Coal price fluctuation leads to high magnesium ingot prices

Asian Metal: Mr. Wang, thanks for taking the interview by Asian Metal. Please introduce your business briefly.

Mr. Wang: Hello, Daphne. I’m so glad to accept the exclusive interview from Asian Metal. I believe we already became old friends after the 9th Magnesium Summit held in Hangzhou during 15-16 April of 2021. I hope that Yulin Magnesium and Asian Metal continue to strengthen cooperation and make more efforts to magnesium industry. The registered capital of Yulin Magnesium is RMB500 million, of which the state-owned shares are 82% and the private shares are 18%. Yuneng Coal I&E Co., Ltd. belongs to the holding company with the shares of 51%, Fugu County State-owned Assets Operation Co., Ltd. holds 16%, Shaanxi Nonferrous Metals Holding Group Co., Ltd. holds 15% and the remaining 18% shares belong to 20 major magnesium producers in Yulin city. Presently, our company’s main business includes self-running trade business, supply chain finance business, warehousing and logistics business, upstream technology research and deep processing business, planning and construction of magnesium and aluminum industrial park, etc. Related products include various specifications magnesium ingot, magnesium alloy, semi coke, ferrosilicon and other overwhelming products in Yulin. Meanwhile, our company has also carried out large-scale business in the fields of steel, ferroalloy, imported equipment and ore.

Asian Metal: Please give us a detailed introduction for your company's business model of mortgage financing and entrusted payment. How well does it work over the past several months?

Mr. Wang: At the end of 2020, we focused on the mortgage financing owing to sluggish market state and it worked well. Mainstream Chinese magnesium ingot prices increased from the range of RMB12,500-12,800/t (USD1,953-2,000/t) EXW D/P to a reasonable price state of RMB15,500-15,800/t (USD2,421-2,468/t), which improves the enthusiasm of upstream producers. In addition, entrusted payment business already started, the specific business model is relatively mature. The cooperative enterprises could enjoy the convenience and actual economic benefits through this business.

Asian Metal: Your company has been high-profile among magnesium insiders since its inception, and some participants think that your company plays as a big trader with huge funds. Do you agree with it? How do you think about this opinion? In addition, please give us a detailed introduction of your current orientation and development goals.

Mr. Wang: It’s easy to regard us as a trader caused by our huge funds and some insiders even worried about our role in the market. Actually, after our half-a-year operation, I believe insiders already noted that we didn’t focus on a large trading volume. Frankly speaking, magnesium industry didn't see short of traders and we are more willing to improve the credibility, quality and service and other aspects of magnesium industry for better business. As for our orientation, we committed to become the world's most influential integrated service provider in magnesium industry. Our development goals are as followings: promoting domestic magnesium smelting industry with the existing resources and cost advantages; integrating the technical resources of the industry through the financial means; building whole industry chain with the domestic and foreign leaders. Yulin Magnesium is devoted to promote mechanization, intelligent, greening, standardization, alloying, high-end, collectivization, the stabilization "eight" development for Yulin magnesium through the unified brand, unified standard, unified price, unified sales model. What’s more, we expect to improve the international right of speech and product pricing right and then achieve the goal for healthy, stable and high-quality development of Yulin magnesium industry.

Asian Metal: After the establishment of your company on 30 Oct of 2020, I believe you have a deep understanding and cognization of magnesium industry. So, what do you think are the major opportunities and challenges for magnesium industry presently?

Mr. Wang: Magnesium industry confronts two main opportunities: one is that the demand of new energy automobile lightweight will drive a large-scale application in the field of automobile of magnesium-based materials; the other is that building template shifts to lightweight. Currently, aluminum template has already began to replace steel and wooden template. Once magnesium alloy could occupy a certain market, it will rapidly increase the consumption volume of magnesium alloy and the features of easy recovery and light weight for the material will place well. In addition, magnesium industry also has some challenges. Firstly, according to the policies of "carbon peak" and "carbon neutral", how to achieve the steady reduction of carbon emissions when to increase the output of magnesium ingot, which belongs to a key point to the long-term development of the magnesium industry and is also technical problem. Secondly, high labor intensity of magnesium plant, high pressure of environmental protection and high dependence for coal and semi coke still exist in magnesium industry. Even though we have some progress on the related issue in the recent years, we still face high risk on it. Thirdly, magnesium metal, as a potential alternative material with aluminum and steel, still has its own shortcomings in material and processing. We kept visiting scientific research institutes to promote and try to increase the application for magnesium in the past half year. All in all, by virtue of plenty funds for a state-owned enterprise, we are willing to take the responsibility to promote the progress of magnesium industry and make more efforts in magnesium industry.

Asian Metal: Excluding magnesium ingot, does your company also consider expanding magnesium powder, magnesium alloy and processed products in the future? What about your short-term plan and long-term plan for the related materials?

