SMM News: magnesium alloy, known as "the most potential green engineering material in the 21st century", is on the rise under the wave of automobile lightweight, especially as a key link in solving the bottleneck of the overall promotion of new energy vehicles, superimposed the 3C market restart under the arrival of 5G, magnesium alloy is the most promising variety of new materials, just like the lithium cobalt material crazy that shocked the whole market a few years ago.
Under this background, as the domestic magnesium alloy new material leader, especially has the high-end rare earth magnesium alloy patent monopoly dilute magnesium technology (00601), is carrying on the overall expansion of the industrial chain after completing the internal business integration, or in the near future, it will stand firmly in the center of the tuyere.
The outbreak of market demand is certain
Magnesium alloy is the lightest metal structural material in industrial application so far because of its light weight, corrosion resistance, shock absorption, impact resistance, good mechanical properties, processing performance, electromagnetic wave shielding and regeneration. At present, 70% of the products are consumed in the field of transportation, and the dependence on magnesium alloy materials in the automobile field is increasing greatly.
The determination of the lightweight trend of automobile will lead to the continuous increase of magnesium alloy demand. Zhitong Finance and Economics APP learned that due to the increasing pressure of global environmental protection, countries and regions have set strict standards for gas emission reduction and fuel consumption reduction. China's automobile gas emissions are planned to be reduced to 5L to 100km by 2020, and fuel consumption reduction target is the highest in the world, and automobile lightweight is the ideal way to save fuel and reduce fuel consumption.
The study shows that about 70% of the fuel used in the no-load vehicle is consumed by the self-weight of the car, and the fuel efficiency can be increased by 6% to 8% for every 10% reduction in the weight of the whole vehicle. Especially for new energy vehicles, mileage is the main bottleneck restricting their promotion. If the weight of electric vehicles can be reduced to 10%, the average endurance can be increased by 5% to 8%. Therefore, magnesium alloy materials will be an important part of the overall promotion of new energy. According to the data, magnesium demand grew by 7.7% in 2018, second only to cobalt and lithium brought by new energy vehicles.
At present, the trend of increasing the amount of magnesium used in bicycles has been determined, and there is still a lot of room for growth in the future. Zhitong Finance APP learned that in the past three years, whether in China, North America, Japan or Europe, the amount of magnesium used in bicycles has been increasing, and in 2018, the amount of magnesium used in bicycles in China was only 2 kg, less than half of that in North America, and the gap between China and other countries is even greater. According to the automobile technology roadmap, the specific target of magnesium consumption for bicycles is to reach 15 kg by 2020, 25 kg by 2025 and 45 kg by 2030. It is believed that the amount of magnesium used in bicycles is expected to increase rapidly in the future with the upgrading of material technology.
In addition, the second largest application market, 3C, which accounts for 20% of magnesium alloy products, will also usher in an iterative period of renewal under the promotion of 5G technology, when the growth of magnesium alloy demand can add a big boost. Overall, the outbreak of the magnesium alloy market may not take long, the current industry leader in rare magnesium technology, traceable value is very sufficient.
Steady and high growth of rare magnesium
The industry leader rare magnesium science and technology business finishing, the current performance is in a stable high growth trend. Zhitong Financial APP learned that after light magnesium technology acquired the metal magnesium business from Century Sunshine (00509) in 2017 and sold all its electronic business in 2018, it is already a new material high-tech enterprise focusing on rare earth magnesium alloys, among which high-end rare earth magnesium alloys have a patent monopoly.
According to the data, the company's magnesium alloy business revenue reached HK $1.538 billion (the same unit below) in 2018, an increase of 33% over the same period last year, gross profit increased by 35% to 409 million yuan, and the net profit attributable to shareholders increased by 70% to 286 million yuan year-on-year. After excluding the expenses and income from the sale of business in 2018, the profit growth of the company's magnesium alloy business remained steady.
