VAT cut benefits ferromanganese industry

Asian Metal: Thank you for accepting our interview. Could you please introduce your ferromanganese production in 2018 firstly?

Mr. Zhang: As a member of Asian Metal, we show high gratitude to your information support. In 2018, Anyang Jinfang saw stable production; the increases in output and sales of HC, MC and LC ferromanganese, manganese metal and manganese alloy exceeded 100,000t. The average monthly output of HC ferromanganese kept at 3,000t while that for MC and LC ferromanganese was 3,000-3,500t. We have stable consumers and mainly seal deals via long-term contracts, almost holing no stocks.

Asian Metal: From 1 April, the VAT rate dropped to 13%. Did this affect your ferromanganese prices?

Mr. Zhang: We spoke highly of the tax reduction policy. Prices for more than 90% of raw materials declined after the VAT rate was cut. Thus, the production cost decreased to some extent. Ferromanganese prices also edged down in early April. In April, the transaction price for HC ferromanganese was RMB7,170/t (USD1,038/t) delivered D/A six months. As for downstream consumers, nearly RMB200/t (USD28.97/t) could be saved as the VAT rate decreased by 3%. It is good news for the manufacturing industry, but the price trend of ferromanganese would still be determined by the overall situation of the industry.

Asian Metal: What's your production plan in 2019?

Mr. Zhang: In 2019, we would focus on improving production efficiency and controlling production cost so as to guarantee product quality and offer competitive prices. As ferromanganese prices are widely known, it is unlikely for suppliers to make counteroffers once the purchasing prices are determined by major steel plants; therefore, we could only control cost strictly under the premise of ensuring product quality for profit. Talking about cost control, we would pay much attention to the purchase of raw material manganese ore and make arrangement according to price change, trying our best to save cost. We typically buy manganese ore from both the spot market and futures market and make choice based on prices.

Asian Metal: What is your sales strategy for HC ferromanganese in the downstream market this year?

Mr. Zhang: Steel plants are still our main customers and we also sell to traders and foundries. We adjust sales plan in accordance with downstream demand and actual transactions of ferromanganese, but generally, our sales channel is stable. In the future, we would further stabilize the current channel depending on our production capacity and put forward higher requirement on product quality in order to provide better service for regular customers.

Asian Metal: Demand for HC ferromanganese is weak at the moment and its prices are not expected to rise in the near term. Will you adjust production accordingly?

Mr. Zhang: Most of our customers are regular ones. Although we have no pressure from stocks at present, we adjust production schemes based on actual demand. In April, demand for ferromanganese was relatively weak and the prices went down constantly. However, we almost saw no decrease in demand and sold smoothly. If downstream demand changes a lot, we would adjust production targets with certain stocks held; but we won't stock a lot for the sake of cash flow.

Asian Metal: Where do your customers come from?

Mr. Zhang: Our downstream consumers are mainly in Hebei, Hubei and Jiangsu, etc. We mainly directly supply HC, MC and LC ferromanganese for major iron and steel groups such as HBIS, Baowu Steel, Shagang Group and so on.

Asian Metal: The current price for HC ferromanganese is about RMB800/t (USD116/t) lower than that of last year. What’s the main reason for this?

Mr. Zhang: I think the main reason is the market regulation. Supply and demand are key factors for product price. In the same period of last year, owing to considerable profit from the steel market, steel plants maintained high operating rate and surely had more demand for ferromanganese. But now, the steel market is relatively soft, so the demand for ferromanganese declines noticeably. It is no wonder that ferromanganese transaction prices decrease compared with those in the same period of last year. In addition, manganese ore prices also decreased, which is the other reason for the price decrease. In the first half year, offers for manganese ore from Australia, South Africa and Gabon all slid, pulling down the cost of HC ferromanganese. As a result, consumers began to force down prices.

Asian Metal: Do you have any other businesses besides ferromanganese?

Mr. Zhang: We recently cooperated with aluminum plants to produce high grade ferroaluminum and FeAlMn by aluminum liquid from the plants. The annual sales are more than 20,000t. We hope more counterparts to come for cooperation!