Asian Metal: Good day, Mr. Yang! Thank you very much for the chance of exchanging market opinions with you. Could you please recall the indium metal market after the Chinese Spring Festival holiday? What are the differences before and after the holiday?

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Mr. Yang: Both buyers and sellers watched the indium metal market before the Chinese Spring Festival holiday and they hoped to check whether the market became slow. Therefore, the market was quiet and deadlocked before the holiday. However, after the Chinese Spring Festival vacation, Japanese buyers came back to purchase the metal and they may believe that it is meaningless to wait and watch. We learn that major Japanese consumers have signed long-term contracts with some Chinese qualified exporters and that the monthly purchasing volume is as large as five tons. These contracts will be fulfilled from April to September or October, during which time major Japanese consumers will also purchase indium metal in the spot market as complementary purchases to long-term contracts. In short, the market becomes active after the Chinese Spring Festival holiday while it was quiet before it.

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Asian Metal: The indium metal market is active every March and April. Do you think the market will remain active this March and April?

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Mr. Yang: The indium metal market is usually active from March to May and this year will not be an exception. European participants may advance their purchases of indium metal before their fiscal years, that is, before August, so the span of activeness in the indium metal market may last until the summer or even longer.

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Asian Metal: As for the supplying situation in China, do you think the supplying quantity will increase when the price keeps going up? Many small-sized private-owned indium smelters halted in 2008 and 2009, since they cannot meet the environmental protection standards. Will they restart production this year, attempted by the profits?

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Mr. Yang: Major state-owned indium smelters may sell some of their inventories at around USD650/kg, while some domestic investors may sell at around RMB4,000/kg (equivalent to USD616/kg, including the export duty). In this respect, when the price goes up, the available volume of indium metal will absolutely increase. There are slim chances for those smelters which stopped production to resume production, since the Chinese government attaches great importance to the environmental protection. The outputs in China rose to around 500-600t five or six years ago when the price soared. However, it will not take place again that the outputs in China will increase sharply in accordance with the price rise. Some private-owned indium smelters moved their plants from Zhuzhou to Yueyang and then Changsha, but finally stopped production due to severe environmental protection policies in Hunan Province. Local governments in Yunnan, Jiangxi and Guangxi provinces also pay attention to control the indium production. In this context, it is impossible for these small-sized indium smelters to resume production.

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Asian Metal: Japanese buyers reduced the purchasing volume of indium from China in 2008 and 2009 and it resulted in Chinese smelters’ holding large volumes of indium metal. Do you think these stocks will exert negative influences on the price increase? According to your estimation, how many tons of indium ingots are there in the spot market?

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Mr. Yang: It cannot be ignored that there are certain quantities of indium stocks in Chinese market. It is difficult to estimate the volume of indium stocks. Some participants believe that there are 300t of indium metal stocks in the market, and some hold that the quantity is 400t or 500t, but we estimate that it should be around 300-400t. The indium stock cannot depress the price rise so far and it will not reverse the bullish market. There are three reasons for the above conclusion. Firstly, the indium inventories are held by major producers and investors. We learn that major Chinese indium producers will not sell their inventories below RMB4,000/kg (equivalent to USD616/kg, including the export duty) and that they will not empty their stocks when the price goes up to above USD650/kg. Moreover, investors hold high expectations for the indium price. One Chinese investor plans to hold 50t of indium metal on hand and states that he will not sell the material below the price of RMB10,000/kg (equivalent to USD1,540/kg, including the export duty), which reflects the price anticipation of most investors. Secondly, demand for indium metal will increase sharply this year and the stocks will be absorbed in the market. Thirdly, the central and provincial governments in China show interests in reserving indium metal and the stocks will be reduced. Therefore, the indium stocks will influence the price rise, albeit not greatly.

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Asian Metal: Do you think demand for indium metal will increase in 2010 compared with 2010?

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Mr. Yang: As for demand for primary indium metal in Japan, it is expected to reach above 200t in 2010, up by at least 100% from 2009. There are two reasons for the increase. Firstly, major ITO producers have low primary indium inventories, since over 50% of their demand for the material in 2009 came from the inventories. Secondly, primary indium output in Dowa will decrease in 2010, due to the low indium content from Australian zinc ore. Moreover, some non-ITO producers start to sign long-term contracts with Chinese suppliers. As for the demand in South Korea, Samsung Corning usually holds small quantities of inventories and when LCD panel producers increase their demand for ITO targets, Samsung Corning will increase the purchasing volume of indium metal. It is estimated that the import volume in South Korea will increase by 20% from 2009 to 2010. In European and American markets, some indium producers are pressed to reduce their outputs due to the raw material supply problems. In order to satisfy demand from old customers, these indium producers will purchase the metal from other regions. In this case, demand for indium metal is expected to rise by at least 20%. In 2009, the price of indium metal fluctuated in the range of USD250-550/kg. If the market is optimistically viewed, the price will fluctuate from USD500kg to USD700/kg in 2010, and if pessimistically viewed, it will move in the range of UDF450-650/kg.

