S.G. cast iron prices to hover at high levels by the end of 2021

Asian Metal: Hi Mr Zhao. Thanks for accepting the interview from Asian Metal. Please introduce your company and business.

Mr Zhao: Our company has one 318 cubic meter of blast furnace with an annual production capacity of 350,000 tons for iron, and three DN100-DN1000 centrifugal ductile pipe production lines. We are mainly engaged in the manufacture and sales of ductile pipe, S. G. cast iron, cast iron and pig iron. We are one of major iron producers in Shanxi.

Asian Metal: What fields are your products mainly used in? Where are your customers from?

Mr Zhao: Our ductile pipes are mainly used for oil pipelines and upstream and downstream water and municipal sewage pipelines, which are supplied to Hainan, Guangzhou, Shandong, Hunan, Hubei, Shaanxi and other places. Our S.G. cast iron is mainly used for ductile iron manhole covers, auto parts, rolls, etc., which is mainly sold to Hubei, Zhejiang, Shaanxi, Jiangsu, Hunan and Hubei. Our cast iron is mainly used for casting parts, which is mainly supplied to foundries in Shanxi. Our pig iron is mainly supplied to steel mills in Shanxi.

Asian Metal: Since the beginning of this year, the price of S.G. cast iron in Linfen, Shanxi surged from RMB3,750/t (USD581/t) and reached around RMB5,450/t (USD844/t) in the middle of May, touching a record high since 2008. What do you think the main factors are for the rise?

Mr Zhao: Firstly, the main reason is that the relationship between supply and demand. At that time, the demand from downstream industries recovered while some producers reduced production by around 30% due to raw materials shortage. Secondly, the main driving force of higher prices is the rise of raw materials, leading to increased manufacturing costs. From mid-April to mid-May, the price of iron ore fines, the main raw material, went up by around RMB500/t (USD77/t) to RMB1,600/t (USD250/t). The price of coke, another important raw material, surged by around RMB500/t (USD78/t) to RMB2,500/t (USD391/t) at that time.

Asian Metal: Prices of S.G. cast iron reached a record high in May, while producers in Shanxi stopped production one after another in June. Why?

Mr Zhao: Even though prices of S.G. cast iron surged a lot, those of raw materials also increased sharply during the same time. Iron ore fines and coke are two major raw materials for iron making. In June, prices of iron ore fines went up to around RMB1,600/t (USD248/t) and those of coke reached around RMB2,700/t (USD418/t). The production cost for S.G. cast iron was around RMB4,600/t (USD713/t), while the market selling price was only about RMB4,500/t (USD697/t), which brought losses to producers, who had to stop production to avoid more losses.

Asian Metal: How is the overall demand for foundry industry this year? Is there an overcapacity in cast iron industry?

Mr Zhao: The supply and demand in foundry industry are in a balanced relationship this year. So far, both the supply and demand have reduced. There did not exist oversupply in cast iron industry, but foundries used steel scrap by technical transformation to replace cast iron in order to reduce costs, resulting in a significant reduction in the consumption of cast iron. However, due to the recent production cut, the supply would not exceed demand in cast iron industry during November and December.

Asian Metal: Since mid-July, prices of iron ore fines dropped sharply. However, prices of coke kept going up sharply at the same time. How about the change for production cost of S.G. cast iron?

Mr Zhao: Prices of iron ore fines dropped by around RMB500/t (USD77/t) since July, while coke prices went up by nearly RMB1,560/t (USD242/t) at the same time. As a consequence, the production cost for S.G. cast iron reduced by around RMB100/t (USD15/t). However, the market selling price dropped by around RMB700/t (USD108/t). The highest price reached around RMB5,450/t (USD844/t) while it is around RMB4,750/t (USD736/t) at the end of September, bringing losses to producers.

Asian Metal: How did your company respond when raw materials' prices kept running high, the demand from downstream industries recovered slowly and the competition remained fierce?

Mr Zhao: Firstly, we stop production when production cost is higher than market price. Secondly, we reduce consumption of raw materials by technical renovation. Thirdly, we grasp market dynamics and understand policy guidance. Fourthly, we make decision on price change according to market situation and policy.

Asian Metal: In October, major iron producers in Shanxi stopped production due to high prices of raw materials. S.G. cast iron prices increased by around RMB200/t (USD31/t) in the month. However, the market performed inactively due to soft demand from foundries. How do you think S.G. cast iron price would perform in the rest two months of this year?

Mr Zhao: In my opinion, the S.G. cast iron market maintained balance in demand and supply in October. During November and December, both the supply and demand would reduce further upon the pollution curbs in winter, while prices of raw materials remain firm, so prices of S.G. cast iron would wave at high levels, ranging from RMB4,600/t (USD713/t) to RMB5,000/t (USD775/t) if there are no influences from policy intervention, emergency (disaster, flood and so on), epidemic situation and other uncertain factors.