Zhao Gang：Magnesium ingot market sees aggressive price competition with diversified products offering a way to develop
----Interview with Zhao Gang, General Manager of Shenmu Dongfeng Magnesium Co., Ltd.
- Shenmu Dongfeng Magnesium Co., Ltd., founded in June 2004, is located in Jinjie Industrial Park, which is the national energy and chemical base. The company has set up production lines for magnesium metal (with an annual capacity of 20,000t), semi coke (600,000t) and coal tar (60,000t), while a magnesium alloy die casting project with an annual capacity of 2,000t is also included. All the products have been certified as meeting the relevant industrial standards. The company was approved by the Ministry of Commerce of the People’s Republic of China to become one of the independent import and export enterprises in March 2005 and was identified as an enterprise with comprehensive utilization of resources by Shaanxi Resources Comprehensive Identification Committee in 2008. In 2013, it passed the Magnesium Industry Access Criteria issued by the Ministry of Industry and Information Technology of the People’s Republic of China and took the lead in forming an organization to promote regional co-operation in innovation encompassing Yulin Production Promotion Center, together with numerous colleges and universities, enterprises and research institutes in 2013; in 2014, it received ISO9001: 2008 Quality Management System Certificate accreditation from the Alliance of Provincial Departments.
- Asian Metal: Hello, Mr. Zhao, thank you for taking the time to participate in this interview. Firstly, could you please give us a brief induction to your company’s current production and operating conditions?
- Zhao: Thank you, it’s a great pleasure to take part in the interview. With its advanced production equipment, Shenmu Dongfeng Magnesium Co., Ltd. has set up production lines for magnesium metal (with an annual capacity of 20,000t), semi coke (with an annual capacity of 600,000t) and coal tar (with an annual capacity of 60,000t), and a magnesium alloy die casting project with an annual capacity of 2,000t is also included. All the products have been certified in accordance with the industrial standards.
- Our company is preparing to build a power generating project using the excess energy which comes from the process of collecting tail gas during semi coke production to generate electricity, forming a circular industrial chain with characteristics that include energy saving, environmental protection, comprehensive utilization and high efficiency.
- Asian Metal: The magnesium metal price has declined repeatedly since 2015 due to the depressed economic situation and weak market demand. Magnesium producers in other producing regions were overburdened and have chosen to reduce or stop production. However, most magnesium producers in Shaanxi have maintained stable production and some have even increased their output. What are your thoughts on this phenomenon?
- Zhao: In view of the situation facing magnesium ingot production in 2015, magnesium producers in other regions besides Shaanxi have suffered severe losses with a lack of confidence in the future market due to long-term price inversion. Therefore, some plants have chosen to reduce the pressure from the magnesium metal price inversion by means of production cut-backs, shutdowns or transformation.
- As for the situation in Shaanxi, although magnesium plants have also suffered severe losses due to the continual price falls, some of them have lower running costs and a good management system ensures they continue to see a slim profit. Meanwhile, other magnesium plants with higher running cost have to keep operating because the single pot production cost will increase if they reduce production, and environmental protection and bank loans will be influenced if they stop production due to emissions of tail gas from semi coke production. Therefore, most magnesium plants in Shaanxi are maintaining normal production for the time being despite declining earnings and the losses sustained by many producers. Some plants have even increased their output to lower production costs.
- Asian Metal：The magnesium ingot price has dropped to are cord low and the market price has slumped repeatedly due to oversupply and sluggish demand. How does your company cope with such a market situation?
- Zhao: As one of the magnesium enterprises in Shaanxi, sales at our company have been impacted significantly in the face of oversupply and sluggish demand. In order to enhance our market competitiveness, we reinforced the management of primary magnesium production, controlling the production cost and selling the material actively in step with the market trend, instead of holding onto stocks. We do not overestimate the market trend, and are endeavoring to control stocks of magnesium ingots.
- In addition, we also produce and sell many different ingots with various specifications, including 100g, 300g, 500g and 110kg,alongsidethe production of 7.5kg magnesium ingots, to dissipate the pressure of competition in the common magnesium ingot market and have generated reasonable profits in the process of producing differentiated products.
- Asian Metal: Given the gloomy market and the continuing weak economic situation, most producers are struggling to maintain existing production levels and have reduced their development and investment in new products to avoid any risk of negative impacts on the new-added business resulting from the poor market. However, your company has increased its development of downstream products drastically. Why do you think this is?
- Zhao: Everything is a double-edged sword. From the point of view of dialectics, if the primary magnesium market is prosperous, we are likely to maintain current production levels instead of considering developing downstream products. It is precisely because magnesium companies are only able to make thin profits and the market continues to be weak, faced with overproduction of primary magnesium and continuing sluggish demand, that enterprises can only enhance their own competitiveness by improving themselves or developing downstream products. We have resolutely decided to conduct a transformation and have enhanced the company’s market competitiveness by increasing production of downstream products, reducing the price competition of primary commodities and obtaining a reasonable profit through the development of high value-added products.
- Asian Metal: As the first and only producer operating in the downstream magnesium die casting business in Shaanxi province, what are your advantages in production currently?
- Zhao: First of all, we have the advantage of raw materials. We use magnesium ingots produced by our own factory to further produce highly processed products directly. And the production cost can be substantially reduced by using the production line for magnesium ingot-magnesium alloy-magnesium die casting products. Moreover, we have the advantage of transportation. Our factory is located in the Industrial Park in Jinjie town, Shenmu county, Yulin city within Shaanxi province. Our transportation costs are low due to the convenient connection sand the price delivered to the mill is competitive as the location is close to the business area of downstream consumers. Thirdly, as the first deep processing producer of magnesium products in Shaanxi, we are able to count on strong support from the local government. In conclusion, our company will be actively involved in the production and sales of downstream products given the existing advantages.
- Asian Metal: In terms of the future market development of magnesium die casting, does your company intend to boost its market share by developing both the domestic and foreign markets?
- Zhao: Our company was approved by the Ministry of Commerce as an independent import and export enterprise in March 2005. Our products are sold to the overseas markets mainly through Tianjin port. And we are actively exploring broader foreign markets to sell our products.
- Asian Metal: The price of magnesium ingots has hit the bottom and then stabilized since September. Furthermore, the market has witnessed a slight improvement in activity as buyers begin to stock up for Q4. What you’re your thoughts about supply and demand within the magnesium metal market in the upcoming quarter and the magnesium price trend?
- Zhao: The magnesium metal industry has been frequently frustrated by poor market activity and the slight fall in prices throughout the past three quarters, due to the pressures of both the slow recovery in the global economy and the slowdown in domestic economic growth.
- We anticipated magnesium metal producers entering the traditional peak season in Q4 with most maintaining their current output while some producers even release some capacity to reduce their current production cost, so the supply in Q4 will increase slightly from the current level. However, as it’s difficult to see either the domestic or international markets witnessing an uptick in demand with most consumers continuing to purchase from hand to mouth, it is very unlikely we’ll see big deals concluded. And the price will generally see a stable trend with some small fluctuations. Based on our sales guidelines, we will develop the differentiated products and actively sell the materials in line with the current market trend at the same time. We won’t overestimate the market trend.
- Asian Metal: Mr. Zhao, thank you very much for accepting this interview from Asian Metal. We are looking forward to a brilliant future for Dongfeng Magnesium!
- Zhao: Thank you!
