Asian Metal: Thank you, Mr. Lv, for agreeing to this interview and your support to Asian Metal. Could you please introduce the status quo of silicon carbide industry combined with macro economical environment?

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Lv: Facing volatile international situation and increasing risks, economic growth of China slows down in 2012, especially great shocks upon real economy. Chinese photovoltaic sector, one of the end users of silicon carbide, has been suffering tough period. As since H2 of 2011, it has been beaten by anti-dumping and anti-subsidy investigation by America and Europe, and constant shrinkage of overseas market, coupled with slow demand from domestic market, many enterprises have incurred severe losses and puzzled by market shrinkage and debts which have been unfavorable to the upstream industry, just like us.

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On one hand, silicon carbide market demand is reducing rapidly; on the other hand, the industry is suffering serious overcapacity. As during the two years rapid development of silicon carbide industry, some participants invested many green silicon carbide projects aimlessly just for making a fast buck, even in the downturn period of this sector in 2011, so many plants all invested during the cyclic period as soon as established, facing difficulties of producing with losses. As a result, the imbalanced over capacity and sporadic market demand resulted to continuous downtick silicon carbide rates.

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Asian Metal: What do you believe is the biggest difficulty enterprises face during production and operation in such sluggish market?

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Lv: Low prices and delayed payments are the biggest difficulties. On one hand, the quotation for green silicon carbide 98.5%min lump has dropped to RMB7,000/t, but the producing cost is at RMB7,100/t which means that we may loss RMB100 for each ton of the material. Despite the fact that we are still affordable, we would have to shut down if the loss increases to RMB200-300/t. On the other hand, payment term has extended to 2-3 months, and the acceptance has also been delayed. Currently, we just deliver the material after payment arrived due to huge risks as we may loss all the payment if the downstream industry goes bankrupt. The huge losses and financial strain in end photovoltaic sector may influence the whole supply chain including silicon chip, wire-electrode cutting, micro powder and silicon carbide smelting industries, and vicious cycle would appear with payment debt in every step.

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Asian Metal: Why not choose to shut down facing the worsening market and economic environment and debt risks in the near future, just as many other silicon carbide producers did?

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Lv: The operating rate in Chinese green silicon carbide plants is only about 10%, and more than half of downstream sand processing factors have shut down. We are also operating with many difficulties but many other factors should be taken into consideration. Our new Qinghai-based company (used to be Degang silicon carbide plant which still has some popularity in the industry), just completed construction two years ago. We have to pay basic electric charge (capacity charge) every month to power supply company. We have 4 groups of 12,500KVA transformer smelting furnace, and a group of dynamic transformer smelting furnace. If we shut down operation, we have to pay RMB1 million per month according to capacity charge for this equipment which equals to over RMB10 million per year. In that case, we can not afford the cost but have to keep on operation to get by. In addition, we have to maintain current clients and workers despite sporadic orders, rather than re-developing new clients and market. As to workers, subsidies are paid during shut-down period and many technical experts must be maintained. So, we are in the dilemma.

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Asian Metal: Producing cost in silicon carbide industry includes electric charge and raw material cost, so are there some measures to reduce cost and expenditure?

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Lv：We usually pay cash to power supply company and petrol coke suppliers, but we have applied to pay acceptance to ease financial pressure during the tough period. Meanwhile, electric charge downtick has done little help to us as clients usually ask for lower offers before we enjoy the preferential power price and profits would not increase. Prices for crude oil and petroleum products rebounded recently. Purchasing price for petrol coke in Xinjiang is at RMB1,550/t ex work with additional RMB400/t of freight. However local prices are cheaper at RMB1,300/t despite poor quality, and the petrol coke in Daqing is priced relatively high for its good quality coupled with high freight cost, so we choose products in Xinjiang and procure the material from traders who allow acceptance but not directly from producers who require cash payment. In this way, we could optimize the capital circulation.

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Asian Metal: What do you think of the outlook of silicon carbide market?

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Lv: I expect that green silicon carbide sales will see no rebound until the end of this year, not because the demand increases along with market recovering, but for that plants in Xinjiang and Sichuan will reduce output further due to cold weather and some market share will be released to ease our sales pressure. Both domestic and overseas photovoltaic market stays sluggish, and the initial results of anti-dumping and anti-subsidy investigation in America have been announced and the appeal in Europe is still in process, coupled with rare domestic demand despite the support policies, hindered of PV enterprises face great difficulties. We discuss with insiders and listen to experts' analysis and most participants expect that the market will rebound in H2 of next year.

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Asian Metal: What measure would you take to get by during weak economic period?

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Lv: Every crisis brings with it opportunities and challenges. Only strengthen inner management and improve qualities and services could allow us to survive in grim market and fierce competition. During reshuffle in hardships, I believed that well-managed enterprises with solid capital could improve better after survival in market competition. With years of experiences and enterprises culture and advanced technology, we will stick on operation and survive in the reshuffle.

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Asian Metal: Thank you so much for accepting the interview and the support to Asian Metal, and wish your company a flourish prospect.

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Lv: Thank you! We express our gratitude and appreciation to numerous clients and corporate organizations that have supported us and we will continue to cooperate in future to get by this financial crisis.

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