Asian Metal: Thank you for accepting our interview, Mr. Miao. Please give us a brief introduction of your responsibilities and company business.

Mr. Miao: I'm mainly in charge of purchasing vanadium raw material and selling vanadium products. Xinjiang Zhonghao Vanadium Technology Co. Ltd., formerly known as Xinjiang Urumqi Sishuoyuan Ferroalloy, was registered and founded in January 2011. The predecessor focused on trading of vanadium products while the new company is mainly engaged in production of vanadium nitride and ferrovanadium nitride. We began to construct the plant from May 2011 and put it into operation in 2012. From November 2012 on, we started normal production, with a design annual production capacity of 3,600 tons of vanadium nitride.

Asian Metal: How many vanadium nitride production lines do you have? What is the actual output?

Mr. Miao: We totally planned to construct four vanadium nitride production lines and two are running at full capacity now, with a total monthly production capacity of 120 tons. The other two lines have a total monthly production capacity of 240 tons and would be put into production in the second half of 2020. The construction of the second phase project is underway and the workshop has been completed and equipped with facilities. After the whole project goes into operation, the monthly production capacity would reach 360 tons.

Asian Metal: Please briefly introduce your sales and raw material purchase.

Mr. Miao: We have set up four sales offices, which are located in Northwest China and can cover the markets in North China, South China and Southwest China. Targeting at major Chinese iron and steel groups, we sell 50% of our vanadium nitride directly to steel mills while supply the rest 50% to distributors. If the market sees supply shortage, we also increase the supply by entrusting OEM or purchasing from other suppliers. All steel mills in Xinjiang are our customers and they consume 300-350 tons of vanadium nitride in total on a monthly basis. As our supply cannot reach this level, they purchase from other vanadium nitride producers in inland China to meet the gap. Freight cost can be ignored as unit price for vanadium nitride is high. Xinjiang Bayi Iron and Steel is one of our major customers and we satisfy half of its consumption volume every month at internal negotiated price.

In terms of raw material purchase, we sign supply agreements with major Chinese vanadium pentoxide flake producers and also purchase from traders. Major producers produce based on orders and don't always hold stocks, so we usually purchase from suppliers who have stocks. We sell all products in a presale manner and have a strong demand of at least 150-180 tons for raw material per month. It's hard to purchase all the consumption volume in one order and we purchase one truck of the material every two or three days. The delivery for all required raw material must be made before the 20th day of each month.

Asian Metal: Do you have an expansion plan for developing the whole vanadium industry chain?

Mr. Miao: We are developing ferrovanadium nitride market at present. The product usually has a vanadium content of 40-50% and a nitrogen content of 5-6%. If vanadium nitride prices rise and stand stable at a high level, ferrovanadium nitride can be used as a substitute of vanadium nitride partially. After the second phase project goes into operation, we will have stable raw material supply. However, we plan to set foot in high-end market, such as high-purity vanadium and vanadium energy storage, rather than develop steelmaking furnace burden business. We are still doing preliminary study on the high-end market for the time being.

Asian Metal: What do you think about the commonly low inventory of vanadium nitride producers?

Mr. Miao: We usually hold no stock of vanadium nitride. In normal conditions, we sign orders for the material to be produced next month at the end of this month. By managing the operation, we ensure kilns to run in a continuous and steady manner and at full capacity and all purchases are made based on orders. We don't hold any stocks if prices are flat, but we keep a small amount of no more than 20 tons in stock when prices show an uptrend. Vanadium nitride kilns cannot be halted operation after they are put into production, so most producers adopt the presale model and it's normal to hold low stocks in vanadium industry.

Asian Metal: What do you think about the current high cost of vanadium nitride? What is the reasonable vanadium nitride price in your opinion?

Mr. Miao: The cost of vanadium nitride is directly related to vanadium pentoxide flake prices. Presently, vanadium pentoxide flake prices stabilize at around RMB130,000/t (USD8.7/lb V). As we purchase in batches, losses can be avoided if averaging based on weight. However, if it comes to a single purchase, the cost is higher than selling price and we suffer losses.

I think vanadium nitride price is relatively low now. As vanadium can be replaced by niobium, generally speaking, consumption volume and price of vanadium nitride must be higher than those of ferroniobium. In my view, it's acceptable to steel mills if vanadium nitride price is RMB10,000-20,000/t (USD1,406-2,812/t) higher than ferroniobium price, but bigger gaps are unacceptable.

Asian Metal: What do you think about the tight supply of raw material in Chinese market? Will you consider purchasing raw material from overseas suppliers?

Mr. Miao: The supply of vanadium pentoxide flake has been tight in Chinese market and this is also the reason that prices stand stable at a relatively high level compared with those of vanadium nitride. No vanadium pentoxide flake producers can completely bring the market under control and all prices are subject to steel mills' purchase prices. From the perspective of monopoly, the resource concentration rate of vanadium pentoxide flake is far below that of ferroniobium.

We considered importing raw material, but the import procedure is complicated. Moreover, if taking tariff, VAT and exchange rate into consideration, the delivered price for imported vanadium pentoxide flake is not lower than the price from Chinese suppliers. Even though we import based on long-term agreements, the price must be competitive in Chinese market. Therefore, we prefer purchasing raw material from Chinese suppliers. After the phase-II project is put into production, we must supply raw material by ourselves. Actually, we have reached an agreement with a vanadium pentoxide flake company, which is constructing a V2O5 plant with an annual production capacity of 3,000t of vanadium pentoxide flake in Northwest China now. Meanwhile, we are constructing the phase-II project.

Asian Metal: What are your opinions about the implementation of new rebar standard?

Mr. Miao: The new standard of rebar is implemented smoothly and only requires producers to produce qualified steel rather than impose too many requirements on vanadium additive. During the production process of steel, vanadium nitride is needed to produce rebar with strength of 450-500MPa and ferroniobium can be used as the substitute, which delivers the same performance, to produce the rebar with strength of 300-350MPa. After the new standard came into effect in November 2018, steel mills upgraded rebar actively. However, the production of rebar with strength of 300-350MPa is still allowed. If the strength of rebar is required to reach over 450MPa, both the demand and price for vanadium will increase. Stronger future demand drives our production expansion.

Asian Metal: What will the vanadium price trend look like in Q4?

Mr. Miao: It's hard to forecast price trend of vanadium products in Q4 for the moment. However, price for V2O5 would hardly drop to below RMB130,000/t (USD8.7/lb V) due to insufficient and continuously tight supply. Restrained by high prices, V2O5 from overseas suppliers cannot enter Chinese market. I believe that steel mills' purchase price for vanadium nitride in Q4 would go over RMB200,000/t (USD37.6/kg V) and regard RMB210,000/t (USD39.5/kg V) as the ideal level. The specific vanadium price trend is subject to downstream rebar market as demand and price for rebar will directly impact vanadium price.

Asian Metal: Thanks for our comments.

Mr. Miao: Thanks for the professional platform provided by Asian Metal. Wish you a brighter future! Let's march forward together.