Intelligent production promotes sustainable development of magnesium industry

----Interview with Juncai Chai
President
Shanxi Fuhengdi Metal Materials Co., Ltd.

Shanxi Fuhengdi Metal Materials Co., Ltd., formerly known as Wenxi County Shengfu Magnesium Powder Factory, was established in August 2007 and is located in Xidu Village, Yangyu Township, Wenxi County, Shanxi Province. Fuhengdi, with independent management and import&export rights, has become a professional magnesium powder producer with large production scale and wide varieties. With an annual production capacity of 15,000t for magnesium powder products, including magnesium powder, magnesium granule, magnesium chips and passivated magnesium granule, Fuhengdi produced about 9,800t of the metal in 2021. In domestic market, Fuhengdi mainly sells their products to steel mills such as Taiyuan Steel, Handan Steel, Tangshan Steel, Wuhan Steel, and also to many pharmaceutical companies. The company also exports to many foreign countries, such as Japan, Canada, Netherlands, etc. They achieved the annual domestic sales of RMB220million and the foreign income of around USD5million in 2021.
Asian Metal: Greetings, Mr. Chai, thanks for taking the interview from Asian Metal. Please introduce your business briefly.
Mr. Chai: Shanxi Fuhengdi Metal Materials Co., Ltd. was established in August 2007. Our company has more than 40 employees and covers an area of 14,260 square meters including the building area of 6,400 square meters. Our products for magnesium powder are mainly divided into two categories: one is fine magnesium powder, which is mainly used in military, chemical, aerospace and other fields; the other is ordinary magnesium powder, including magnesium chips, magnesium particles, and passivated magnesium powder, which is mainly used in steelmaking, pharmaceutical, chemical, welding and other fields. Our relevant main business is the right to purchase, produce, sell, import and export independently approved by the state departments. At present, there are 40 employees in Fuhengdi, including full-time safety management personnel, sales personnel, office personnel and other positions, as well as various workshops such as cutting workshops, granulation workshops, and screening workshops. Over the past few years, the factory has been constantly conducting improvements on equipment, safety and other technologies. Besides the domestic advanced automatic CNC chip granulation equipment, the company also installed infrared monitoring equipment. In the next step, Fuhengdi plans to start with moisture-proof magnesium powder, aluminum magnesium powder and military magnesium powder to increase more added value of our products. The current pilot production of moisture-proof magnesium powder already has been tested to be successful.

Asian Metal: What about your proportion in export and domestic markets? From the perspective of market demand in 2022, how about the situations from downstream users, such as domestic steel mills, chemical plants and pharmaceutical plants?
Mr. Chai: In order to improve the market's competitiveness, our company continues to focus on domestic and foreign markets. Taking 2022 as an example, the proportion of domestic sales and exports will be 40% and 60% respectively. From the perspective of domestic market demand, affected by the sharp rise in the price of upstream magnesium ingot in 2021, the desulfurization cost of domestic steel mills increased significantly during this period, resulting in serious cost inversion. Some steel mills shut down desulfurization stations directly, and only some large steel mills with the production of special steel still took magnesium powder for desulfurization. Given this situation, we suffer weakening demand from steel mills in 2022. The domestic chemical and pharmaceutical industries have relatively stable demand for magnesium chips, but individual pharmaceutical factories also consider purchasing magnesium ingot and then produce magnesium chips directly, which has a certain setback for our company and even affects the whole magnesium powder industry.

Asian Metal: Entering 2022, under the pressure of the EU energy crisis caused by the Russian-Ukrainian conflict, European steel mills have frequently cut their outputs and the demand for magnesium powder has shrunk accordingly. In your opinion, how do you think about the market demand in Europe for magnesium powder in 2022?
Mr. Chai: From the perspective of foreign demand for magnesium powder, most of the users are steel mills. From March of 2022, in the escalation of the Russian-Ukrainian conflict, the energy crisis has intensified, and foreign steel mills have generally cut their production and the demand for magnesium powder decreased accordingly. From our experience, the demand for magnesium powder in the European market decreased by 10% YoY at least. In the coming Q4, the demand for magnesium powder will continue to weaken under the continuous slack movements from steel mills in the European market.

