Wen Tao: Obscure outlook for magnesium market with a vibrating market

----Interview with Wen Tao, Marketing Director of Shanxi Pan Asia Magnesium Co., Ltd.

Asian Metal: Nice to meet you, Mr. Wen. Thank you for accepting Asian Metal’s interview. Shanxi Pan Asia Magnesium Co., Ltd. is a renowned enterprise in this industry. Could you please give us a brief introduction of your company?
Wen: Thank you! Being a magnesium metal producing company in Shanxi, we have a relatively sophisticated producing chain. Coke is our main product and we has also been in magnesium market for many years. We convert coal into coke and utilize coke oven gas generated in the production of coke to produce magnesium metal as well as many other chemical products like ammonium sulfate, crude benzene and coal tar, etc. We utilize the production chain of circular economy and rely on production advantages of Shanxi to produce magnesium. Thanks to the special production chain, Shanxi Pan Asia Magnesium Co., Ltd. has been left standing in recent years while the magnesium producing advantages in Shanxi is diminishing. This production chain is also in line with the production mode advocated by the nation. Coupled with the inherent advantages in resources in Shanxi, Shanxi Pan Asia Magnesium Co., Ltd. achieves the development. It is impossible for our company to survive the harsh market if we gain no support from coke oven gas. Say if there is no coke oven gas in South Shanxi, large amounts of coke need to be purchased from Fugu, and then processed into gas via gas producer which acts as the medium to produce magnesium metal. The whole process costs highly. So we not only cut costs significantly by using the abandoned gas generated from coke production, but also avoid pollutions. Alike the producing method in Fugu and Shenmu, Shaanxi that uses semi coke, we use coke in production seen from the angle of environmental protection. And this is our advantage.
Asian Metal: We understand that the whole producing sector of magnesium metal was negatively impacted by the stagnant sales of coke and semi coke, which means that the former advantages have changed into disadvantages. So what’s your opinion on this?
Wen: Enterprises in Shanxi experienced disordered competitions to healthy ones and saw extensive production before gradually moving towards intensive production, during which process Shanxi government constantly integrated coke producing enterprises and weeded out a batch of companies with capacities less than 600,000tpy. Therefore, coke enterprises survived in Shanxi are those basically in line with national access, producing metallurgical coke and mechanical coke of large scale with capacities of over 600,000tpy, and with relatively matured producing mode and management. Of course, the integration of steel industry is ineffective seeing the increasing capacity as some mills with limited capacity keep expanding scales in order to survive the realignment, leading to a larger yield of steel after several rounds of integration. As far as I know, current yields of steel run at about 500-600 million tons. The main factors restricting the development of the steel industry in China are that foreign iron ore hinders our raw materials procurement. In addition, there is a big problem in steel structure. We mainly produce crude steel, construction steel and steel mainly used in real estate industry but lacks fine steel and high value added steel, leading to remaining extensive steel production structure to be dominant, and the demand for coke changes as steel industry vibrates. For example, the real estate industry runs sluggish and the steel industry is extremely dim this year, so it is inevitable for downstream mills purchasing our coke, semi coke, ferrosilicon, magnesium powder to lay pressure on coking plants. Demand for these products from mills is small when they are in poor conditions. In this case, producing plants in disordered competition will suffer greatly. But Shanxi-based enterprises mainly producing mechanical coke of large scale have better producing structure and equipments. Management to coke enterprise from the Coke Association is featured with governmental style which is relatively ordered. All these factors impact on the market. The state restricted coke production in H1 this year, but it did not affect us much as we supply directly to our end users mainly as large mills. Our coke products are used to be sold by resellers to mills with a cumbersome process generating high costs before. But recently we changed our strategy by supplying the mills directly gaining a win-win situation and saving lots of costs in the convenient plant-to-mill sales model. Furthermore, a better operating technique matters and that is why our company can produce orderly among many enterprises negatively impacted by the sluggish coke market currently. In addition, we pay great attention to develop favorable partnerships with clients, which is also a motto our company has long been adhering to. When market price goes up, we will not follow to hike our offer immediately or cancel orders arbitrarily, and we gain the trust from our partners by doing this. A good example showing the approval we have gained from our clients in so many years is that there are clients who would like to continue partnership with us despite the unfavorable market conditions this year.
