Brown fused alumina price to rise in H2 2018

Asian Metal: Please make a brief introduction to the development and main business of your company.

Liu: We began to smelt brown fused alumina in 2001 and then focused on the research on tap furnaces in 2005. Five years later in 2010, we finished constructing tap furnaces and conducted pilot production with the normal production realized afterwards. We mainly produce brown fused alumina segment sand, abrasive material, blue fused alumina and others currently. As a comprehensive company integrating research & development, production and sales, our company owns calcined bauxite mines and a complete industrial chain from ore mining to final products and is mainly engaged in the comprehensive application and deep-processing of calcined bauxite as well as the research & development, production and sales of brown fused alumina products.

Asian Metal: We learned that your company began to expand brown fused alumina capacity in 2017. What's your annual capacity now and how much it has increased YOY?

Liu: We began to construct new smelting furnaces in 2017 to expand capacity, planning to construct four tap furnaces of 15,000KVA, two of which have been constructed and are expected to go into operation in late July. Our annual capacity of brown fused alumina is 200,000t currently, up by 66.7% YOY, and we have six furnaces of 8,000KVA and two furnaces of 15,000KVA.

Asian Metal: With environmental inspections sweeping across China from 2016, Henan and Shanxi, two major producing and selling provinces of brown fused alumina in China, were under great pressure. How about the production condition in your company in 2017 and would you like to share with us your operating rate and output during the year?

Liu: Although the large scale of environmental inspections exerted great influences on the production of brown fused alumina enterprises in Henan, Shanxi and other regions, our company could conduct normal production in 2017 as we had passed the environmental impact appraisal. But in order to respond to the call of national policies on energy conservation, emission reduction and industry upgrading, we began to take the initiative to lower output and upgrade producing technology in October 2017 with actual operating rate at about 60%. We produced about 65,000t of brown fused alumina in 2017, up by 25,000t compared with the figure of 40,000t in 2016.

Asian Metal: Now that brown fused alumina products are applied in both refractory and abrasive industries, how does your company distribute brown fused alumina products in the refractory and abrasive markets?

Liu: 80% of our products are sold in domestic market now with the rest 20% sold in the overseas market. In particular, 40% of our brown fused alumina products are sold to the refractory area with the rest 60% sold to abrasive area. It's expected that 60% of our brown fused alumina products would be sold to refractory material area after the capacity is released with the rest 40% to be sold to abrasive material area.

Asian Metal: In addition to environmental inspections, the resource of raw material becomes a more and more prominent factor to limit the development of mineral industry. What do you do to solve the resource problem as a major consumer of calcined bauxite under the background of the increasingly tight supply of calcined bauxite in China?

Liu: Our leaders are far-sighted in terms of industrial lay-out, aiming to realize long-term development. To solve the supply shortage of calcined bauxite resources, we have successively acquired bauxite mines to reserve resources since 2010 under the support of the local government, focusing on making full and optimized use of bauxite resources. Now we have about 7 million tons of bauxite resources in our own mines.

Asian Metal: We hear that your company is committed to researching and developing new technology and products and has developed unique smelting technology in tap furnaces. Can you introduce the differences among and advantages of tap furnaces, fixed furnaces and tilting furnaces?

Liu: Generally speaking, tap furnaces are more environmental-friendly in smelting compared with fixed furnaces.

1) For the same grade of calcined bauxite, the electric consumption of tap furnaces is about 2,200KWh, while that of tilting furnaces is about 2,500-2,800KWh;

2) The temperature of tap furnaces is around 2,450℃, 350℃-400℃ higher than that of tilting furnaces;

3) One tap furnace can roughly produce 1,400t of brown fused alumina per month, 300-400t higher than the monthly output of tilting furnace;

4) Tap furnaces have the highest thermal insulation and are the safest among the three kinds of furnaces.

Asian Metal: Owing to the serious supply shortage, prices of graphite electrode, the raw material to smelt brown fused alumina went up in 2017, directly resulting in increased production costs of brown fused alumina. We hear that your company remains committed to research and development to improve smelting technology and reduce costs. Is it true and does it need huge investments of talents and funds?

Liu: Yes, it is true. Considering the dramatically increased prices and the supply shortage of graphite electrode in China in early 2017, we began to upgrade our technology in June 2017 under the leadership of Mr. Li. After seven months of research, we spent about RMB50 million and completely finished the technology upgrading and could replace graphite electrode with improved electrode developed by ourselves relying on the unique smelting technology related to tap furnaces, substantially lowering the smelting cost.

Asian Metal: The demand for brown fused alumina was much softer in the first half of 2018 than that in 2017. What do you think of it and what's your opinion about the market outlook in the second half of 2018?

Liu: I think the relatively sluggish market for brown fused alumina in the first half of 2018 was mainly attributable to the following factors: firstly, facing the serious supply shortage in the market, downstream customers refilled stocks in large volumes in 2017, leading to reduced demand in H1 2018 with market participants taking a wait-and-see attitude towards the decreased prices; secondly, influenced by the Sino-US trade war, steel mills reduced their demand for refractory materials; thirdly, brown fused alumina producers in Henan began to substantially raise their operating rates in early 2018, causing the oversupply in the market.

Overall, I believe that the brown fused alumina market will see increased demand and prices in the second half of 2018.

Asian Metal: How do you think of the development trend of brown fused alumina, one of the traditional industries?

Liu: As far as I am concerned, the demand for brown fused alumina will continue to be strong in the future benefited from opportunities brought by the Belt and Road strategy if costs are within reasonable range.