Asian Metal: Mr. Wang, thank you for accepting the invitation of Asian Metal's interview. Please briefly introduce the general situation of Jinzhou Guangda Ferroalloy Co., Ltd.

Mr. Wang: Jinzhou Guangda Ferroalloy Co.,Ltd (Jinzhou Guangda) is located in No.3-15, Second Section, Yichang Road, Guta District, Jinzhou City, Liaoning Province. The company is a Sino-Japanese joint venture established in 2006 with Guangzheng Corporation of Japan. Our company is a major Ferrovanadium, Vanadium-Aluminum Alloy and other intermediate base alloy professional producer in Northeast China. Our ferrovanadium products include ferrovanadium 50%min and ferrovanadium 80%min, both of which are produced by outside furnace production method, with an annual production capacity of 3,000t in total. Vanadium-aluminum alloy products mainly includes V 55%min and V 65%min, with an annual production capacity of 500t. We sell our vanadium products to domestic major steel mills and overseas clients covering about 20 countries and regions such as Japan, South Korea, the United States, Europe, South Asia .

Asian Metal: In the recent years especially in the past year, cost inversion has become a common phenomenon in ferrovanadium industry. How do you evaluate this abnormal situation?

Mr. Wang: Chinese steel mills' demand for vanadium alloy is approaching saturation. About 70% of the market share of ferrovanadium is replaced by vanadium nitride and about 10% by ferroniobium, for the remaining 20% is occupied by one or two large ferrovanadium plants that are self-sufficient in raw materials now. All the same type of ferrovanadium producers like Jinzhou Guangda need to purchase raw materials from the market. After we calculate the cost and profit, our ferrovanadium price is unable to compete with large ferrovanadium factories that produce the material by their own raw materials. This led to the common phenomenon of inverted cost of ferrovanadium in the industry, which is the common problem faced by producers in the main ferrovanadium producing area, namely Liaoning province, at present, and we are nearly all forced to go out. The problem of cost inversion boils down to the fact that supply far exceeds demand. If the market demand does not rebound substantially in 2022, the reshuffle of ferrovanadium industry will be further intensified. Among all the 21 ferrovanadium factories in China, only few are estimated to survive.

Asian Metal: Although we saw that vanadium pentoxide flake prices moved up from the end of last September, which brought an apparent recovery of the entire vanadium chain, the rising cost pressure doesn't seem to be effectively conducted to terminal steel mills. How do you evaluate this phenomenon? What are your market expectations for 2022?

Mr. Wang: Vanadium pentoxide flake prices are affected by market supply and demand, which change quickly, but the correlation with the prices of ferrovanadium is not strong because the market demand for ferrovanadium is shrinking, and the voices for bargaining from ferrovanadium producers is weaker and weaker. We purchase vanadium pentoxide flake according to market prices, but the transmission of ferrovanadium prices to the downstream steel mills almost stagnated or even stopped. I think the fundamental problem is that demand has been slashed. Most of the ferrovanadium is produced by outside furnace production method, and producers could increase their output fast. Even if there is a limited demand gap, it can be quickly suppressed. This is the root reason of ferrovanadium cost upside down for a long time. This price transmission failure is likely to intensify in 2022, and the overall market demand in 2022 may be worse than 2021 mainly because there is no demand increment. First, COVID-19 would reduce part of the ferrovanadium export. Second, the real estate market has been saturated, and the incremental market demand for rebar is difficult to improve, which would indirectly reduce vanadium alloy demand. Third, infrastructure investment is also hitting the brakes. The government has also decided not to build unplanned high-speed railways and express ways, which results in the demand reduction for special steel, which is the main downstream of ferrovanadium and vanadium nitride.

Asian Metal: Ferrovanadium producers calculate their production cost according to vanadium pentoxide flake prices, but traders don't as they have large inventories, resulting in the passive situation of ferrovanadium producers. How do you view the negative impact of traders’ inventories on ferrovanadium prices?

