Bearish outlook for magnesia market in H1 2020

Asian Metal: Hello, Mr. Zhao! Thank you for accepting the interview of Asian Metal. Would you please make a brief introduction to your company firstly?

Mr. Zhao: As one of top 500 enterprises in China, Jiachen Group possesses Yingkou Iron and Steel Co., Ltd. with an annual production capacity of 4.2 million tons of steel products, Yingkou Jiachen Gas and Chemical Co., Ltd. with an annual production capacity of 2.6 million tons of coke and coal chemical products, Yingkou Jindai International Technology Co., Ltd. with an annual production capacity of 1 million tons of ultra-pure magnesite refractory, a refractory company which can produce various refractory materials, a power generation company with 254,000 kilowatts of gas generator set, over 11,000 employees and a total of 16 wholly-owned subsidiaries related to mining, international trade, logistics, coal washing, real estate and others. Jiachen Group is now a national grade cross-industry and cross-region enterprise with total assets of over RMB45.8 billion (USD6.42 billion), net assets of RMB38.5 billion (USD5.39 billion) and a debt-to-asset ratio of less than 16%. In 2018, it realized sales of RMB49.6 billion (USD6.95 billion) and profits of RMB4.2 billion (USD588 million) and totally created taxes of RMB1.2 billion (USD168 million).

Asian Metal: We know that you have put 16 shaft kilns into ultra-pure magnesia production this year. What are advantages of the products produced by this project?

Mr. Zhao: In 2018, Yingkou Jindai invested RMB4.5 billion (USD630 million) in building 16 shaft kilns to produce ultra-pure magnesia. These shaft kilns have a total production capacity of 1 million tons per year. The grade of the high-purity magnesia reaches 98%min and the bulk density is as high as 3.42g/cm3. Responding to the national policy on environmental protection, we have produced high grade and high bulk density ultra-pure magnesia by upgrading our production technology with low grade magnesite as raw material against the backdrop of the supply shortage of high grade magnesite.

Asian Metal: Can you tell us where you mainly sell your main product, ultra-pure magnesia?

Mr. Zhao: 80% of our products are exported to customers in Europe, America, and Asia & Pacific. We have done overseas business for several years and accordingly have formulated a mature marketing network.

Asian Metal: What's the main reason for the decline of magnesia demand so far this year in your opinion?

Mr. Zhao: As we all know, refractory is basically consumed by customers from iron & steel, non-ferrous and building material industries. However, the consumption capacities of these industries have declined to different degrees so far in 2019. The largest demand for refractory usually comes from iron & steel industry and accordingly the steel market affects magnesia market most. So far in 2019, prices for steel scrap, iron and other raw materials used to smelt steel products have been rising, while the demand for steel products has been weak in the domestic market affected by the sluggish real estate industry. Meanwhile, the export of Chinese steel products has been restricted by the Sino-US trade war. As a result, the demand for both raw materials and final products of magnesia has been reduced directly and indirectly.

Asian Metal: Would you like to let us know the specific demand for different products?

Mr. Zhao: Generally speaking, the refractory market sees oversupply now. We forecast that the magnesia market would be sluggish in the first half of 2020 due to weakened demand both at home and abroad. Specifically speaking, the demand for dead burned magnesia is relatively good at present, but the demand for macrocrystalline fused magnesia and ordinary fused magnesia is soft. In addition, the demand for high-purity magnesia is weak in the overall market as most overseas customers have finished refilling stocks for 2019.

Asian Metal: Most producers hold large volumes of stocks and bear great pressure of funds within the context of soft demand. Would you like to share with us how to deal with this problem from the perspective of company operation?

Mr. Zhao: It's hard for demand to increase in short term and it's important for producers to adjust their strategies. Specifically, companies should control their outputs so as to avoid excessively accumulated stocks. Meanwhile, they should actively explore market and maintain good relationship with customers to avoid customer loss. In addition, they should upgrade production technology in order to reduce costs for both operation and production.

Asian Metal: What's your plan in 2020 based on the current market condition?

Mr. Zhao: The demand in the market can't be changed by just one company. What we should do is to adapt to the changes in the market and most importantly, to change ourselves. We will further strengthen management, follow the national requirement on environmental protection, use low-grade magnesite to produce quality high-purity magnesia, fused magnesia and dead burned magnesia and make good use of our advantages in technology and management to reduce costs and improve core competitiveness.

Asian Metal: Thank you for accepting the interview of Asian Metal. Wish your company a better future!

Mr. Zhao: Thank you for giving me this opportunity for this interview and also wish the magnesia department of your company a bright future.