Dong Yancai: Chinese molybdenum oversupplied, polymetallic development a way out

Asian Metal: Good afternoon Sir! First of all, thanks for granting this interview. In recent years, molybdenum prices have kept in downward trend, and molybdenum concentrate price has decreased to the level of around RMB1,400/mtu, a new low this year, so could you please share your opinions about the market?

Dong: The primary problem of molybdenum market is the over production, which could be looked at from two angles. On one hand, in the past ten years, many state-owned enterprises no matter what they do all rushed to mining industry, and they could get loans from the bank quite easily to invest that. Consequently, it leads to oversupply of molybdenum. On the other hand, our government restricted the export of molybdenum materials from 2008, so most of molybdenum materials have to be consumed in Chinese domestic market. Take JDC for example, before the year of 2005, they could export 60% of their products, while when export was restricted through high export duty and export quota, nearly all the materials have flowed into domestic market; besides, China Molybdenum and other newly developed molybdenum mines are also pouring molybdenum material into domestic market. However, the market cannot absorb such large supply volume, while our government hardly restricts the exploration of molybdenum mines.

Asian Metal: Just now you mentioned about the export restriction for molybdenum, and rumor mill has it that the government may adjust the export policy for molybdenum by end of this year, and I am interested to know whether it will be adjusted or not and what do you think about that?

Dong: Most people regard molybdenum as a kind of rare strategic metals, especially when molybdenum was less developed. However, with science and technology developing, there might be some other new material to substitute molybdenum, and I think it is not right for the government to restrict the export of molybdenum and the export policy should be loose. But as for whether the policy is to be adjusted or not, I am not sure.

Asian Metal: Molybdenum material is mainly used to convert to ferromolybdenum which is consumed in steel industry, so what do you think how much the steel industry’s impact on molybdenum market?

Dong: Demand from ordinary steel industry is not strong, and it mainly depends on special steel industry. Under current depressed economic situation, it is hard time for steel industry, and consequently, it is difficult for molybdenum market to get active. In addition, JDC and China Molybdenum, as the two major enterprises in molybdenum industry do not collaborate on output and pricing policy, but if they do, even indirectly through curtailing their outpout, it is relatively easy to push up the market, and we small molybdenum enterprises will support that.

Asian Metal: Last October, we visited some molybdenum mines in Chifeng, Inner Mongolia, where only one molybdenum mine named Aolunhua was still in operation. As a state-owned enterprise, the molybdenum mine was not allowed to halt production as they needed to solve the employment problem in the local area, but they were also incurring losses. On the current market, it is also not optimistic; one is left to wonder what the situation of your company is.

Dong: Actually, the production cost of molybdenum mines are quite high; even the quality of molybdenum ores is relatively good, the cost is up to RMB1,600/mtu. However, current molybdenum concentrate price is only around RMB1,400/mtu, and it is far from the cost. So under such low price level, molybdenum mines have no profit and even incur losses. At present, we have one small dressing plant in operation, which can process 4000t of molybdenum ores per day, but if we work at full production capacity, the quantity could reach 10,000t per day. But under current sluggish market, it is not a proper time to operate with large amount, and if we only process molybdenum concentrate, we will also incur losses. While luckily, our molybdenum mines also contain other metals, such as iron, rhenium, sulfur, lead and so on, and we are also processing those metals so that we can generate more revenue, and that’s why we are still in production. This year, we just launched projects on iron, sulfur and lead which are regarded as the primary project and compensate the loss caused by molybdenum. Thus, we have developed our business from single metal to polymetal.

Asian Metal: What do you think about the macro economy?

Dong: In the past ten years, our government invested in high-speed railway, express way and estate, and also those contributed to spur Chinese economy to some extent. While early this year, the new leadership just took over, and they are still discussing and watching, so it is estimated that the economy cannot improve this year and we can do nothing but to wait for new policy to be issued next year.

Asian Metal: Under this situation, what’s your expectation for molybdenum industry?

Dong: In my opinion, molybdenum market cannot pick up in the coming two years owing to the surplus of the material. On one hand, granted that the economy turns to be better next year and the consumption of molybdenum materials increases, molybdenum market may not see any improvement next year as there is a large volume of stock which need to be dealt with for a long time; on the other hand, if molybdenum price increases next year, molybdenum suppliers will be aggressive at capturing larger market share, so the price is likely to go down again. Thus, the development of molybdenum industry is still gloomy.

Asian Metal: Thanks again for your support to Asian Metal and wish your company success.