Asian Metal: Mr. Chen, thanks for taking the interview by Asian Metal. Please introduce your business briefly.

Mr. Chen: Hello, Daphne. I’m so glad to accept the exclusive interview from Asian Metal. We have been friends for more than 10 years. I hope we can cooperate more closely in the future. Established in 2002, Tianlong has been in magnesium industry for nearly 20 years. With an annual production capacity of 30,000t of magnesium ingot, we mainly focus on the production of magnesium ingot 99.95%min B and 99.9%min. We mainly aim at downstream titanium sponge, sacrificial anode, aluminum, magnesium alloy and deep processing enterprises in domestic and foreign markets.

Asian Metal: Entering 2021, under the standards of Carbon Neutrality and Emission Peak, environmental inspection and safety supervision becomes more strict, do you also confront such challenges and what measures did you take in related aspects?

Mr. Chen: Yes, under the standards of Carbon Neutrality and Emission Peak, and further enhancement of environmental protection and safety requirements, we confront great pressure. However, from the long-termm perspective and actively cooperating with policy requirements. We invested huge sums of money to upgrade equipment and technique, and worked hard on management, so that our company can adapt to the high standards of policies and the market. As a producer, we have no choice but to focus on continuously strengthening ourselves and adapting to changes in the market. Specifically, in the past three years, we have invested about 80 million yuan in expansion, as well as environmental protection upgrading and transformation. We have successively equipped furnace mouth, ball mills in the ball workshop, feeder nose of ball press machine and other sections which could generate dust with dust collection cover. We have built sheds of steel structure for outdoor coke powder yard, coal surface yard and coal storage yard for gas supply workshop. We also have sealed coke conveyer and machine which could easily cause dust pollution. Besides, in accordance with the three-year action plan for the semi coke industry, a series of environmental protection upgrades and transformations have been carried out, such as coke oven double-chamber and double gates, condensate water tank devices, and new energy-saving cold slag systems, sanitary sewage tanks and other environmental protection facilities have been built. The operating equipment in the ball press workshop was changed to an automated control system. Meanwhile, we installed dust removal facilities in front of the furnace in the reduction workshop and replaced the steam jet pump with a mechanical vacuum pump driven by electricity, etc.

Asian Metal: Currently, insiders pay great attention to the Dual Control System of Total Energy Consumption and Energy Intensity policy on high energy-consuming enterprises, how do you think such policy affect the supply of magnesium ingot? What about your anticipation to the supply change in the coming Q4 of 2021?

Mr. Chen: The Dual Control System of Total Energy Consumption and Energy Intensity policy is a major national policy. As a plant, it is also the time to reflect social responsibility. We need to adjust our mentality, change our thinking pattern, conform to the trend, and actively embrace it, so that we could find a balance between policy and production during this period. On September 13, the Development and Reform Commission of Yulin City, Shaanxi Province issued the "Notice on Ensuring the Target Completion of Dual Control System in 2021". From September to the end of this year, over 80% of Shaanxi factories are requested a 50% reduction in production, and another 20% were under pressure to stop production. After the implementation of this policy, as the main production area accounting nearly 70% of China's supply, the market witnessed severe supply shortage. On September 19, Yulin Electric Power Supply Bureau of Shaanxi province announced that it has requested Fugu county to suspend power supply to the first batch of enterprises that subject to the policy in accordance with actual situation and on the premise of ensuring safety. The bureau asked Fugu to suspend power supply to magnesium ingot plants, and the power shutdown began from 20th September. In addition, all plants in Shenmu county had to reduce their output by 60% since 20th September till the end of the month. During this period, the market supply substantially tightened, and buyers began their panic purchase and upstream ferrosilicon prices rose sharply, so mainstream prices for magnesium ingot increased sharply. Entering Q4, Shaanxi magnesium ingot plants will maintain low operating rates of around 40% to 50% within the scope of energy consumption, so the supply for magnesium ingot would stay tight on the whole. However, after the price surge in late September, prevailing magnesium ingot prices would gradually stabilize or even moderately move down, and most buyers would purchase from hand to mouth according to their consumption situation.

Asian Metal: Supported by the controllable domestic epidemic, do you think the market demand will improve in 2021? If so, which areas will the improvement come from?