Among them, the high-end rare earth magnesium alloy products supported by high-tech barriers have the brightest growth. Zhitong Finance APP learned that high-end rare earth magnesium alloy is the company's leading products, the company has as many as 22 technical patents, of which a number of patented products are used in Shenzhou spacecraft and technology and military products, two are internationally certified, registered in the United States, the company's leading products in the domestic competitors, rare earth application technology advantages ahead of their peers.
The company's rare earth magnesium alloy sold for 43991 yuan per ton in 2018, with a gross profit margin of 45 percent, up 2.5 percentage points from 2017 and well above the unit price of 17643 yuan per ton and a gross profit margin of 10.8 percent for basic magnesium products, according to the data. At the same time, demand for high-end rare earth magnesium alloys has been growing sharply in the near future, with sales of rare earth magnesium alloys reaching 17145 tons in 2018, up 23.51 percent from a year earlier, up nearly 18 percentage points from the 5.4 per cent year-on-year increase in 2017.
Looking forward to the future, the demand growth of magnesium alloy products brought about by automobile lightweight will be more inclined to high-end materials with better material properties, so the company's high profit margin rare earth magnesium alloy products are expected to maintain steady growth in the future. The company's net profit margin has room for further improvement.
At the same time, the capacity expansion and upstream extension of dilute magnesium technology will continue to enhance the profitability of the company.
There is plenty of room for profit growth, and the future can be expected.
The current situation of magnesium industry is that supply falls short of demand, which will be maintained in the future. Zhitong Finance and Economics APP learned that in 2018, with the in-depth progress of pollution prevention and control, some magnesium smelting enterprises stopped production because of environmental protection transformation. The bao bombing incident of magnesium and aluminum alloy processing enterprise Handing on March 31, 2019 may evolve into a safety inspection of the whole industry of magnesium industry, which will have an adverse impact on the recovery of magnesium waste and the production of raw magnesium. At present, the original magnesium production in China may remain low in 2019, and the trend of supply contraction may continue. According to industry estimates, there will be a global shortage of 73400 tons of raw magnesium in 2019.
At present, the production status of dilute magnesium science and technology is also verifying that the supply of magnesium products is in short supply. From 2016 to 2018, the annual production capacity of the company is 40000 tons, 50000 tons and 68000 tons respectively, and the utilization rate of production capacity is maintained at about 80%. Considering the maintenance plan, the current utilization rate of production capacity is basically in the full load state; the company has also maintained the mode of payment to delivery, which can also reflect the market supply and demand to a certain extent.
Rare magnesium technology capacity expansion continues to advance, as well as upstream extension plans to reduce costs. Zhitong Finance APP learned that the company has obtained government approval in Xinjiang to build an annual production capacity of 100000 tons of metal magnesium and magnesium alloys, and has built a production line with an annual production capacity of 35000 tons. Because Hami area has high quality and low price coal and dolomite raw material mineral resources, and will also promote the construction of supporting ferrosilicon raw materials, ferrosilicon is a necessary raw material for the production of magnesium ingots. The construction has been approved by the government. Therefore, it is expected to continue to increase the size of sales at the same time, but also further significantly expand the profit margin space.
To sum up, in the upcoming outbreak of the industry, magnesium product sector corporate valuation is expected to rise rapidly, and dilute magnesium technology with high-tech barriers, continuous capacity expansion and profit margin space mining, is more expected to achieve high performance growth. Davis double-click thin magnesium technology, there may be a big market waiting for it in the future.
The following is a reply from Zhitong Finance and Economics to Shen Shijie, chairman of rare magnesium Technology, on issues of concern to investors.
Zhitong Finance and Economics: understand that the company to rare earth magnesium alloy products as the main business, can you introduce the current magnesium products market application, space and future demand growth point? Among them, as a new rare earth material, how is the high performance rare earth magnesium alloy different from the basic magnesium products?