Asian Metal: Which payment does your company prefer? Cash payment or D/A payment?
Wen: In fact, they are just two kinds of payment no matter superior or inferior. Drafts of D/A payment change according to bank’s discount rate and billing interest. When in trading process, it’s easy to find the price gaps may amount to RMB30-400 or RMB700-800 between drafts of D/A payment and cash payment. We mainly chose cash payment rather than D/A payment in last Oct as a beneficial choice. Acceptance transfer of large amount is very difficult and damages cash flow to enterprises. When the acceptance draft is of small amount with bank guarantee of high credit, you can choose D/A payment. Whether to choose cash payment or D/A payment is subject to market conditions in accordance with bank interest adjustments and the amount of acceptance in the market. We chose D/A payment as it was prevailing in the market with cash shortage in H1, 2012. Foreign trade enterprises mainly choose cash payment. The choice of payment is determined by the production of enterprises as well as the abilities of clients.
Asian Metal: As the magnesium metal price fluctuates rapidly nowadays, how do you avoid risks and secure maximum profits in the market?
Wen: The magnesium metal industry is mainly featured with small scale and less concentrated and this gives chances for artificial manipulation in the relatively small industry. This reveals when magnesium metal price hiked with fluctuations among all the other metal products prices on a downtrend affected by dim global economy in H1, 2012, mainly attributed to the smaller scale magnesium industry has leading to bigger effect of artificial manipulation, while magnesium price ran unfavorably during January to March in this year when the market ran flat. However, the price began to hike since Shaanxi Magnesium Industry Association issued price adjustment policy. Sharp upticks and downticks are inevitable as magnesium industry is not matured with short-term fluctuations being difficult to regulate. What we can do is regulate management and production. Moreover, it is of vital importance to apply flexible sales strategy according to different market conditions by selling more high quality products than ordinary ones to lift unit price when the price dips and on the contrary, by selling more ordinary products than high quality ones when the price hikes so as to guarantee maximum profits. Enterprises should persist and choose reasonable selling strategy and production mood when in tough conditions, and seizing opportunities to earn more profit when the market is beneficial. The effective method of risk averse for enterprises is to search for the balance of the market and to chase reasonable profits. However, the producing environment of magnesium is extremely unfavorable seen from the overall trend. All we have to do is to usher the production towards intensification and larger scale.
Asian Metal: Magnesium ingot outputs always decreased in summer and the phenomenon has intensified in recent years. Apart from maintenance schedule, poor sales of semi coke and coke, what factors else do you think restrict magnesium ingot outputs?
Wen: Firstly, magnesium ingot has easy access in production. Secondly, most workers are post 80’s or post 90’s and many are the only child in the family who are easy to quit their jobs when work with harsh summer heat. Some magnesium plants in South Shanxi with complete hardware equipment face worker scarcity as the only problem. China’s population advantage is diminishing due to social population structure, which is also a social progress to some extent. It is very important to reserve talents currently as the two-way selection of talents is quite clear.
Asian Metal: Low-priced products stroked greatly on magnesium in export market. How do you think of all those problems in magnesium export market?
Wen: The problems we face in magnesium export market are very rigorous. According to previous data, our focus has been transferred to export benefits from simple foreign exchange earnings. Although domestic magnesium metal export has been in increase in the last decade, the export is still mixed with low-value products partially because of slack supervision from government and also because some exporters blindly seek for foreign exchange earnings even through illegal channels like smuggling, which is prevailingly existing in metal products. But as for us, we have been taking normal approach in the longstanding export business and we never strive for illegal sales profit with the developing strategy of being content with the second best. In the long run, we are confident in magnesium metal export market.
Asian Metal: How do you view on the price trend of the material in the near future seeing the downtrend of magnesium ingot price recently?
Wen: Market fluctuations belong to a normal phenomenon. Rigid demand has always been existed despite constant vibrations this year and the rapid ups and downs of magnesium price are inevitable in the short-run. Future trends of magnesium ingot are mainly subject to changes of supply and demand in the market.
Asian Metal: Thanks very much for your time and wish your company scale a new height!
Wen: Thanks very much. On behalf of my company, I appreciate all the support from Asian Metal for so long a time.