Asian Metal: Hello, Mr. Lei. Thank you very much for accepting Asian Metal’s interview. Could you please introduce current macroeconomic situations briefly?

Lei: Actually, the macroeconomic situation is very transparent this year, that is, the situation keeps stagnant throughout the world. Reportedly, US economy picks up a bit, while European economy sees no signs of recovery. In my opinion, the economic recession affects China’s situation the most. China’s GDP growth rate is 7.6% at present, in which some economic bubbles have been seen, and the actual growth rate is worse. Many China’s enterprises should decide whether to survive or not in long-term stagnation.

Asian Metal: What about the development status of titanium materials at home and abroad amid current economic situations?

Lei: Titanium materials market runs badly amid current economic situations. Most domestic sectors are in the process of industrial restructuring. Enterprises without unparalleled products are unlikely to develop and operate stably, and few companies have unique products in China. China’s titanium industry keeps stagnant owing to sluggish upstream and downstream markets, which also accords with the market discipline.

Currently, China sees few high-end products in the process of developing varieties or imitating Western markets, and oversupply is the main obstacle for market moving forward. The government is unlikely to intervene in the market with enforcement, and economic recovery will depend on market discipline but not many new incentive policies. Therefore, it is unrealistic to hope for economic recovery or fast pickup with stabilization of titanium industry this year and in the coming year.

Asian Metal: It is still difficult for domestic titanium products to enter international market with some unqualified products and reduced exports amid economic recession. What do you think about the development of future domestic titanium products export market?

Lei: Trade protectionism extends amid current economic environment, and overseas buyers always make purchases from local producers, and only those who see insufficient supply domestically will import materials from other countries. Chinese producers are able to export materials with prices lower than 20-30% than other countries, especially for buyers in US and Europe, resulting in affected exports of China’s titanium products.

Additionally, most China’s exported titanium materials are applied for chemicals or semi manufactures with low added value but not materials for aerospace with high added value, causing low profits for China’s export market.

In my opinion, China’s titanium alloy for aerospace was the earliest in international market. There are four base materials for aerospace, including composite material, titanium alloy, high temperature alloy and aluminum alloy, and China can meet the demand from international markets in those materials. For all key materials in China’s C919 airplane project, only titanium alloy is produced totally by China, which is supplied by Baoti Group.

Asian Metal: Most titanium products are applied for chemicals domestically, while Japan has utilized titanium widely in civil fast moving consumer goods. You also mentioned titanium materials with high added value, and what outlook do you envisage for domestic titanium materials?

Lei: I would like to show you some data firstly. Statistical data show that the output of China’s titanium sponge accounts for 36.6% in the world, and the output of the CIS, Japan and US take for 32%, 25% and 5.6% respectively. China accounts for 36% of global titanium products, and percentages are 20%, 28% and 11.4% for Russia, US and Japan. The above data show that China sees balanced percentage of the output of raw materials and titanium products, while US has advantages in deep processing.

Profits will show another conclusion. Seeing from annual performance of listed titanium companies in 2012, EPS (earnings per share) of China’s Baoti Co., Ltd. was low; Japan’s Toho Titanium, Sumitomo Metals and Nippon Steel saw negative value of share prices; share prices of US RIT, ATI and Timet were in the range of USD0.77-1.43 per share; EPS of Russian VSMPO-Avisma reached USD19. The above data show that profits of China’s titanium enterprises are a bit higher than Japan’s enterprises but far below those of US and Russian companies, and profits of Russian enterprises are higher than US titanium companies.

For reasons of the above conclusion, almost 80% of titanium materials are applied for aerospace and military industry with high added value in Russia, and profits of Japan’s titanium products are mainly for civil use with few profits despite perfectly manufacturing and high exports. Product structure decides profits, and profits of products with cutting-edge technology or for high end market are high.

Therefore, product mix is essential for enterprises, and our company aims to develop high-end products in international market with increased profits.

Furthermore, small and medium-sized enterprises with insufficient capital or facilities should develop titanium products for chemicals or fast moving consumer goods, and they are encouraged to find their own directions to avoid simple imitation of products.

Asian Metal: China’s titanium market sees large production capacity and downstream industries continue to reduce output, and titanium industry is likely to adjust to changing demand. Do you also think that the market will develop into integration of enterprises gradually?

Lei: I think domestic titanium market will have to undergo adjustment and streamlining. All countries in the world, except China, only have several titanium enterprises with high concentration, while China has hundreds of titanium enterprises. Domestic titanium market will keep in line with global markets with industrial restructuring and market regulation, and it should not only be led by the government.

Asian Metal: Should internal management of enterprises change if domestic market keeps in line with international market?

Lei: Yes, I think so. It is critical for enterprises to boost competitiveness of products by enhancing internal management and products upgrading, and the increase of competitiveness will support products sales. Domestic enterprises focus on selling but not internal management and product upgrading, which will be unfavorable for long-term development of enterprises.

Asian Metal: What is your forecast for titanium products market in H2? Do you think the market will rebound by the end of the year?

Lei: We have talked about industrial restructuring. The industrial restructuring of titanium market in China has just begun this year, and three to five years will be needed for optimizing industrial structure. Titanium market will be in the toughest period this year and in the coming year, and the market is unlikely to recover in the second half of this year.

Fortunately, the whole titanium industry is a sunrise industry with a very bright outlook. However, some enterprises will be eliminated during the process of industrial restructuring. As for our enterprises, we should mainly export titanium for aerospace and continue to upgrade new products and enhance technical content of products, and we should also strengthen internal management to enhance the competitiveness of products eventually.

For those small and medium-sized enterprises, they had better produce some specialized products and avoid manufacturing repeated titanium materials. If an enterprise with its direction and goal specializes in fast moving consumer goods will also develop well and will not be eliminated.

Asian Metal: What are your company’s cope strategies in view of few possibilities of market bounce?

Lei: Our focus is mainly to extend the industrial chain for the time being. We aim to realize whole processes of producing the raw material sponge titanium and research mineral products with seeking for our own mines. Meanwhile, we are also excavating downstream markets, and we are supplying titanium equipments for Baose Co., Ltd. and cooperate with US companies to produce titanium products for golf. The company enhances management level with lean management method and provides powerful support for the competitiveness of products from the company by shortening delivery time, lowering costs, improving quality and widening sales model and channel.

Asian Metal: Thank you again for sharing us with titanium market information, and wish your company a bright future!

Lei: Thanks!