Shen Shijie: magnesium alloy has obvious advantages in material properties and casting processing properties because of its low density, light weight, high specific strength and excellent damping performance. Under the new economic and social development trend of green environmental protection, energy saving and emission reduction, magnesium alloy is "the most potential green engineering material in the 21st century", which has become the focus of global application research and development. As early as in the 12th five-year Plan of the New Materials Industry, the Chinese government has listed magnesium alloys as the key development of new light alloy materials. By 2020, magnesium will be the metal variety with the highest average annual growth rate in the 13th five-year Plan for the development of major non-ferrous metals, with an average annual growth rate of 7.1%.
Magnesium alloy has a wide range of applications, and the application of magnesium alloy is not limited by a single industry, so it is an ideal light metal material to replace aluminum alloy. At present, the more representative is mainly used in transportation and 3C products, about 70% in the field of transportation, 20% in 3C electronics and 10% in other fields. Among them, high-speed rail as China's "business card" has made extensive use of magnesium alloy in luggage racks, seat frames and handrails, which will contribute more to the weight loss of high-speed rail in the future. Mercedes-Benz, BMW, Airbus and other transport brands; Samsung, Apple, Leica and other 3C electronic products brands; as well as aerospace, military and biomedical fields have also been widely used magnesium alloys.
In addition, lighter and more efficient magnesium alloys are widely used by major automobile manufacturers in automobile parts. For every 10% weight loss, energy consumption can be reduced by 6% to 8%. It is predicted that by 2020, the number of cars in the world is expected to reach 107 million, and the demand for magnesium according to the target of USAMP will reach 17 million tons, which will be an outbreak in the trend of automobile lightening.
Rare earth magnesium alloy is one of the new materials that are most concerned about and encouraged in the "made in China 2025" government plan. Rare earth elements have special chemical activity. As an important alloyed element, rare earth elements play an important role in the fields of metallurgy and materials. for example, purifying alloy melt, refining alloy structure, greatly improving and strengthening the mechanical properties and corrosion resistance of the original alloy and casting and other comprehensive properties.
The company uses its own patented technology to add appropriate amount of rare earth elements on the basis of the original magnesium alloy brand so that the tensile strength yield strength and elongation of the original alloy are significantly improved which is much better than that of ordinary magnesium alloy.
The high performance rare earth magnesium alloys and their related patents owned by the Group cover the preparation and process technology of intermediate alloys and applied alloys, which can not only further increase the application of magnesium alloy materials in aviation, aerospace, automotive industry, communication electronics and other fields, but also promote the further development and utilization of magnesium alloy materials in new fields. In fact, most of the demand increment space of magnesium alloy in the future is mainly biased towards high-end magnesium alloy materials, which is in line with the company's strategy of adding high-end materials.
Zhitong Finance and Economics: can you specifically introduce the company's technical patents in rare earth magnesium alloys?
Shen Shijie: we have 22 patents on production processes and preparation methods, including master alloys and applied alloys, many of which are used in Shenzhou spacecraft, science and technology and military products. We have a leading advantage in the research and development of high-performance rare earth magnesium alloy products.
The guarantee of continued leadership in patented technology is our long-term strategic cooperation with Changchun Yinghua, Chinese Academy of Sciences. At present, Academician Zhang Hongjie of the Chinese Academy of Sciences is the chief scientist of the Group. At the same time, he is also the deputy chief scientist of the national rare earth functional materials basic research project, the director of the state key laboratory for the utilization of rare earth resources and the director of the rare earth luminous professional committee of the rare earth society. In addition, Professor Meng Jian of the National rare Earth Research Center serves as a director of the Group. Professor Meng is also a director of the China Nonferrous Metals Society of the rare Earth Society of China and an expert of the China magnesium Association, and has made outstanding contributions to the development and application of rare earth magnesium alloys in China.
With our professional R & D team, strong technical strength and continuous innovation ability, we exclusively produce and sell high-performance rare earth magnesium alloy products with patented technology, and there are no competitors for similar products in the market.
Zhitong Finance and Economics: what is the proportion of basic magnesium products and rare earth magnesium products? What is the corresponding market position and competitive environment? Is there a plan to adjust the proportion of the product structure in the future?
