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    Downtrend of Chinese ferrosilicon for the beginning of 2019
    ----Interview with Fang Yijun
    Chairman
    Baotou Augmul Metal Alloys Limited Company
    As one of earliest industrial and trading companies focusing on ferrosilicon in China, Augmul has been engaged in ferrosilicon international trading for more than 20 years, especially in Japanese market. Mr. Fang has insightful opinion on Chinese ferrosilicon domestic and overseas market.

    Asian Metal: Thank you for joining us, Mr. Fang. Would you please introduce your company briefly?

    Mr. Fang: Thank you for having me here. Our company established in the late 1990's, totally focused on ferrosilicon international trading business at the beginning, including ferrosilicon 75%min, 72%min and 65%min, low Al FeSi, high carbon FeSi, ferrosilicon slag, lump, and all various sized ferrosilicon. After 5 years' trading experience, we built up two ferrosilicon furnaces of 12,500KVA and one of 8,000KVA in Baotou, Inner Mongolia after realizing that we need to integrate trading and producing. The current annual production capacity is around 30,000t.

    Asian Metal: What makes you stand out as an integrating industrial and trade company? Could you please share with us more specifically?

    Mr. Fang: Comparing with trading company, we have more flexible capital turnover mechanism, and we have big advantage of purchase cost as we own furnaces. We can sell at lower prices than traders sometimes. When the production cost exceeds selling price, we still can produce under the heavy pressure, keeping sustainable ferrosilicon supply to our overseas clients.

    Asian Metal: What's the current production cost for ferrosilicon 72%min for you company?

    Mr. Fang: The current production cost of ferrosilicon 72%min is RMB5,600-5,700/t (USD813-827/t) for us now. The current electricity cost is RMB0.375/kwh with no discount for staggering peak production. The purchase cost of silica is around RMB160-170/t (USD23-25/t) delivered from Ningxia to Baotou. As silica mineral need to be prepaid, the price of silica has more influences to ferrosilicon production cost now. If the plant has sufficient money, they can get lower prices of silica. The price of semi coke is around RMB1,000/t (USD145/t) delivered. The current price of ferrosilicon 72%min is closely approaching to production cost, making some ferrosilicon plants reduce or suspend production soon.

    Asian Metal: How do you predict the price trend in the following month? Does the price would go down further now that the price is almost approaching production cost? What's your strategy with production cost exceeding selling price?

    Mr. Fang: It's probably to go down further in the following weeks due to surplus supply now. Along with the price dropping below production cost, some plants would suspend production. The price would stop dropping for some time and then rebound along with decreasing supply. Confronted with production cost overhang, we can persist with production.

    Asian Metal: What market you're focus on now, domestic Chinese market or overseas market?

    Mr. Fang: We started with international trading business 20 years ago, and concentrated on overseas market at that time. However, we enlarged our business with Chinese domestic steel mills 5 years ago. Presently, domestic clients can consume around 50%min of our total output. Previously, overseas market was better than domestic market. But along with the development for recent 10 years for Chinese steel industry, the demand from Chinese steel mills is sustainable and mature now, and payments from steel mills are faster and easier than before as well. From the perspective of strategies from larger sized ferrosilicon plants, they focus on internal demand now. On the other hand, Chinese government already released official document that they will not reduce ferrosilicon export duty for 2019. Currently, our annual output is around 30,000t, and sales volume from overseas market is slightly higher than domestic market.

    Asian Metal: Mr. Fang, you have been doing export business to Japanese market for quite a long time. How do you think the current demand of ferrosilicon in Japan, and what's your opinion about statistics changes of Chinese ferrosilicon export to Japan these years? Can you share some experiences with us?

    Mr. Fang: We have been engaged in Japanese market for almost 20 years. Main consuming markets are Japan and South Korea in Asia, and the annual consumption volume of ferrosilicon in Japan is 300,000-500,000t. Japanese end-users have strict requirement of quality. However, their prices are lower than clients from Europe and South America at the same time. Japanese enterprises are very care about contract spirit. You don't have to worry about not receiving money after delivering shipment, which rarely came across in Japan.
    The consumption volume of ferrosilicon in Japan decreased slightly as the output from steel mills decreased recent years. The export volume of Chinese ferrosilicon to Japan decreased as more competitors from Russia, Malaysia and Brazil can provide competitive offers than before.

    Asian Metal: Take Russian ferrosilicon for instance, what are the merit and demerit about it?

    Mr. Fang: Compared with Chinese ferrosilicon, the material from Russia has big advantage in production cost due to much lower electricity cost. For the perspective of export to Japan, the price of ferrosilicon from Russia is USD10-20/t lower than Chinese ferrosilicon. However, due to long physical distance, the shipment takes more time from Russia. Clients in Japan usually place order two or three months in advance for bulk sales contracts. The material usually is delivered from Vladivostok, and it costs longer time no matter for ocean or inland transportations. Chinese suppliers are much faster and more flexible. Previously in Japanese ferrosilicon market, Russian suppliers played a supplementary role to their Chinese counterparts, but they're occupying much larger market share now.

    Asian Metal: Chinese government released document for export tariff in late December, stating that government will keep ferrosilicon export tax at 20% for 2019, and how do you interpret the government's tax policy?

    Mr. Fang: Many people estimate that Chinese government will decrease ferrosilicon export tax for 2019, but it turned out unchanged. I think international trade should be guided by free market instead of being controlled by government. In my opinion, export tax should be eliminated ultimately, and regarding when to cancel, we have to keep close eye on government policy. I think the Chinese export volume will not increase before Chinese government cancels the export tax.

    Asian Metal: Can you share your prediction about ferrosilicon trend for early 2019?

    Mr. Fang: I believe that price of ferrosilicon would surely slip before the Chinese lunar New Year, and the price wouldn't rebound until the end of Feb 2019. Regarding the rebound time, it depends on the price of steel & Iron and the ferrosilicon supply.

    Asian Metal: What's your expectation for your company?

    Mr. Fang: We put endeavor toward two directions. Chinese government will ban ferroalloy production with furnaces of 12,500KVA or lower. Complying with the policy, we're considering enlarging output, and will set up larger furnaces in 2020.
    Secondly, we already became one of qualified suppliers for several steel mills now, and we're trying to supply more steel mills in China. For overseas market, we will enhance our supply with better service and best quality as before to keep stable and mature cooperation relationship with our clients in Japan. It depends on tariff policy whether we can develop more businesses in export market.

    Asian Metal: Thank you very much for you time, Mr. Fang. We wish you have thriving business in the future.

    Mr. Fang: Thank you for having me here. Best wishes to Asian Metal.