P2C to become mainstream supply mode in ferrosilicon industry
----Interview with Wu Liu Sales General manger Wuhai Huaxin Special alloys Co., Ltd.
Huaxin Special alloys Co., Ltd, established in 2018, was located in Xi Laifeng Project Group, Hainan District, Wuhai, Inner Mongolia. The company owns two ferrosilicon furnaces of 25,000kVA in total and can supply ferrosilicon 72%min 10-60mm to steel mills and ferrosilicon 72%min 200-500mm to traders. The company is the few suppliers that can supply ferrosilicon directly to steel mills at present.
Asian Metal: Thank you for joining us, Mr. Liu, please give us a brief introduction of your company.
Mr. Liu: Huaxin Special alloys Co., Ltd was established in 2018 and was located in Wuhai, Inner Mongolia. We have two ferrosilicon furnaces of 25,000kVA which were updated from one of 17,500kVA and one of 18,500kVA under the permission of local government in 2017. Our ferrosilicon monthly output reaches around 4,000t and the output of ferrosilicon 72% min 10-60mm accounts around 1,500t in total and 2,500t for ferrosilicon 72%min 200-500mm.
Asian Metal: There are more than twenty ferrosilicon plants in Inner Mongolia and what makes your company stand out among peers?
Mr. Liu: We don't have much pressure on cash flow and we could accept steel mills' typical payment, which is payment in around 1 month after acceptance. So we can supply ferrosilicon 72%min 10-60mm directly to steel mills, and we already established cooperation with three steel mills. But most of other small and medium sized ferrosilicon plants couldn't supply ferrosilicon directly but through traders to steel mills restricted by the financial pressure. The two major ferrosilicon producers in Inner Mongolia always keep short supply in the second half of 2020. Therefore, the bullish ferrosilicon market gives chances to ferrosilicon plants who are capable to supply directly to steel mills. Besides, we have raw material auto feeding facilities which lower the labor cost.
Asian Metal: Regarding clients from steel mills, how many tons do you supply directly to steel mills currently? Are you capable to take more orders directly from steel mills? How do you allocate the amounts for end users and traders?
Mr. Liu: We monthly supply around 1,500t of ferrosilicon 10-60mm directly to steel mills and still keep around 2,500tpm of ferrosilicon 72%min 200-500mm for traders to balance our cash flow as they pay cash before shipment. Normally each steel mill would pay us in around 1 month after accepting the material, so it takes at least about 30 days for us to complete the deal from delivery to payment, which is around two million Yuan (USD300,000) every time, but we're capable to handle the cash pressure of such amount. Based on the current situation, we could accept more orders of 500-1,000t from steel mills, maybe one or two steel mills clients. Traders, of course, are indispensable part for us as they pay by cash, which could help balance our cash flow.
Asian Metal: Do you think the P2C mode would become a mainstream workable one in the future?
Mr. Liu: Along with the strengthening financial capabilities for ferrosilicon plants and stable demand from steel mills, I believe P2C mode would become workable and mainstream in ferrosilicon industry in the future. Ferrosilicon plants could sell at higher prices to steel mills through this mode, leading to a win-win situation. We get more and more phone calls from steel mills for visiting. But the key points of this mode are still payment and acceptance. Currently, we can receive the payment from steel mill clients within 30 days and could even receive it in 20 days. With regard to acceptance, we can apply arbitration for the quality inspection by the third party in Tangshan, Shanghai and Tianjin if we have some disputes. Also with the strengthening financial capabilities for ferrosilicon plants and stable demand from steel mills, some newly established plants in Shaanxi choose to supply directly to steel mills this year. These ferrosilicon plants in Shaanxi could cooperate with steel mills more smoothly compared with peers based on their cooperation experiences for other materials. Additionally, they also enjoy advantages in electricity and coke over peers, so ferrosilion producers would adopt P2C mode increasingly in the future.
Asian Metal: How do you think the trader's role in the market if more ferrosilicon plants supply directly to steel mills?
Mr. Liu: The profits for traders who only do back-to-back businesses would narrow due to the transparent purchase cost. But traders who purchase ferrosilicon 72%min 200-500mm at lower prices and process the material into ferrosilicon 72%min 10-60mm or ferrosilicon 72%min 50-100mm and then sell at higher prices to steel mills would enjoy obvious profits and advantages. They can sell ferrosilicon 72%min 10-60mm to steel mills and other end-users, or sell ferrosilicon 72%min 50-100mm or ferrosilicon powder directly to foundries. This diversified ending market strengthens their cash flow and vibrancy. So I believe that this kind of traders could not be replaced.
Asian Metal: Major steel mills are increasing purchase volume to replenish stocks for production during the winter, and the spot supply stay tight, so ferrosilion plants keep lifting prices. How do steel mills deal with the persistently increasing prices?
Mr. Liu: My steel mill clients split their scheduled increase amounts for January into their purchases in October, November and December to hedge the risk of dramatic price increase in January cased by increased one-off purchase volume. Secondly, some private steel mills could use more flexible payment to directly cooperate with more and more reliable ferrosilicon plants.
Asian Metal: What do you think of the price trend after the Spring Festival?
Mr. Liu: The price of ferrosilicon 72%min 10-50mm would keep firm after the Spring Festival. Our current price(Jan 15th) of ferrosilicon 72%min stands at RMB6,800/t (USD1,053/t) EXW D/P, down by RMB100/t (USD14/t) from early last week, but it's hard to decrease further aggressively. Now the power supply in Inner Mongolia was cut by around 20% since last Thursday, leading to a daily output decrease of 20t. We couldn't have spot supply until the end of February and so do most of our peers. Additionally, most steel mills would maintain high and stable operation rates in February as the government encourages people to have the Spring Festival holiday in local cities where they work in. Some steel mills that didn't complete replenishments before the holiday would probably purchase ferrosilicon after the holiday. Therefore, the ferrosilicon prices would keep firm after the holiday.
Asian Metal: What's the next plan for your company?
Mr. Liu: It's very difficult to get the approval from government to set up new furnaces. We will focus on maintaining the good cooperation both with steel mills and traders, and try to get more orders from steel mills appropriately, and to reduce production cost at the same time. We will not produce ferrosilicon 75%min or do export business at the time being.