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Asian Metal: Japanese government considers indium metal to be an important strategic metal and thus reserved the metal in 2009. Chinese government also pays attention to the protection of indium metal, will the government stock it in the near term?

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Mr. Yang: I consulted some quasi-government bodies in terms of the reserving of indium metal and got that the government will stock indium metal this year and the quantity will be even larger than last time. We put it in this way that the government will reserve larger volumes of indium metal, if the price goes down again to around RMB2,000/kg (equivalent to USD308/kg, including the export duty). However, if the price continues to rise, the central government may not buy the metal.

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Asian Mteal: Nanjing Foreign Economic & Trade Development Corporation is also a major germanium exporter in China. How does the market move since late February?

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Mr. Yang: Germanium market is quiet as compared with indium market and indium metal is called “metal star”. Germanium price moves relatively stably. When other metals prices continue to rise, germanium price does not rise, and when others go down, it does not decline.

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Asian Metal: Foreign consumers purchased germanium metal hand to mouth in the spot market and refused to hold stocks in 2009, while they had bought germanium metal through long-term contracts before the global economic crisis and the purchasing quantity was around 500-1000kg per batch. Why do foreign consumers change their purchasing pattern? Do you think they will resume the long-term contract purchases in 2010?

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Mr. Yang: We got orders of 600-800kg per month before 2008 and consumers in Europe and America usually purchased the material in consecutive months. However, from 2009, consumers stopped placing long-term contracts and they are unlikely to resume the purchasing pattern in the near term. The global economic recession hurt demand from downstream consumers greatly in 2008 and they might have not expected that the crisis was so severe. After the outbreak of the recession, consumers continued to carry out the germanium metal purchase contracts, while their product deals were either delay or cancelled and their product prices decreased, so consumers piled up large volumes of germanium metal, the raw material, and their confidence for the market was hurt. Foreign consumers are unlikely to resume their long-term contract purchases in the near term, unless they hold that the current prices have bottomed out and the market will rise. Producers reveal that the current prices are close to the production costs and refuse to lower their prices further, but foreign consumers are still inactive in purchasing the raw material and we have not got large orders yet.

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Asian Metal: Many foreign buyers believe that germanium supply in China will increase after the projects in Xilingol, Inner Mongolia province, come on stream. Do you think the supply in China will increase sharply in the first half of 2010?

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Mr. Yang: After studying the supply situation in Xilingol and communicating with other participants in the germanium industry, we conclude that the actual output in Inner Mongolia is not as large as it is reported. The supply of germanium in the area has remained stable, around 15-20tpy in the recent years and the popularization of germanium projects is over-boasted and their production will be affected by cold weather and high production costs. The coal in Inner Mongolia is open-pit mined and producers can operate normally only for half a year due to the weather. Besides, germanium production costs in Inner Mongolia are higher than other regions, because Xilingol-based manufacturers have to install the generation equipments for heat and electricity while producing germanium metal, in accordance with the environmental and resource protection provisions in the local area. It leads to another issue of whether the residents will accept the heat and electricity prices. Currently, new germanium projects in Inner Mongolia are dragged by the capital and circulatory equipment installation problems and may not be able to start operation within the year. Some participants believe that these producers take advantage of the high-tech products, such as germanium crystalline and germanium wafers, in popularizing their projects to raise funds. Therefore, germanium supply in China will not increase in 2010 and the annual output of germanium metal in Inner Mongolia will remain the same as previous years and even if it rises, it will be around 20-odd tons. We do not believe there is oversupply in the germanium market.

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Asian Metal: With the recovery in the global economy, how do you think germanium market goes in the coming weeks?

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Mr. Yang: Germanium market is expected to move quietly in the coming weeks, but it will improve in May. Since last October, germanium metal market has remained weak, but producers did not lower their prices to attract orders, from which we come to a conclusion that there is limit room for germanium market to decrease further. Demand for germanium metal from downstream consumers, especially from optical fiber ones, will continue to increase and some consumers will purchase germanium metal in May.

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Asian Metal: The rumor has it that Chinese central government will reserve germanium metal. Do you hear about it?

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Mr. Yang: The central government may reserve germanium, but it does not pay as much attention to germanium as to indium. The provincial government may support germanium producers by giving low interest loans as a means of reserving and this kind of policy will continue.

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Asian Metal: IPO application of Yunnan Lincang Xinyuan Germanium has succeeded and Nanjing Germanium also prepares to go public. What kind of influences do you think the above events exert to the market?

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Mr. Yang: Lincang Xinyuan will be listed soon and there are great chances for Nanjing Germanium to go public in the second half of this year, which is good news to the market. Firstly, the two major germanium producers will integrate small germanium resources, which will end small suppliers’ lowering prices once and again so as to attracts orders. Secondly, they may reserve germanium metal after being listed, which will help the market stabilize. Thirdly, they will develop deep-processed germanium products and demand for germanium metal in Chinese market will increase.