Mr. Wang: In virtue of stable supply for raw material and plenty funds, we have plan to deal with deep processing. We expect to work with insiders together and maximize each other's advantages. As for our medium and long-term planning, we will take scientific and technological innovation, mode innovation, capital innovation and digital innovation as means to develop the whole industrial chain of mines, raw magnesium smelting, magnesium alloy industry, downstream deep processing, equipment manufacturing and build a unique magnesium industry innovation system in Yulin. As for the steps of implementation, we will follow the initial planning, build the wisdom warehousing logistics center, trading center, light alloy products quality supervision and inspection center, research and development of magnesium industry center, financial center and magnesium alloy industrial park "five center + one park", and gradually form the whole industry chain.

Asian Metal: As I know, Yulin Magnesium also involves export business, which metal do you concern with presently? In addition, what do you think about your advantages and challenges in the export market?

Mr. Wang: Yes, Daphne, I believe you are familiar with export market very well. Among the export for magnesium products, magnesium ingot accounted the largest proportion. Most foreign consumers are from downstream large aluminum plants. Given this situation, we just take magnesium ingot as an entry point and began the business with end users as we could meet the demand of long payment, control the quality of the product and packaging well. Actually, we also obtained some effects on it. In conclusion, our advantages in the export market are well received long payment term, outstanding service and good credibility, which could be proved during the price fluctuation from late last year up till now. One thing to strength is that the Ex-VAT business still exists in large volume. If this issue could not be solved, it is hard for us to show our advantage well and it will become a big trouble for price competition in the export market. Currently, we active docking with the related departments and reflect the problem in detail. We believe that the relevant supervision system will be introduced soon to ensure the interests of export enterprises and regulate the competition order of the industry.

Asian Metal: After the continuous price fluctuation in May and June, what do you think are the main factors to affect the prices during this period? How did your company deal with this during the unstable period?

Mr. Wang: 2021 really belongs to a very special year. Imported inflation of USA lead to price increase sharply, including coal, steel, electrolytic aluminum, electrolytic copper and commodity collective. In view of rising coal and ferrosilicon prices, mainstream Chinese magnesium ingot went up sharply and reached a peak level in the recent 10 years. In addition, it also has some hype funds and speculators, which also serious harmed the interests and confidence of downstream enterprises. As for us, we just purchase the material from hand to mouth rather than build stocks in advance to compete for more profits. Meanwhile, we don't bet on market price and just guarantee the stability of the user's demand.

Asian Metal: How do you think about the current production cost and profits from magnesium ingot plants?

Mr. Wang: Presently, upstream ferrosilicon 75%min stay firm at RMB8,500/t (USD1,328/t) EXW D/P, up by almost 50% YoY. In addition, mainstream prices for coal hover at RMB900-1,000/t (USD140-156/t) and the supply stayed short, so most plants for magnesium ingot have the pressure on stable production. What’s more, due to limitation in Wutai County, the purchase for dolomite is also restrained and the cost will increase if from other regions. Meanwhile, most plants are short of labors and the cost for salary keep increasing. Fifth, most plants have to solve the problem of VOC and water treatment, it needs large cost. From the whole on, Chinese magnesium ingot plants only could get proper profits at the current price of RMB19,800-20,000/t (USD3,093-3,125/t) rather than huge profits under such a highly inflationary market state.

Asian Metal: Prevailing upstream coal prices kept hovering at a high level from early this year, so what are the major factors to support coal prices? How do you think the price trend for coal in the second half of 2021?

Mr. Wang: Coal is the main factor to support magnesium ingot to increase sharply this year. It is worth mentioning that prices for coal reached about RMB1,000/t (USD156/t) on 13 May and achieved this high level in the middle of June again, which also led magnesium ingot to reach a peak level up till now in 2021. There are two reasons to support coal prices to go up as followings: on the one hand, in order to reach the production safety and environmental protection standards, the limitation for capacity among coal mine leads to the tight supply for the material. In addition, the limited import of coal and the peak demand for electricity in summer also strengthen the tight supply. Entering the second half of 2021, it is expected that relevant departments will start corresponding policies to expand and release capacity. So, I believe mainstream coal prices have room to go down steadily.

Asian Metal: What’s about your anticipation for the demand and supply status of magnesium ingot in coming Q3? How about the price trend?

Mr. Wang: The third quarter of a year is a regular traditional off season for demand and supply. On the one hand, most European buyers would leave market for summer break during July and August and the demand would stay slow. On the other hand, most plants also have to deal with the equipment maintenance and the output would reduce as well. Given these situations, the demand and supply would trend to be a balance state. If without any special factors, such us raw material or policy adjustment, mainstream Chinese magnesium ingot prices would show a softening trend on the whole during this period. Nevertheless, due to more speculative movements, mainstream prices would keep fluctuating in the coming months.