Mr. Wang: Under normal circumstances, ferrovanadium processing fee is about RMB20,000/t, which contains a certain profit of about RMB2,000/t. Some factories can control the processing fee to about RMB16,500/t. Normally 1t of vanadium pentoxide flake 98%min is consumed to produce about 1.05t of ferrovanadium 50%min. When we minus the extra 50kg, then ferrovanadium 50%min price would be at least RMB10,000/t higher than the price of vanadium pentoxide flake 98%min. By the end of December, for instance, vanadium pentoxide flake 98%min prices stood at around RMB125,000/t, and ferrovanadium 50%min must be sold at prices no less than RMB135,000/t to ensure no loss. In the same period, Chinese ferrovanadium 50%min market prices only stood at about RMB127,000/t mainly because traders had too much inventories and large ferrovanadium factories produced by their own raw materials, which can greatly reduce costs. Assuming that we accept customers' orders and then purchase raw materials for production immediately, we would lose about RMB8,000/t at least. The price inversion has developed into a common phenomenon currently. When the market demand is weak, a small amount of traders’ inventory can exert a huge price disruption. The higher the traders’ inventory level is, the more serious of cost inversion the ferrovanadium producers would face.

Asian Metal: How can ferrovanadium producers break through the price inversion?

Mr. Wang: Producers like Jinzhou Guangda all purchase vanadium pentoxide flake from the market and determine the price after adding processing fee. Their cost is nearly RMB10,000/t higher than that of large ferrovanadium producers with self-supply of raw materials and it' s hard for them to compete. At the same time, because the market demand for ferrovanadium continues to shrink, it' becomes increasingly difficult to negotiate prices with raw material suppliers, leading to the constant price inversion, which forces ferrovanadium producers that need external raw materials to transform. This fully reflects that the market is oversupplied. Only when the market demand has gap could ferrovanadium producers survive. Only to promote the process of adding vanadium into rebar from policy level could expand the demand for vanadium, so that the price inversion problem could be solved fundamentally.

Asian Metal: What suggestions could you provide for ferrovanadium producers to guarantee basic profits under the heavy pressure?

Mr. Wang: We take the market situation at the end of last December as an example. The price of ferrovanadium was about RMB126,000/t, which was completely the same with the price of vanadium pentoxide flake. Even the most basic processing fees can't be guaranteed. Ferrovanadium producers have no raw material basis and could only rely on external purchasing. Facing the high prices of raw material, it is impossible for producers to avoid price inversion. In Liaoning, the major producing area, several producers including us are trying to transform to trade business. We stored vanadium pentoxide flake at low prices and may sell directly when the raw material prices increase, so it’s difficult to produce ferrovanadium normally. Most producers use outside furnace method which features quick resumption and suspension, so they could easily halt production when the profit is not appropriate. We believe this is the only applicable mode at present. Meanwhile, ferrovanadium producers should insist on production by orders and firm prices to guarantee the basic profit, and avoid conducting price competition with traders, so that the producers would achieve virtuous circle.

Asian Metal: How do you view the market share occupied by vanadium nitride?

Mr. Wang: In the international market, the traditional consumer markets such as Europe and North America will continue using ferrovanadium 80%min because the market demand has entered the saturation state for along time. It is obvious that vanadium nitride is hard to replace ferrovanadium. In the domestic market, vanadium demand is also approaching saturation, but because vanadium nitride is more cost efficient, there is still room for the replacement. For the special steel with the same strength, adding vanadium nitride can save about 30% of vanadium addition compared with adding ferrovanadium, so more and more steel mills tend to use vanadium nitride. Ferrovanadium market space will continue being squeezed. The number of the existing ferrovanadium production plants in China, which is 21, would probably reduce to few with self-supply of raw material. That is why Jinzhou Guangda chooses to develop a new intermediate base alloy market.

Asian Metal: The ferrovanadium market is highly dependent on the steel industry. What’s your expectation of ferrovanadium consumption by steel mills in 2022?

Mr. Wang: The steel industry is highly dependent on infrastructure investment, which is closely related to the economy. According to the latest data released by the World Bank, China's GDP growth reached about 8.1% in 2021 and may slow down to about 5.1% in 2022. As economic growth slows down, the demand for vanadium alloy from steel mills would remain saturated. I'm not optimistic about the expected growth of steel mills' demand for ferrovanadium in 2022. Combined with the replacement by vanadium nitride and ferroniobium, the total demand for ferrovanadium may not be as good as 2021.

Asian Metal: What’s your company's market strategic plan for the next 3 years?

Mr. Wang: The contradiction between supply and demand in ferrovanadium market continues accumulating, and the price inversion continuous remaining, ferrovanadium producers face huge difficulties in operation and continuous production. Based on the clear understanding of the current market, our company would actively seek the break-through of ferrovanadium trade in the next 3 years, and focus on the development of intermediate base special alloy market.

Asian Metal: Thank you for your wonderful sharing, wishing Jinzhou Guangda' vanadium business continues to prosper.

Mr. Wang: We would like to thank Asian Metal for the professional market information platform, where enterprises can express their real voices.