Asian Metal: Thank you for your time in giving this interview. Would you please give us a brief introduction to your company and its current production status?

Huang: Located in Liuzhou, Guangxi, our company runs two zinc oxide 90-99% production lines with the main products being zinc oxide in grades of 99.5%, 99%, 98%, 97% and 95%. The company can produce 4,000 tonnes of zinc oxide per year and adjust output and products according to market demand. We will switch to full production when there is vigorous demand and prices are appropriate, while reducing production when demand is sluggish and prices are lower than the cost. We have only one production line in operation currently. However, the zinc oxide market has been gradually recovering since May with growing demand and, accordingly, we are planning to resume two production lines.

Asian Metal: The zinc ingot price is hovering at low levels currently having been on the decline since May. What’s your opinion on the future price trend of zinc ingots?

Huang: The zinc ingot price in China is undergoing adjustments at the same pace as that in the overseas market, because zinc prices have been in line with the international market. The global economy is still recovering slowly with weak demand for non-ferrous metals. The Chinese zinc ingot supply is surplus with no signs of improvement in the short term while the Chinese economy is in a transition period. I think the price for zinc ingots will hover in the range of RMB15,500-17,500/t if no significant news or events occur within 1-2 years.

Asian Metal: The zinc oxide 90-99% market has shown a flat trend since early last year. What is the state of the current zinc oxide 90-99% market?

Huang: Demand for zinc oxide 90-99% has fallen sharply since September of 2014 with shrinking deals due to the downturn in the real estate industry within China. Influenced by limited sales in the real estate industry, the ceramic market has seen a decline in consumption, with sales in the doldrums and a production backlog, resulting in ceramic glaze frit plants reducing or even halting output last year. As the raw material for ceramic glaze frits, zinc oxide has seen demand plummeting rapidly with large stocks and depressed cash flows at zinc oxide enterprises. Up until late April of this year, the zinc oxide inventory had seen reductions, while the market achieved a balance between supply and demand in May. The real estate industry is recovering, however demand for zinc oxide will not increase instantly, and this can be attributed to two factors. One is that there are still large stocks to be cleared despite the recovery in the real estate market, so demand for zinc oxide will not see a sharp increase. The other is that it is difficult for most zinc oxide 90-99% enterprises to expand production significantly, limited as they are by the supply of raw materials, increasing labor costs and, most especially, the harsh requirements of national environmental protection policies. As a result, I think the price and market demand for zinc oxide will stay at the current level during 2015.

Asian Metal: As far as we know, the number of domestic zinc oxide 90-99% enterprises has reached more than 300. Will the large number of enterprises seriously affect your zinc oxide production and sales?

Huang: There are indeed more than 300 zinc oxide 90-99% enterprises, but actually only about 200 enterprises are in production. Some enterprises have halted production in view of factors like the sluggish demand for zinc oxide, strict environmental requirements etc. More than 70% of these enterprises are capable of producing 1,000-3,000 tonnes of zinc oxide per year, and some of 3,000-10,000 tonnes, while the annual capacity for less than 10 of them is capable of exceeding 10,000 tonnes. The variety, quality and usage of different enterprises show almost no difference, despite the various enterprise scales, and this forms a unified market competition mechanism. Enterprises are forced to compete with each other in terms of the cost and price. Especially during a market downturn, enterprises have to dump products by lowering prices below the cost, directly resulting in a reduction or halt in production at some enterprises, given the pressure of continuous losses, which will have a negative influence on the development of zinc oxide 90-99% enterprises. We have to face up to this situation and, meanwhile, we are actively looking for overseas orders to relieve the pressure from the domestic supply surplus.

Asian Metal: The main applications for zinc oxide 90-99% are within the ceramic glaze and frit industries. We have learnt that the performance of the downstream industries is still poor, meaning consumers will pay more attention to changes in raw material prices. What are the main factors that affect the price of zinc oxide 90-99%?

Huang: Zinc oxide 90-99% is mainly used in the ceramic, rubber, paint and electronics industries, of which the ceramic industry ranks as the largest consumer of products below the grade of 99.5%. The changes in demand within the ceramic industry will directly affect the zinc oxide 90-99% industry. Owing to the close relationship between the ceramic and real estate industries, the price for zinc oxide 90-99% will increase in line with the vigorous demand for ceramics in the real estate bull market. As a result, sales volumes and prices for zinc oxide 90-99% are intimately connected with the real estate industry. However, the zinc oxide price is also limited by the supply of raw materials, as well as the production cost, which includes costs for raw materials and processing of zinc oxide 90-99% products. The processing cost is composed of costs for fuel, labor, utilities, equipment depreciation, environmental protection, depletion etc. The price for zinc oxide 90-99% products is determined by the production, sales and transportation costs and profits, of which the production cost is the major factor.

Asian Metal: Based on the current production process for zinc oxide 90-99%, is there any possibility of a major cost reduction?

Huang: Speaking from my technological experience over many years, it is difficult to see the current production process making any breakthroughs or innovations. The production cost is fixed in general with no possibility of any decline. Meanwhile, I think the production cost will rise with increasing labor costs and growing investment in environmental protection.

Asian Metal: Aside from the ceramic frit industry, what can you tell us about developments in the other fields of application for zinc oxide 90-99%?

Huang: If the grade of zinc oxide products can be further improved until it reaches more than 99.5%, it will have massive applications within the rubber and electronics industries. It will be very favorable for the industry’s development if the market can be broadened with higher prices. However, in view of the current production process, it is difficult for products from most enterprises to reach a grade of 99.5%, with the exception of a few zinc oxide 90-99% enterprises. As a result, applications for zinc oxide 90-99% still center on the ceramic industry.

Asian Metal: Could you please give us your forecast for zinc oxide within the next 1-2 years, and especially the zinc oxide 90-99% market?

Huang: The zinc oxide 90-99% industry has been moving at a slow pace during the past few years with few changes taking place in consumption and price. Based on this stable development, the real estate industry in China will not experience the abrupt ups and downs we saw before. In addition, ceramic exports are stable and it is expected that supply and demand within the zinc oxide 90-99% market will achieve a balance in the next 1-2 years. This may, however, be interrupted by accidental factors, such as the abnormal fluctuations of zinc prices, adjustments to national industrial policies, environmental accidents etc.

Asian Metal: Thanks again for accepting this interview from Asian Metal. We hope your business continues to thrive!