Chinese magnesite market to see obvious demand growth in Q2, 2020
----Interview with Gao Yanshi
General Manager
Fengchi Group
- Located in the industrial park of Mafeng, Haicheng, a city in the beautiful and rich hinterland of Liaodong Peninsula, Fengchi Group has five subsidiaries, three plants, one business tower, one production base for agricultural and sideline products, and four mines in the core production region of magnesite in China. Covering a total area of nearly 200 hectares, the company mainly produces magnesite, sintered magnesia, fused magnesia, magnesia products and rolled steel.
- Asian Metal: Hello, Mr. Gao! Thank you for accepting the interview of Asian Metal. Would you please make a brief introduction to your company firstly?
- Mr. Gao: We mainly produce various magnesia products using magnesite from our own mines. Our magnesite mines have a total reserve of 200 million tons with an annual mining volume of 2 million tons. In addition, our annual production capacity for dead burned magnesia, fused magnesia, high-purity magnesia and magnesia carbon brick reaches 350,000t, 150,000t, 200,000t and 60,000t respectively.
- Asian Metal: Have you launched any production expansion project since 2018? We learned that many large companies have constantly expanded their production capacities since 2017 and what do you think of it?
- Mr. Gao: We have built four new kilns to produce dead burned magnesia since 2018 and have raised our production capacity of the material by 70,000t to 350,000t. I don't think it's a good decision to expand production capacity blindly. Those companies without mines have to halt production or suffer much higher production costs once the supply of magnesite is disrupted. Many small and medium-sized companies suffer losses now due to difficulties in sourcing magnesite and higher production costs, being forced to halt production.
- Asian Metal: Environmental inspection and the rectification of magnesite mines have become major factors affecting magnesia market in the recent years. How about the environmental rectification of your company? Would you like to share with us the outputs of your dead burned magnesia and fused magnesia in 2018 and 2019 respectively?
- Mr. Gao: We have finished environmental rectification and can meet all requirements on environmental protection now. We produced 280,000t of dead burned magnesia and 150,000t of fused magnesia in 2018 with the outputs in 2019 estimated to be 350,000t and 150,000t respectively.
- Asian Metal: Magnesia prices have decreased sharply in the Chinese market since early 2019, especially since Q3 2019 when the market fell into chaos. What's the main reason for this condition in your opinion and do you think it will continue?
- Mr. Gao: One reason for the sharp price decrease of magnesia in China in the past year was more supply in the market. From this point of view, the price decrease could be considered as a normal phenomenon after the supply shortage in 2017 and 2018 was eased. But the main reason for the chaotic market was that some companies, which didn't have magnesite resources, produced low-quality or even substandard magnesia using unqualified magensite and then sold these magnesia at much lower prices. The magnesia quality is uneven in the current market and some suppliers even sell low-quality magnesia at prices of the high-quality one. But I don't believe this phenomenon would last for a long period of time as prices are decided by quality in nature.
- Asian Metal: We noticed that the quality of magnesia has declined sharply in the recent two years due to the lower grade of magnesite caused by the requirement for Chinese magnesite mines to restrict mining for integration. Against this backdrop, there are many new flotation lines in Liaoning. Many producers improve the purity of magnesia, such as fused magnesia and high-purity magnesia, and reduce production costs at the same time through flotation. What's your opinion about this?
- Mr. Gao: The price gap between magnesite powder produced through flotation and magnesite MGO47%max shrinks to RMB100/t (USD14.40/t) in China currently amid the gradual decline of magnesite prices. Once miners resume normal mining, producers, who use magnesite powder, will suffer high production costs rather than have cost advantages.
- Asian Metal: Are there some substantial differences between high purity and fused magnesia produced by magnesite powder through flotation and those by high-purity magnesite in terms of quality and what is the advantage of your products?
- Mr. Gao: High-purity magnesia and fused magnesia produced through flotation are of higher purity, but can't maintain stable performance once they are used in production. We insist on using magnesite raw ores to produce dead burned magnesia and fused magnesia with stable performance to ensure the consistent performance of downstream products.
- Asian Metal: Would you please tell us both sales destination of your products and the business philosophy of your company?
- Mr. Gao: We sell 90% of our products to customers in Europe, America and Southeast Asia at present with the rest sold to major steel mills in China. We are committed to offering services and supplying products of high and stable quality to our customers as we believe that keeping stable product quality is always the best way for a company to develop.
- Asian Metal: Are you willing to tell us your expectation of the magnesia price trends in 2020 both at home and abroad?
- Mr. Gao: We think that magnesia prices would go up in China in Q2 2020 as most overseas customers, who cut their purchase volumes in 2019 to reduce stocks, would refill stocks from China in Q2 2020 and Chinese customers, who refilled some stocks before the Spring Festival and would mainly wait on the sidelines in Q1 2020, would make large replenishments in Q2 2020.
- As far as I'm concerned, only companies that conduct standardized management and have raw material advantages can realize long-term development as magnesite resources will be required to be mined in a more standardized way and the market always develops under the principle of the survival of the fittest. Since January 1st, all Liaoning-based magnesite mines have been prohibited from mining and new pollution emission indicators have been carried out in magnesia and magnesia product industries. Magnesia prices have touched the bottom line in China and are expected to show a stable trend throughout Q1 2020 when downstream market players would mainly consume stocks. However, we forecast that prices of Chinese magnesia would increase slightly in Q2 2020 as both domestic and overseas customers would restart normal purchases.
