Executive Interviews

Asian Metal: Welcome, Mr. Sun, for accepting our interview invitation. First, could you please introduce the company's core business?

Mr. Sun: Donghe New Materials is a high-tech enterprise focused on the comprehensive utilization of magnesite resources, integrating magnesite flotation, magnesia smelting, shaped and unshaped refractory manufacturing, and overall contracting for steel plant refractories, with magnesium-based functional materials as our main products. Our principal business includes R&D, production, and sales of magnesium-based functional materials. Our main products include magnesite ore, fused magnesia, caustic calcined magnesia, high-purity magnesia, magnesium carbonate, shaped and unshaped refractory products, etc.

At present, our annual production capacities for key products are: magnesite mining 800,000 tonnes, magnesite flotation concentrate powder 800,000 tonnes, caustic calcined magnesia 400,000 tonnes, high-purity sintered magnesia 200,000 tonnes, fused magnesia 120,000 tonnes, and unburned bricks and unshaped refractories 50,000 tonnes. Through business model and technological innovation, we have developed a circular economy model that differs from conventional industry practices. In 2012, we built the first magnesite flotation production line, and our "Demonstration Project for Efficient Comprehensive Utilization of Low-Grade Magnesite" was recognized by the Ministry of Industry and Information Technology in 2015 as one of the first batch of 34 tailings comprehensive utilization projects. In 2018, we took the lead in building and putting into operation advanced domestic rotary dynamic flash calcining equipment and processes. This innovation revolutionized the production of caustic calcined powder while converting flotation tailings, previously discarded as waste, into economically valuable tailings-based light-burned powder for flue gas desulfurization and denitrification, expanding application areas and initially achieving zero tailings discharge. In 2025, our fundraising project – a new low-energy dual-chamber carbonate decomposition furnace for producing caustic calcined magnesia powder – began construction and has now been officially put into operation. This first-of-its-kind project will once again transform the production process, further optimize costs, and bring profit expectations. Since 2020, we have continuously developed magnesium building materials and magnesium chemical products, expanding into new markets beyond refractories. To date, we possess core technologies including tailings flotation, electric furnace design, rotary dynamic flash calcination for high-activity magnesia, waste heat recovery and power generation from fused magnesia production, and safe steel ladle linings. We hold 45 patents, including 8 invention patents. In 2025, the revenue share of our high-value-added product "high-purity caustic calcined magnesia" exceeded 20%, and we expect this share to further expand in 2026.

Asian Metal: In 2025, despite industry-wide market weakness and thinning gross margins, your company achieved operating revenue of approximately RMB 817 million, up nearly 20% year-on-year, and net profit attributable to shareholders increased by over 45%. What were the key drivers of this performance?

Mr. Sun: In 2025, our operating revenue reached RMB 817.19 million, a year-on-year increase of 19.74%; net profit attributable to shareholders was RMB 75.73 million, up 45.30% from the previous year. The main reasons for the growth are as follows: First, fused magnesia products were affected by Liaoning Province's pilot policy of continuous settlement in the spot electricity market, which raised electricity costs and consequently market prices, boosting revenue. Meanwhile, because we held low-cost inventory, the weighted average cost of sales for fused magnesia increased with a lag, leading to higher gross margins. Second, magnesite ore products: In 2024, Liaoning Province implemented magnesite mine rectification, controlling mining and sales volumes, which led to lower sales volumes and higher prices in the same period last year. During 2025, policy controls were adjusted, and our ore sales volume grew year-on-year. Although prices fell, increased mining volumes reduced unit costs, and the gross margin remained stable, achieving dual growth in revenue and profit. Third, during the year, we strengthened application development and R&D, making breakthroughs in product specifications and performance. We precisely entered the field of hydrometallurgical cobalt and nickel precipitation using magnesia, expanding our market with differentiated products, securing new orders, and gaining market share, thereby contributing to revenue and net profit growth.

Asian Metal: What is your outlook for magnesia market prices in the second half of 2026?