Shen Shijie: we have been taking the differentiated sales strategy as the market position, focusing on the research and development, production and sales of high-margin rare earth magnesium alloy products. The company currently accounts for about 35% of rare earth magnesium alloy products based on production and sales volume, and more than 55% in terms of revenue.
As the basic magnesium products manufacturers are mainly concentrated in Shaanxi and Shanxi, most of the production scale is small, the main competitors are not many. The company in the market that is relatively close to us is 002182.SZ, which mainly produces magnesium ingots and ordinary magnesium alloy products, while we exclusively produce and sell high-performance rare earth magnesium alloy products with patented technology, and there are no competitors for similar products in the market.
Rare earth magnesium products as our exclusive advantage products, we will continue to optimize the proportion of production and marketing of rare earth magnesium products while maintaining steady sales growth, give full play to the technical advantages ahead of our peers, and continue to create profits for the company.
Zhitong Finance and Economics: with regard to the Xinjiang Hami production base mentioned by the company, can you tell me about the specific contribution of the base to the operation and production of the company in the future?
Shen Shijie: the company's Xinjiang production base is located in Hami City, Dongmen, Xinjiang. It is a strategic town of Belt and Road Initiative in China. Due to the rich products in Hami area, the high quality and cheap coal and dolomite mineral resources provide good conditions and power for the Group to further develop the magnesium industry.
Xinjiang production base has been approved by the government to produce 100000 tons of metal magnesium and magnesium alloys per year, and the annual production capacity of the production line has been built to 35000 tons. The Group will make full use of the resource and location advantages of Hami area, speed up the pace of project construction and industrial optimization, and promote the construction of subsequent magnesium and magnesium alloy production capacity and supporting ferrosilicon projects, so as to form a comprehensive development model of circular economy for the production of carbon, ferrosilicon and magnesium products.
The new vertical tank reduction magnesium smelting technology is adopted in Xinjiang production base, which is the most advanced technology in magnesium industry so far, which realizes the development of mechanization, automation and humanized production of magnesium smelting process, and not only optimizes the process, but also saves energy and reduces consumption. further improve cost-effectiveness. And continue to be driven by technological innovation and innovation, the accumulation of high-quality development of new momentum, enhance the core competitiveness and enterprise value.
Xinjiang production base was recognized as a "high-tech enterprise" by China's National High-tech Enterprise Management leading Group in 2018. At present, the company has leading technological advantages and complete industrial chain, and is in a favorable competitive position in the magnesium industry.
Zhitong Finance and Economics: at present, the increasingly serious situation of environmental protection, does it have an impact on the whole industry? Has the company's production been affected?
Shen Shijie: as the state pays more and more attention to strengthening the protection of the ecological environment in an all-round way, the implementation of environmental protection policies has become stricter. Magnesium smelting enterprises are mostly small private enterprises, due to the lack of environmental protection facilities involved in small enterprises and other reasons, under the pressure of strict investigation of environmental protection is likely to cause some industries to withdraw from production capacity.
As one of the shareholders of the parent company Century Sunshine, IFC (IFC) not only provides financial support for the company's development, but also has strict requirements in the field of production and environmental protection, and has provided a lot of forward-looking suggestions. To promote the company in the overall level of environmental protection has been maintained at a good level, the production base has been equipped with advanced environmental protection equipment to reduce the production of harmful gases and wastes, the plant is mainly used for equipment cooling circulating supplementary water, can be recycled in the production process, up to zero sewage discharge. Therefore, the strict enforcement of environmental protection policies by the state is a good opportunity for companies to integrate the market and increase their market share.
Zhitong Finance and Economics: what is the current sales situation of the company's products? To what extent has capacity utilization been achieved? Are there any plans to expand production in the future?
Shen Shijie: the company's annual production capacity has expanded steadily over the past three years, with an annual capacity of 40000 tons, 50000 tons and 68000 tons in 2016, 2017 and 2018, respectively. basically at full load. We will continue to upgrade the production base, and make full use of the resources and location advantages of Hami region in Xinjiang to speed up the pace of industrial optimization and upgrading and steadily promote the construction of capacity expansion projects.
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