ingot price will rise again. The ferrosilicon price moved up by more than RMB1,000/t, which shows the dramatic influence of policy. According to the ferrosilicon price, magnesium ingot producers will try as hard as they can to pull up their prices for the purpose to compensate for cost increase. On the contrary, the result will be obvious in case that the ferrosilicon price softens.

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Asian Metal: Does Yulin city have to follow the energy-saving and emission-reducing policy?

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Chu: Calcium carbide industry in Yulin city is backward production capacity because of its small output against large energy consumption. And all calcium carbide plants were shut down in the first half of 2010. However, ferrosilicon plants affiliated to magnesium smelters are out of closing list. Our ferrosilicon plant, a link of magnesium production, belongs to circular economy and is not affected by the policy. When we declared the project, it won support from local government. We have both upstream and downstream production, so there is no excessive production problem. However, the national policy provisions on the ferrosilicon industry is not very clear. If ferrosilicon plants in Yulin were closed down, Shaanxi-based magnesium ingot producers would have to rely on supply from Inner Mongolia and Ningxia. While once more stringent policy occurs in Inner Mongolia, magnesium ingot producers will face more severe pressure. Because downstream industries respond coldly toward magnesium ingot price rise, transactions are few despite of high offering prices.

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Asian Metal: What is your plan to overcome this problem?

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Chu: We have invested a lot in equipment maintenance to upgrade technology in energy efficiency and environment protection while the market is dull. So we focus more on infrastructure construction, and production capacity of magnesium ingot has increased from 15,000tpy to 20,000tpy. In terms of technology, energy efficiency or environmental protection, our company has achieved industry-leading levels of magnesium. Besides, magnesium alloy production line will also be put into operation by 2011.

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Asian Metal: How dose magnesium industry develop in Shaanxi?

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Chu: Shaanxi magnesium industry makes its voice heard later than Shanxi and Ningxia, but local government pays great attention to magnesium industry. Shaanxi is rich in coal, which gives lots of benefits to magnesium producers. They make full use of coke gas generated from coke production to provide heat for magnesium reduction and refinement. This technology saves cost from coal burning directly. The total output of first six months in 2010 saw an increase of 200% compared to that of the same period in 2009. Encouraged by this significant rise, the mayor of the Yulin city headed personally to the conference held by World Magnesium Association in Hong Kong and recommend Yulin-based magnesium producers, which makes Yulin magnesium industry enjoy more reputation and attract more talents.

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Asian Metal: How is demand from home and abroad?

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Chu: Demand from domestic and international buyers is unchanged, compared to before magnesium price increased. While higher price restrains demand partly. Considering the market was stable in the first half of this year, some producers signed some long-term contracts, and buyers usually purchase for a whole quarter or half a year. However, the price varies a lot, so buyers reduce purchasing amount to 100-200t per time in order to avoid price risk. We can say that, this round of price increase is a great harm to magnesium industry. If magnesium price could hold at this level for more than a year, more and more down-stream users will consider coming back to magnesium products.

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Asian Metal: How do you think the future for magnesium industry?

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Chu: Except for magnesium as a reducing agent, and desulfurization agent, the dominant development direction for magnesium industry is the magnesium alloy, which can fully display its special advantages as a kind of metal. As the world's lightest structural materials for commercial metal works, magnesium alloy has such advantages as low density, high damping vibration and noise reduction capabilities. In addition, it is easy to recycle. So it wins favor from more and more people. Financial crisis cast a great shadow on magnesium industry, and magnesium alloy is expected to be the hope of this industry. And it has been widely used in aviation, aerospace, automotive, and 3C products. Because of orderless price fluctuation in past years, many potential users have turned to aluminum alloy and other substitute metals. In addition to technological breakthrough, more share for magnesium application in the metal market depends largely on a sound market environment with magnesium price heading for a healthy direction. It is also essential to maintain confidence of users and users-to-be in magnesium by stable and orderly market regulation.

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Asian Metal: As a producer, do you have suggestions to your colleagues?

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Chu: The magnesium industry is a newly-developed one, so there are no unified orders. Meanwhile, this industry is quite small, and also quite concentrates regionally. If all producers within this industry could work together to discuss the pricing of magnesium and reach a consensus on a bottom price, and finally propel to establish rules in magnesium industry, chances to avoid vicious competition among enterprises would be maximized, and common interests of all magnesium producers could be ensured to achieve a win-win situation.

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Asian Metal: Thanks again for your support for Asian Metal.