Mr. Sun: Considering the four key variables – magnesite resource control, energy cost structures, structural changes in the downstream steel industry, and industry capacity policies – we anticipate that the magnesia market will show structural differentiation, a rising floor, and a weak upward cycle. We do not expect a sharp surge or deep plunge; different product categories will exhibit significant divergences. Sintered magnesia: Domestic crude steel output continues its slight decline, and traditional long steel and construction steel capacity continues to shrink. Sintered magnesia supply and demand will remain loose, with prices fluctuating weakly throughout the year. In the fourth quarter, annual centralized maintenance and restocking by steel mills, combined with strict control over magnesite mining in Liaoning and elimination of outdated kilns, may bring modest price recovery. The annual trading range will be narrow, with significant profit pressure. We expect high-purity magnesia prices to remain at around RMB2,200-2,400/mt. High-purity fused magnesia: Supported by strong cost fundamentals, prices will fluctuate upward. Electricity accounts for 55%-65% of production costs for fused magnesia. Green power adoption and peak-valley electricity usage have become industry standards, but traditional thermal power prices remain rigid, and environmental compliance costs continue to rise, providing a solid price floor. On the one hand, large steel mills are extending blast furnace life and implementing ultra-low emission upgrades, steadily increasing demand for high-purity magnesia in key converter and EAF areas. On the other hand, domestic high-grade magnesite ore resources are tightening year by year, coupled with export growth driven by new steel capacity in India and Southeast Asia. High-purity fused magnesia will be the most resilient category in 2026, with prices steadily rising. We expect fused magnesia prices to stay at around RMB3,600-3,800/mt, and large-crystal fused magnesia at around RMB4,600-4,800/mt. Caustic calcined magnesia: Supply and demand will move toward balance, with prices returning to a reasonable range. Old high-energy-consuming reverberatory kilns will be fully phased out, and new kilns will gradually come online to release compliant capacity. The earlier supply gap will be filled, and prices will fall from their highs to stabilize near cost levels, with narrower fluctuations.

Asian Metal: The steel industry faces increasing demand polarization. What strategies will the company adopt to balance high costs with low demand?

Mr. Sun: The steel industry has clearly segmented: large state-owned steel mills are upgrading quality and procuring high-quality long-life refractories; small and medium private mills are cutting production and cost, preferring low-cost raw materials; EAF short-process steel mills are expanding rapidly; and export-oriented steel producers are driving magnesia export demand. Our company will address demand polarization through tiered customer management, a matched product matrix, and dual domestic and international market circulation. (1) Refined customer segmentation to precisely match differentiated needs. We will develop large-crystal fused magnesia and high-purity, high-density sintered magnesia, offering solutions based on "optimal overall refractory cost per tonne of steel" rather than simply competing on unit price. We will optimize beneficiation processes, increase utilization of low-grade magnesite flotation, control production costs, maintain domestic market share, and avoid low-price vicious competition. In overseas growth markets, we will focus on new steel plant projects in India, the Middle East, Southeast Asia, and Russia, leveraging our supply chain advantages in magnesia exports, setting up regional overseas sales offices to offset domestic steel demand declines, and increasing the overseas market share year by year. (2) Optimize product mix, increase the proportion of high-value-added high-purity caustic calcined magnesia, shifting from "selling raw materials" to "providing integrated solutions" to improve overall gross margins. We will develop incremental markets beyond steel, such as non-ferrous metal smelting, magnesium-based building materials, and magnesium-based soil conditioners, to hedge against steel industry cyclical risks. (3) Core measures to balance high production costs with low downstream demand. The key industry contradiction is that rigid energy, mining, and environmental costs continue to rise while downstream customers aggressively push for price cuts. We will address this through upstream cost control, low-carbon technology upgrades, and inventory management. First, lock in upstream resources to stabilize raw material costs. We will deepen our smart mine construction, using AI-driven mining and pre-concentration flotation to utilize low-grade magnesite, reduce dependence on purchased high-grade ore, and increase ore self-sufficiency. We will build a strategic raw material reserve, stockpiling ore at low points in the cycle to avoid annual price hikes and smooth cost fluctuations. Second, revolutionize our energy structure to tackle the biggest cost pain point (electricity). Electricity accounts for 60% of fused magnesia costs, making it the key breakthrough for cost reduction. We will accelerate our integrated source-grid-load-storage green power project, replacing thermal power with low-cost green electricity, which is expected to reduce unit electricity costs by 20-30%, while generating carbon asset returns and avoiding carbon tariff costs, building a long-term cost advantage. At the same time, we will upgrade old electric furnaces and sintering kilns with intelligent energy-saving retrofits, reducing energy consumption per furnace and improving output efficiency. Third, through lean production, digital management, flexible scheduling, and dynamic inventory, we will compress full-process operating costs and avoid losses from supply-demand mismatches. By implementing smart manufacturing management systems, we will strictly control auxiliary material losses, labor, logistics, and environmental compliance expenses, eliminating waste and reducing unit manufacturing costs to industry lows. We will flexibly adjust operating rates according to downstream order activity, proactively cut production during demand off-seasons to support prices and avoid forced discounting of excess inventory, and prepare stock in peak seasons to ensure delivery, balancing production and sales. We will establish a price warning mechanism, linking steel mill operating data, ore prices, and electricity price indices to dynamically adjust product quotes, ensuring we neither lose orders nor passively bear losses from cost inversion. Finally, we will stay informed about national support policies, actively apply for high-tech enterprise status, energy-saving retrofitting subsidies, and green manufacturing special funds, benefiting from tax relief and technology upgrade subsidies to reduce financial and tax costs.

