Asian Metal: Hello, Ms. Li. Thank you for accepting Asian Metal's interview. Please introduce your company briefly.

Ms. Li.: CSMET Aluminum Alloy New Material (Chongqing) Co., Ltd. was established in May 2015 and has directly supplied aluminum liquid to Refine-Yumei, Yujiang Renhe, Honda, Caixin and other enterprises since March 2016. In order to meet the market demand and enrich the product structure, our company built a new ingot line in February 2019 to provide aluminum ingot business. Since March of the same year, the company provided aluminum ingot to Qingling, Zhicheng, Solimake, Minglida and other enterprises. The total turnover of the company in 2020 was 540 million yuan (85.16 million US dollars), and the sales revenue in 2021 reached 1 billion yuan (158 million US dollars). In 2020, the group's sales volume exceeded 350,000 tons, with sales revenue of about 5 billion yuan (789 million US dollars). In 2021, the group's sales volume exceeded 390,000 tons, with sales revenue of about 7.7 billion yuan (1.21 billion US dollars)

Asian Metal: In the fourth quarter of 2021, the price of secondary aluminum alloy ingot fell sharply. What do you think is the reason for the decline in the price of secondary aluminum alloy?

Ms. Li: There are many factors affecting the price of secondary aluminum alloy ingot. The first reason is the demand, such as the short supply of chip, which led to the decline of automobile output and the slowdown of demand for secondary aluminum alloy. It's supposed to be peak season, but the market was actually quiet. In addition, the price of secondary aluminum alloy is closely related to the market changes of primary aluminum. Since late October, the price of primary aluminum dropped sharply, which depressed the price of secondary aluminum alloy ingot. When analyzing the price of secondary aluminum, we should not only look at the absolute price change, but also look at the price difference between secondary aluminum alloy ingot and primary aluminum. In late December, the price of aluminum alloy ingot ADC12 was around RMB20,000/t (USD3,154/t) and that of primary aluminum was around RMB19,000/t (USD2,996/t). The price of secondary aluminum alloy was still higher than that of primary aluminum, and under normal circumstances, the price of secondary aluminum alloy ingot was RMB1,000-1,500/t (USD158-237/t) higher than that of primary aluminum.

Asian Metal: How about the stocking enthusiasm of customers in downstream die casting plants before the Spring Festival this year compared with previous years?

Ms. Li: More than 80% business of our Chongqing plant is direct supply of alloy aluminum liquid, so our customers usually don't hold inventory and we bear customers' stocking pressure. Most consumers purchase aluminum alloy ingot when they use it. Our downstream customers are automobile plants, with long payment period and great capital pressure, and few customers would build large stocks. We usually keep the inventory for sales of half a month. Customers will have a holiday during the Spring Festival, and suppliers will have a longer holiday. Therefore, we need to prepare inventory for 15 days more than usual during the Spring Festival. Because the short supply of automotive chip led to a decline in the automobile output, the inventory of aluminum alloy ingot consumers before the Spring Festival this year is 10%-20% less than that in previous years.

Asian Metal: By the end of the fourth quarter of 2021, the aluminum scrap inventory of Chinese secondary aluminum alloy producers decreased to half of the standing inventory. What do you think is the reason for this consequence?

Ms. Li: First, the supply of cast aluminum scrap was insufficient in the fourth quarter, and we couldn't purchase so much aluminum scrap even if we wanted to build stocks. Second, market participants were pessimistic about the trend of aluminum price in the future and worried that aluminum price would drop further, which is also an important factor for low inventory.

Asian Metal: How does your company deal with the current shortage of aluminum scrap supply?

Ms. Li: This problem puzzles the whole secondary aluminum industry. The demand of secondary aluminum industry for aluminum scrap increases significantly. In particular, under the policy of carbon neutrality and peak carbon dioxide emissions, more aluminum processing enterprises compete with our casting aluminum alloy plants for aluminum scrap because using secondary aluminum is to reduce carbon emissions, which aggravates the shortage of aluminum scrap supply. This also puts great pressure on CSMET (Chongqing) and we have to join the battle for resources. First, we broaden the purchase channels of aluminum scrap and buy leftovers from consumers and recycle bins. Second, we expand the purchase varieties of aluminum scrap, improve the pretreatment capacity of aluminum scrap, and make full use of all aluminum scrap. Third, we improve the purchase service level, treat suppliers like customers, and speed up the payment progress. Under normal circumstances, we pay about a week after the products arrive because it is necessary to detect the aluminum scrap, but now we reduce the payment period to 3-5 days.

Asian Metal: The shortage of automotive chip supply led to the decline of the demand for secondary aluminum alloy in die casting plants. At present, some automobile enterprises are still facing the short supply of automotive chip. Will the sales of your company in the first quarter be impacted by the shortage of automotive chip supply?

Ms. Li: The shortage of automotive chip has now become a sore point for the industry, and it has been going on for a year. However, it is hopeful that the shortage of automotive chip supply will ease next year. The fourth quarter of previous years was the peak season for aluminum alloy consumption, because automobile plants would work hard to achieve annual production and sales targets, while the first quarter was the off-season for aluminum alloy consumption. In the fourth quarter of 2021, however, our sales of aluminum alloy fell by 5%-10% compared with the same period last year due to the short supply of automotive chip. However, the market might not be quiet in the first quarter of 2022 because of the demand lag. Therefore, I don't think the shortage of automotive chip supply will have much impact on the sales of secondary aluminum alloy ingot in the first quarter.

Asian Metal: Beijing Olympic Winter Games will be held in February, 2022, and enterprises around Beijing, Tianjin and Hebei will reduce or limit production due to environmental protection policies. Will the Olympic Winter Games impact the production and marketing of secondary aluminum alloy in Southwest China?

Ms. Li: The Olympic Winter Games is a national event. If necessary, our company will fully cooperate with the government. From the current industrial distribution of secondary aluminum alloy, if secondary aluminum enterprises and downstream die-casting enterprises in Beijing-Tianjin-Hebei region are impacted, the demand will be transferred to other regions and Southwest China may undertake some orders. However, the supply and demand of secondary aluminum alloy in Beijing-Tianjin-Hebei region are relatively small in China, accounting for less than 15% of the market share, so the overall impact is limited. At present, enterprises in the southwest region have not received the news that they should stop or reduce production during the Olympic Winter Games.

Asian Metal: Stimulated by the national policy of promoting circular economy, more and more primary aluminum producers begin to set foot in the secondary aluminum industry. Facing fierce industry competition, what is the future development direction of your company, and are there any new projects?

Ms. Li: This phenomenon is indeed on the rise. My point of view is that primary aluminum and secondary aluminum belong to two industries with completely different management ideas. Secondary aluminum is a low-carbon industry with low energy consumption, but without the production and consumption of primary aluminum as the basis, there will be no development of secondary aluminum. Secondary aluminum belongs to a mature downstream segment industry with fierce competition. At present, the government classifies secondary aluminum into aluminum smelting industry, which makes the approval of new projects face more policy restrictions. Our group also encounters similar problems in the development process of new projects. Our goal is to act as a leader in the application of low-carbon aluminum alloy and a practitioner of the low-carbon industry, directly providing aluminum liquid to reduce the carbon emissions of downstream users. The new projects are currently under further planning.

Asian Metal: Thank you very much for accepting this interview. Wish CSMET Aluminum Alloy New Material (Chongqing) Co., Ltd. a booming business.

Ms. Li: I am also very grateful to Asian Metal for providing us with a platform for secondary aluminum alloy enterprises to communicate with each other. I hope Asian Metal will continue to provide us with more accurate industry information.