Mr. Chen: In the first half of 2021, with the effective control of the domestic epidemic, the downstream production capacities, mainly aluminum plants, were released in an orderly manner and market demand rebounded accordingly. At the same time, the market demand for magnesium alloy and magnesium powder showed signs of recovery. So the magnesium market witnessed a slight increase in demand and decent performance on dealsl on the whole. Entering the second half of this year, under the multiple pressures of ferrosilicon, coal, environmental protection and Dual Control policies, mainstream prices for magnesium ingot rose sharply, plus the supply shortage of automobile chips, consumers expecially from magnesium alloy industry decreased their demand by almost 40%; the demand from sponge titanium industry declined by over 30%. While the demand from aluminum plants and magnesium powder plants stayed flat on the whole.

Asian Metal: In terms of export market, your company is also one of the outstanding factories that directly export to foreign customers. How do you think about the demand in the foreign market in 2021?

Mr. Chen: In terms of foreign demand, we experienced a gloomy market state in 2020. Supported by the controllable epidemic overseas, the demand for magnesium ingot from foreign aluminum factories increased in 2021. We could see from the purchase volume from several major foreign aluminum factories that the demand for magnesium ingots of 2021 has increased by more than 20% YoY. However, due to the price gap between Inc-VAT and Ex-VAT deals, we are still facing tremendous pressure as a plant. During this special period, the export of magnesium ingot will only retain individual high-quality end customers with whom we have been cooperating for many years.

Asian Metal: In 2021, opportunities and challenges coexist for magnesium companies, What do you think are the current challenges? How could magnesium companies follow the trend to seize the opportunities?

Mr. Chen: In view of continuously rising prices for coal and ferrosilicon prices and difficulties in purchasing; Dual Control, environmental protection, safety, national-level integration and elimination policies are the biggest difficulties and challenges presently to us. If we want to survive, we should first comply with the changes in the industry structure in time, then conduct good management on the flow of capital so that we could ensure consitnuous investment on upgrade and improvement. Besides, we should also enhance our management and product quality to maintain high-level competitiveness to ensure market share. Meanwhile, the current huge challenges also brought corresponding opportunities to producers. The price surge for upstream coal, ferrosilicon, environmental pressures and Dual Control policies are also the process of industry reshuffle. Since the beginning of 2021, the price of magnesium ingot has continued rising by nearly RMB50,000/t (USD7,692/t) to RMB63,000/t (USD9,692/t) recently, which hit a historical high level in recent years. As far as companies are concerned, they also have sufficient funds to meet environmental protection requirements and also could match the continuously upward raw materials’ prices.

Asian Metal: Regarding to the historical high price in the recent 13 years, what’s the main reason to support it? How about the sustainability of it in the coming Q4?

Mr. Chen: All the factors we mentioned above, including raw materials, policies, demand, supply and etc., supported the price increase. The factors that support prices are never unilateral. They must be a combination of all aspects of the impact. Reflected in the price, we couldn’t simply attribute it to a certain point. If it is the impact of a certain point, it must be a short-term impact. But the market has been going up on the whole this year, we have to say the biggest reason is that the combination of all factors affected the supply and demand, which caused the high price. From the perspective of sustainability in Q4, various influencing factors have not been eliminated in a short period of time, and there is even an increasingly tight situation. Therefore, the mainstream prices would stay at around RMB48,000-50,000/t (USD7,502-7,815/t) for a while. Though there would be a fluctuation, the prices would still remain at the high level in the past 13 years.

Asian Metal: Entering 2021, due to the continuous price surge, many end customers worry about price fluctuation and contract performance from suppliers. How does your company ensure stable supply for customers and how to find a balance in pricing?

Mr. Chen: 2021 is a changeable year. The price of coal has increased from RMB550/t (USD84/t) in early 2021 to the current RMB1,200/t (USD184/t), and the price of ferrosilicon has soared from RMB7,000/t (USD1,076/t) at the beginning of 2021 to the current RMB20,500/t (USD3,153/t); what’s more, the tightened supply caused by price surge for magnesium ingot to RMB63,000/t (USD9,692/t) on 23 September. It also brought more tests between us and our customers. Therefore, we ought to adapt to market changes and also focus on long-term relationship with our clients. So we have to negotiate more during pricing period but we must try our best to deliver once the orders are signed at certain prices. At present, our company strongly comply with the basic concept of honesty and double-win cooperation, relying on years of honesty accumulation, customers can purchase with confidence from Tianlong Magnesium excluding policy and other force majeure factors!

Asian Metal: Thanks for accepting Asian Metal’s interview. We wish Tianlong Magnesium a more prosperous future in 2021!

Mr. Chen: We thank Asian Metal for this opportunity and especially for the feedback and regularly quality information on the magnesium metal industry. We wish Asian Metal a bright future as well.