Asian Metal: Liaoning is strictly enforcing capacity replacement in the magnesia industry. Your company has participated in capacity replacement for several new caustic calcined magnesia projects and acquired new capacity quotas through asset auctions. What specific impacts will this have on your capacity structure and cost competitiveness?

Mr. Sun: Liaoning currently implements reduced-capacity replacement, strictly caps total provincial magnesia production capacity, eliminates old reverberatory kilns, and enforces a rigid "six-certificate" access policy. The industry has effectively locked out new capacity additions; all new or expansion projects must rely on replacement quotas from eliminated obsolete capacity, making these quotas a scarce and hard production license. (1) Certain optimization of capacity structure (long-term barrier). First, capacity quality upgrade: Old reverberatory kilns have high specific consumption, unstable product activity, and fail environmental standards. Our new rotary dynamic flash sintering kilns and D-D type light-burning kilns reduce energy consumption by 25-30%, greatly improve the activity and purity consistency of caustic calcined magnesia, enabling entry into high-margin segments such as high-end building materials, fine chemicals, and high-grade refractory auxiliaries. Second, compliance and quantity locking: Under the total capacity ceilings set by Anshan, Yingkou, and other municipal authorities, replacement quotas are non-renewable, effectively locking in the maximum production scale for the next ten years and avoiding future bottlenecks when no quotas are available for expansion. Third, a graded capacity matrix will be formed, enhancing resilience to cycles. We can later leverage our light-burned quotas, following policy rules, to swap for dead-burned or medium-grade magnesia capacity, achieving a full product portfolio without repeatedly bidding for quotas. Fourth, industry consolidation dividends – seizing regional quota shares. SMEs, lacking funds to bid for expensive quotas or invest in new environmental retrofits, will be forced to shut down, accelerating capacity concentration toward leading enterprises. In the future, regional raw material procurement, order allocation, and mining quotas will favor compliant large-scale capacity producers (Liaoning's magnesite mining quotas are allocated by capacity scale). Fifth, asset compliance eliminates policy-related shutdown risks. Liaoning's magnesite rectification has achieved a "six-certificate" joint review (filing, environmental impact assessment, environmental acceptance, pollutant discharge permit, land certificate, energy assessment). Unlicensed or incomplete-capacity facilities may be demolished at any time. Capacity quotas obtained through replacement and bidding are all included in the provincial Department of Industry and Information Technology's public filing list, representing legally valid capacity, avoiding shutdown risks from environmental inspections, dual energy control, and special rectifications, thus ensuring production continuity. Compliant capacity can more easily access bank fixed-asset mortgages, green credit, and local industrial subsidies, unlocking fixed-asset value. (2) Multi-level benefits for cost competitiveness (short-term cost reduction + long-term pricing power). First, hard production cost reductions. Energy costs will be diluted: our new intelligent kilns have much lower coal and electricity consumption per unit than old reverberatory kilns, combined with continuous large-scale production, reducing energy costs per tonne by over 10%. Additionally, raw material utilization improves, reducing ore procurement costs; new kilns can efficiently use low-grade magnesite, converting previously discarded medium-low grade ores into qualified caustic calcined magnesia, significantly reducing dependence on high-grade ore. Moreover, old kilns require continuous investment in desulfurization, denitrification, and fugitive emission control, incurring high annual environmental operating costs; our new production lines are built to the latest ultra-low emission standards at once, substantially reducing future operation, monitoring, and penalty risks, with environmental marginal costs declining year by year. Second, supply chain and bargaining power enhancement. Liaoning's policy clearly prioritizes mining quotas for integrated mining-beneficiation-processing compliant large-scale producers. With sufficient filed capacity, we can more easily secure stable, low-cost raw ore quotas without being held hostage by small miners. For downstream customers, steel mills, refractory companies, and large building material producers will prioritize long-term contracts with stable, compliant leading suppliers. SMEs with outdated capacity will gradually lose major customer orders, enhancing our bargaining power, payment terms, and pricing conditions. In export competitiveness, compliant green capacity is a prerequisite for major overseas clients; producers unable to pass factory audits due to outdated capacity will be excluded, allowing us to steadily increase export orders and avoid low-price domestic competition.

Asian Metal: Your associated company, Hemagnesium New Energy, is promoting an integrated "source-grid-load-storage" wind power project in Kulun Banner, Inner Mongolia, which has attracted market attention. How will this project coordinate with the 400,000-tonne fused magnesia project, and what is the current construction progress?

