Fan Zhenguo: Brown fused alumina market unlikely to improve in 2016 on weak demand from steel mills
----Interview with Mr Fan Zhenguo, President of Henan Yilong High & New Materials Co., Ltd.
Henan Yilong High & New Materials Co., Ltd is located in Yichuan, Henan, with the previous name being Yichuan Zhongyuan Carborundum factory. The company specializes in producing abrasives, refractory and related products, and has four smelting furnaces and nine processing production lines. Its main products are brown fused alumina, vice-white corundum, white fused alumina and so on, which are widely used in refractory and construction. The annual production capacity is 60,000t, while the sales volume is more than 50,000t.Yilong’s products have been exported to Japan, Korea, the USA, Germany, France, the UK, Italy, India, South Africa, Egypt, Turkey, Taiwan and Hong Kong, and 20 countries and districts in all, achieving great popularity.
Asian Metal: Mr Fan, thanks for the interview. Can you introduce us to your company briefly?
Fan: We are mainly engaged in brown fused alumina segment sand and grain sand. Our total outputs can reach 26,000t, and the sales volume is likely to be around 25,000t in 2016, up by 1-2% year-on-year. Nevertheless, the brown fused alumina market has been sluggish this year, and our operating rate is only around 50%. Our capacity for brown fused alumina is 60,000tpy, and we can produce around 5,000-6,000t if we run fully.
Asian Metal: Brown fused alumina prices in China have continued to fall this year, with many producers’ operating rates on the decline. Some producers have even stopped production. How has your business fared this year?
Fan: As far as I know, many producers’ sales volumes for brown fused alumina have declined by 30-40% this year, and our sales volumes are on a par with those in 2014. Moreover, we have even given up on some buyers, who cannot make payment in time. Our product is of a high quality, and we pay attention to the aftermarket. We export over 50% of our brown fused alumina to Japan, South Korea, the United Kingdom, Taiwan and so on.
Asian Metal: Many producers have said that the current prices for brown fused alumina are very close to the production cost, and they are seeing meager profits. What do you think about the product cost of brown fused alumina?
Fan: The product cost is different for every producer, including power charges, capacity, calcined bauxite quality and so on. The brown fused alumina market is sluggish, and some producers have already halted production. There is an industry garden in our local area, and 16 producers (23 furnaces) are distributed across the garden. There is a generating station here, and we’re able to use power from 22:00 and stop operations at 8am the next day. Under these circumstances, the power charge is less than RMB0.4Kwh. Our power consumption is 2,000Kwh for every tonne against 2,300Kwh for other producers. Moreover, we’re continually improving our production technology to enhance quality. In the circumstances, we haven’t suffered any losses, although the market is very weak. In addition, the brown fused alumina processing capacity in Henan and especially in Luoyang is strong, and the quality in Yichuan is much higher. In general, the production cost for brown fused alumina natural lumps is around RMB2,600-2,700/t VAT excluded in Henan province.
Asian Metal: China will cut power charges by RMB0.03/Kwh from1 January 2016. Will the move impact the brown fused alumina market?
Fan: The move to cut power charges will have little influence on brown fused alumina. Currently, most brown fused alumina producers don't use the power network, but power stations in local areas, where power charges are lower than those from the power network. Therefore, the move will have little influence on the market.
Asian Metal: Demand for brown fused alumina in China has continued to shrink this year, with refractory producers and steel mills receiving few orders and under increasing capital pressure. When will demand recover?
Fan: Brown fused alumina is considered to be a bellwether for the global manufacturing industry. I think the market may show signs of getting better in late 2016 and it is likely to recover in 2017. Demand from Chinese steel mills is weak, and steel prices are still too low. Moreover, inventories within the real estate sector remain high, and demand has witnessed little improvement. In addition, steel products are set to be replaced by aluminum, and we have a 150,000tpy aluminum product project, which will come on stream before the Spring Festival holiday. Even if the economy in China improves, steel outputs may not surge.
Asian Metal: The Chinese brown fused alumina export market continues to weaken, and more suppliers are exporting the material through VAT evasion. Their export prices are much lower, and legal producers have great difficulty in exporting the material. Will the Chinese government adopt measures to manage the market?
Fan: China’s Customs is clear about this but has had nothing to do with it. However, China should implement measures to guide the market.
Asian Metal: Brown fused alumina capacity in China is surplus, and demand growth is slowing down. What do you think the market trend will be like in 2016?
Fan: Brown fused alumina prices are unlikely to climb, instead falling further but within a narrow range. The predicted decline in power charges may force prices down, although any price decline will be limited.
In 2016, the brown fused alumina market may not witness any obvious changes, with the market likely to show signs of recovery in late 2016. Although many producers have stopped production, some of them will resume operations if the market improves. The market recovery still has a long way to go.