Asian Metal: What about your adjustment for production in 2022? In face of various market risks and demand contraction, how do you deal with it?
Mr. Chai: In 2022, in order to meet the market demand and to avoid market risks, our company installed a fine magnesium powder production line. In face of various market risks and the pressure of shrinking demand for ordinary magnesium powder, the fine magnesium powder market is relatively good, and the demand is increasing. In view of this situation, although the economic downturn has an impact on our company, it is still controllable. The main reason is that the fine magnesium powder developed by us has played a supporting role for the company in the crisis. What’s more, different marketing models can ease market pressure.

Asian Metal: How about your anticipation for magnesium powder prices in coming Q4?
Mr. Chai: Actually, the key factors to affect the prices of magnesium powder are magnesium ingot price trend, electricity cost, labors’ salary and the cost of equipment maintenance, among which, the price fluctuation of magnesium ingot is the basis for price change of magnesium powder. For the price trend of magnesium powder in Q4, it depends on the price trend of magnesium ingot on the whole. Entering Q4, from the perspective of the production cost of magnesium ingot, the prices of coal and ferrosilicon would stay firm and even tend to rise while the buying activities would remain limited, the prevailing prices for magnesium ingot would hover at RMB23,500-24,500/t (USD3,309-3,450/t) EXW D/P in November. Meanwhile, given continuous slow demand from steel mills and chemical plants in domestic and foreign markets, the mainstream pries for magnesium powder would move down to the range of RMB25,000-26,000/t (USD3,521-3,661/t). In the coming December, due to the energy crisis, Shaanxi factory involves the upgrading of the semi-coke furnace, the supply for magnesium would decrease slightly and the mainstream prices would stay weakly stable. Given this situation, the mainstream prices for magnesium powder would hover at the range of RMB25,000-26,000/t (USD3,521-3,661/t). As for us, we plan to sustain the production based on sales and lock raw materials in time to ensure stable production and smooth delivery for customers. Meanwhile, we could seek reasonable profits in this channel. At the same time, the price fluctuation of fine magnesium powder is relatively small. Overall, the goal we set in early 2022 is expected to be achieved successfully.
Asian Metal: As an intermediate processing enterprise of magnesium, what is the biggest challenge in magnesium powder industry?
Mr. Chai: First, magnesium powder is flammable and explosive industry, and safety is an important factor to hazardous chemical industry; second, frequent price fluctuations for magnesium ingot bring high risks for magnesium industry. Some downstream steel mills intend to find some substitute goods and it restrained the market demand and application for magnesium industry; third, the energy crisis caused by the Russia-Ukraine conflict led to frequent output reduction in European steel mills, which greatly reduced the demand for magnesium powder. It will be a major challenge for the magnesium powder industry in 2022.

Asian Metal: What about your company's long-term planning in magnesium powder production and market layout?
Mr. Chai: Magnesium powder production is an industry with serious dust pollution, significant noise and high requirements for security. The shortage of employees has always been the biggest factor that plagues the development of enterprises, especially young employees. Given this situation, the existing equipment couldn’t be fully operated normally. Intelligent manufacturing and intelligent production are imperative. At the beginning of 2022, we started the robot production line, and the related equipment is under installed and commissioned. Actually, I think it is urgent to put it into operation in magnesium powder industry. Intelligent production has been greatly improved in safety compared with manual operation. Robots could replace manual labor in the using of cutting machines and pelletizing machines. We only need manual labor in the screening. Normally, we need 8 persons in a workshop, but only 2 persons with the finalized robot production line, which greatly reduces manual operation and relives the production pressure of magnesium powder industry significantly. Meanwhile, in hot summer and cold winter, the efficiency of intelligent production is higher than that of manual production under the harsh production environment. Moreover, with the steady promotion of intelligent production, the cost advantage is also prominent. In conclusion, strengthening intelligent production is to become a trend of the sustainable development of magnesium powder industry.
Asian Metal: Thanks for accepting the interview with Asian Metal, and I also look forward to the great achievements and further progress for Fuhengdi in the future!
Mr. Chai: With the strong support of Asian Metal, Shanxi Fuhengdi Metal Materials Co., Ltd. has forged ahead through trials and hardships. Facing the turbulence, complexity and change of the international and domestic magnesium market, we have a solid foundation for continuous and rapid development and accumulation, and the spiritual strength of self-confidence and self-improvement. We are confident and powerful, and take the lead in building intelligent manufacturing and intelligent factories in the magnesium powder industry in China.