Mr. Sun: As a leading enterprise in comprehensive magnesite utilization, we began planning the green transformation of fused magnesia in 2024. In May 2025, we jointly established "Inner Mongolia Hemagnesium Green Materials Technology Co., Ltd." with Liaoning Hezhan Energy Group Co., Ltd. in Kulun Banner, Tongliao City, Inner Mongolia, to build an integrated project with annual production capacity of 400,000 tonnes of fused magnesia and 300 MW of wind power for source-grid-load-storage. The project leverages the region's abundant wind resources to generate green electricity, all of which will be used for fused magnesia production.

The project is constructed in two phases. Phase I – 150 MW wind power and 200,000 tonnes/year fused magnesia – officially broke ground on April 10, 2026, and is expected to enter commissioning by the end of 2026, with production start-up planned for April 2027.

Asian Metal: Your company's magnesia products have entered the hydrometallurgical field, and you have set up subsidiaries to develop the talc industry and new material technology R&D. What are your market expansion plans and target goals in these new business areas?

Mr. Sun: Our overall strategic logic is: leveraging our core magnesite resources, compliant capacity quotas, and green low-carbon production advantages, we will extend our magnesia main business and empower it through a new material R&D platform, breaking free from sole reliance on traditional refractories, entering high-demand upstream new energy sectors, and improving overall gross margins and resilience to cycles. (1) Magnesia entering hydrometallurgy: Domestic substitution in the global nickel-cobalt hydrometallurgy mandatory market. Hydrometallurgy represents our core breakthrough to upgrade magnesia from traditional building materials and refractory auxiliaries to critical industrial consumables for the new energy upstream. Currently, the industry is dominated by overseas high-purity active magnesia, while caustic soda precipitants face a replacement window due to environmental restrictions. Short-term: We will complete product customization and iteration, leveraging our new intelligent caustic calcined magnesia production line to develop metallurgical-grade high-activity high-purity magnesia, tailored for HPAL high-pressure acid leaching of laterite nickel ore for nickel precipitation and copper-cobalt ore in DRC for cobalt precipitation. We will complete on-site pilot tests, solving the problems of difficult disposal of caustic soda waste liquids and excessive impurities in lime milk. Concurrently, we will focus on key customer circles, targeting domestic nickel-cobalt smelting leaders such as GEM, Huayou Cobalt, and Tsingshan Group that are expanding overseas, entering their supplier lists through sample testing and cost-comparison proposals. Overseas, we will focus on the Chinese-invested smelting parks in Indonesia (global core laterite nickel production area) and the copper-cobalt mining areas in the DRC, leveraging Liaoning's port and shipping advantages to build a Northeast Asian magnesia export hub. Medium-term (1-3 years): Secure long-term contracts and build a dedicated metallurgical magnesia production line. Using existing capacity replacement quotas, we will plan a dedicated intelligent high-purity magnesia production line to ensure continuous and stable supply to nickel-cobalt companies, avoiding capacity being consumed by regular orders. We also plan to set up a warehousing hub in Indonesia to shorten delivery times and deeply align with MHP (nickel intermediate) capacity expansion projects. Currently, Indonesia's planned long-term MHP capacity corresponds to over 700,000 tonnes of magnesia demand, providing ample substitution opportunities. In addition, we will consider participating in the formulation of industry standards for hydrometallurgical precipitants to solidify our technical influence. Long-term (3-5 years): Horizontally expand across all hydrometallurgy categories, from nickel-cobalt precipitation to lithium extraction, manganese purification, and rare earth leaching neutralizers, becoming a comprehensive supplier of hydrometallurgical mineral processing aids. (2) Our new material technology R&D subsidiary serves as a technology platform for our main business, building long-term barriers. This subsidiary is not an independent production unit but an R&D incubator, process optimization center, and industry-university-research collaboration platform for magnesium-based new materials, continuously empowering our core business. The R&D company will establish joint laboratories with materials science departments of Northeast universities (Shenyang University of Technology, Dalian University of Technology, Liaoning University of Science and Technology), undertake provincial "open competition" science and technology projects, apply for "specialized and sophisticated" and high-tech enterprise certifications, and secure local industrial subsidies. We will adopt a three-step model: "R&D pilot → internal industrialization → external technology export." Mature technologies will be preferentially introduced into our own magnesia production lines to upgrade products; surplus technologies can be licensed externally, and customized formula R&D can generate technical service revenue. (3) Our five-year overall goals. Business structure: Revenue share of traditional refractory products to be reduced to within 50%, with hydrometallurgical magnesia and high-end magnesium chemical new materials together contributing over half of total revenue and excess profits.

Industry position: To become the only integrated magnesite resource comprehensive utilization enterprise in Northeast China, transforming from a raw material supplier to a customized functional materials solution provider. Risk resilience: Break free from the steel industry cycle, deeply bind to new energy's long-term growth trajectory, and smooth out industry volatility.

Asian Metal: Thank you again, Mr. Sun, for accepting this interview. We wish your company even greater success in the new year.

Mr. Sun: Thank you, Asian Metal.