----Interview with Guangyao Wang
General Manager
Fugu Jinchuan Magnesium Industry Co.
Fugu Jinchuan Magnesium Industry Co. was established in 2003. It is located in the hinterland of Shenfu Coalfield Development Zone, a national energy and heavy chemical industry base, in Shiyaodian Village, Dingdhaipan Industrial Park, Laogaochuan Town, Fugu County, Yulin City, Shaanxi Province. Relying on the advantages of rich local coal resources, the company takes full use of the residual gas of the coal gas retort as fuel to produce magnesium ingot and adheres to the large-scale, refined, diversified and integrated development route. The company has established an annual production capacity of 20,000t of magnesium ingot. 10,000t of magnesium alloy, 600,000t of semi-coke, and 60,000t of tar.
Asian Metal: Hello, Mr. Wang! Welcome to the interview by Asian Metal. Please introduce your business briefly.
Mr. Wang: Hello! I am Guangyao Wang, the General Manager of Fugu Jinchuan Magnesium Industry Co., and I am very honored to be interviewed by Asian Metal. With a total investment of 200 million Chinese Yuan, our company was founded in 2003 when we built magnesium ingot plant and coking plant. We mainly focus on production and sales of primary magnesium ingot, magnesium alloys, semi-coke and coal tar, with annual production capacities of 20,000t, 10,000t, 600,000t, and 60,000t respectively.
Asian Metal: Entering Q1 of 2023, the mainstream prices of magnesium ingot continued to stay at a low level. What are the main reasons for it?
Mr. Wang: I think the prevailing prices of magnesium ingots continued to fluctuate at a low level in Q1 of 2023 restricted by slow demand in domestic and foreign markets. In the domestic market, the downstream demand for magnesium powder, magnesium alloy and aluminum alloy remained weak, and the purchase volume of magnesium ingot reduced accordingly. Due to soft market performance and bearish expection, buyers purchased the material cautiously and the market moved slowly. I believe that the demand in Q1 decreased by about 10% YoY. The export market also faced bad performance as the demand in Europe, which acts as the core consumption market over the world, shrunk discouraged by the conflict between Ukraine and Russia, and buyers purchased the material in minimum volume. Besides, as the US kept raising interest rates, the prices of related nonferrous metals went down continuously, the prices for magnesium ingot also went down. Fourthly, the domestic coal market saw oversupply as Australian coal products entered Chinese market. The decreased coal prices resulted in lower production costs for magnesium ingot, leading to price fall of magnesium ingot. The above situations are the main reasons that I believe to influence prices for magnesium ingot in Q1 of 2023.
Asian Metal: Compared with 2021 and 2022, what is the reason for low demand since the beginning of 2023?
Mr. Wang: In 2021, driven by gradual recovery of global demand and rising raw material prices, Chinese magnesium market witnessed stable upward movement and market participants maintained confident about the market; In addition, due to energy consumption restrictions, the supply decreased and suppliers faced limited stocks. Since most suppliers already completed advance sales, clients found it difficult to replenish stocks. Therefore, the prices moved up continuously. In the first three quarters of 2022, the prices of magnesium still hovered at a relatively high level, and the market profit margin was acceptable. Since the fourth quarter of 2022, the international situation kept tense and the demand in major consumption regions such as Europe slowed down; the economy development continued to slow down in the first quarter of 2023, the magnesium market remained dim with decreased export volume and shrunken domestic sales. Prices fluctuated at a low level in Q4 of 2022 and Q1 of 2023.
Asian Metal: How do you think about the current inventory situation in the magnesium ingot market?
Mr. Wang: I think the market inventory increased YoY but is relatively controllable. Discouraged by price deline, poor profits, semi-coke production capacity upgrade and other pressure, the supply in Q1 decreased by 10% from Q4 of 2022 and would probably reduce further. As consumers and traders hold little inventories now, the pressure of oversupply will be relieved and the market would gradually enter a virtuous circle. We hope that the enterprises in magnesium industry would work together to create a stable magnesium market atmosphere.
Asian Metal: How do you think about the market state in Q2 of 2023? What about your anticipation for the price trend and demand in June?
Mr. Wang: Entering the first half of April, consumers, traders and some investors entered the market actively after hearing the rumor that plants with unconventional furnaces in Fugu would be forced to suspend production since late April, so the mainstream prices for magnesium ingot even increased sharply by RMB7,500/t (USD1,071/t) to RMB27,500-28,000/t (USD3,928-4,000/t) EXW D/P. Some suppliers even rejected to sell the material at prices below RMB30,000/t (USD4,285t). In the second half of April, due to slowdown of buying activities and suppliers' intentions to promote sales, the mainstream prices decreased dramatically to RMB22,500-23,000/t (USD3,214-3,285/t). After experiencing a slight price increase in early May, the mainstream prices went up sharply since 7 May to RMB26,500/t (USD3,785/t) in the middle of the month as the local government indicated that the 14 plants with unconventional furnaces shall halt production from 10 May. Nevertheless, discouraged by slow movements and strong watchful attitudes of consumers and traders, as well as the price decline of coal and ferrosilicon, the mainstream prices decreased from mid April to RMB21,500-22,000/t (USD3,071-3,142/t) by the end of May, when some suppliers even lowered their prices to RMB21,000/t (USD3,000/t). Entering June, the prevailing magnesium ingot prices would fluctuate within RMB21,500-23,000/t (USD3,071-3,285/t) EXW D/P. The market mentality cooled down and the prices would change in line with market demand and the market stocks would reduce slightly. As for market demand, magnesium alloy, magnesium powder, aluminum and titanium sponge plants would regularly replenish stocks with potential demand increase. Additionally, foreign clients would replenish stocks before the coming summer break and the export market would see increased demand from May.
Asian Metal: Nearly 70% of the magnesium producers are using round iron furnaces to supply gas for magnesium produciton. However, such device could not meet the standards of safety, environmental protection, and energy conservation. Under the background furnace upgrade and transformation, what pressure do magnesium plants in Shaanxi face? What about your company?
Mr. Wang: Under the requirement of upgrading and transformation of the unconventional circular iron furnaces in the gas supply workshop of the magnesium plants, about 14 plants in Fugu stopped operation since 10 May and another 6 plants reduced output, resulting in a daily supply decrease of about 800t. Additionally, the plants above would face uncertainties with regard to government acceptance and approval even if they are building or have already built new furnaces with production capacity over 100,000t as requested. So the supply of magnesium ingot would decrease and would even stay tight in the short term. Lucky for us, our company's furnaces meet the relevant standards as we built the furnaces as requested in the beginning. We will maintain stable production and we welcome clients from both home and abroad to visit us and purchase our product.
Asian Metal: What's your company plan to diversify your products? Are you considering extending your business in the industry chain?
Mr. Wang: We have been considering differentiated production, such as increasing the production of special-shaped ingots, small magnesium ingots and magnesium ingot 99.95%min. In addition, in terms of extending our business in the industrial chain, we will also produce more magnesium-related downstream products, such as magnesium alloys and die-casting parts, according to market conditions. However, given soft economy performance in 2023 and weak demand, we would postpone the plans above.
Asian Metal: Thanks for accepting the interview and wish Fugu Jinchuan a better future!
Mr. Wang: We would like to thank Asian Metal for the professional platform! The above views are only understanding of the market and please forgive me if there is any inadequacy. We hope that Asian Metal will continue to provide the industry with more authoritative consultation based on the principles of objectivity and fairness, and let us make progress together！
