Refwin: Thanks for accepting an interview from Refwin. As one of the leading enterprises and listed companies in China's refractories industry, PRCO Group (or Puyang Refractories) is not only dedicated to technology research and development, but also has set three development goals of “a multinational group”, “annual revenue reaching 10 billion Yuan”, and “among the world’s top three”. Could you please share the reasons for setting these goals and the specific measures to ensure the realization of the goals?
Mr. LIU: First of all, from the perspective of the pattern of the refractories industry in China and the world, China's refractories rank first in the world in terms of the income of raw materials and products, and the output of refractory products accounts for about 2/3 of the world total. As a leading enterprise in China's refractory industry, PRCO Group has the responsibility to lead Chinese refractory companies to the forefront of the world's refractory industry. If you can't find a Chinese company among the top 10 global refractory companies, it means that our work has not been done! Therefore, PRCO sets up the development goal of "a multinational group” and “among the world's top three".
Regarding the goal of "annual revenue reaching 10 billion Yuan", it is the result of our full demonstration. PRCO has three large divisions, i.e. the refractories for steel-making division, with revenue target of 7 billion Yuan; the raw materials division, with the target of 3.5 billion Yuan; the eco-friendly refractories division, with the target being 1 billion Yuan.
Since the establishment of the goals, PRCO Group has been working hard in the direction, on one hand, by successively setting up overseas companies and production sites, to improve its internationalization, and on the other hand, by constant improving the technical level and by continuously expanding sales channels on the basis of cost control, so as to further enhance its market competitiveness and comprehensive strength. In addition, the magnesia carbon brick production line built by PRCO in Qinghai has just been put into operation recently, mainly to meet the market demand in Northwest China and Central Asia, and also to conveniently export to Russia, Ukraine and other countries. Besides high-purity magnesia and large crystalline fused magnesia, PRCO Qinghai also produces electrical grade magnesia, heating element insulation materials, cable fillers, etc., in order to extend the industrial chain of magnesia raw materials.
Refwin: As far as the raw materials division concerned, what other types of refractory raw materials are involved in PRCO Group besides magnesia and tabular alumina? Are there any plans to set foot in other types of refractory materials in the future?
Mr. LIU: In addition to the magnesia production sites in Haicheng of Liaoning, Changdu of Tibet, and Haidong of Qinghai, as well as the tabular alumina production base in Haicheng of Liaoning, the raw materials division of PRCO Group also includes the calcined bauxite production bases in Henan and Shanxi. Considering the alternative functions of tabular alumina, there is currently no plan to acquire other types of alumina-based raw materials. However, the possibility of other types of raw materials is not ruled out, mainly depending on market demand and company development.
Refwin: Compared with Liaoning, China's largest main production base of magnesia, what are the advantages and characteristics of PRCO Group's magnesia-based raw materials in Tibet and Qinghai?
Mr. LIU: PRCO Group in Tibet mainly mines microcrystalline magnesite and makes preliminary processing, and produces high-purity magnesia and large-crystalline fused magnesia in Qinghai. The high-purity magnesia production line in Qinghai is an automated production line with high efficiency and energy saving, with only more than 40 cubic meters of natural gas being consumed under the combustion condition of 2000°C. In terms of performance, compared with other types of magnesia, whether it is seawater magnesia, brine magnesia, or natural magnesia from other regions, PRCO Qinghai's magnesia has remarkable high-temperature performance and production performance! A sampling comparison test showed that the magnesia samples prepared from other sources had deformed and adhered when burned at 1900 ℃, while there is still no deformed and sticky anorexia at 2100℃ for the magnesia samples prepared by PRCO Qinghai, because the content of SiO2 and Fe2O3 is pretty lower in PRCO Qinghai magnesia, which does not contain B or Cl.
Refwin: Since its establishment, PRCO Group has focused on the world market, not only exporting products, but also having successively established subsidiaries or production sites outside China. How does PRCO Group layout its overseas markets? Are there any overseas investment plans in the future?
Mr. LIU: PRCO Group has been focusing on overseas markets. At present, the foreign trade business accounts for 20% of its total sales. On the basis of expanding overseas business, we are also looking for opportunities to invest and build production sites overseas. At present, PRCO Group has sales companies in Russia, Ukraine, South Korea, the United States, Vietnam, and India, and are building production lines in the United States and Serbia. In the future, it is not ruled out that there are plans to continue to invest and build plants in other countries or regions. PRCO Group has been actively seeking some overseas cooperation opportunities as well, which is in line with our development goals.
Refwin: The financial report shows that PRCO’s revenue in the first three quarters of 2021 continues to grow, but net profit is declining. What are the reasons for the decline in profits? Will PRCO's focus on domestic and foreign market expansion be adjusted in the next step?
Mr. LIU: On the one hand, the decline in profit is affected by the environmental factors of the upstream and downstream markets. The prices of raw materials had been declining from January to September last year. When we participated in the bid for the fourth quarter of last year, our customers, peers and ourselves all had expectations of a decline in price trends. However, the price of raw materials rose rapidly in December last year, leading to rising costs; while our contracts were almost long-term ones, and the adjustment of the sales price lagged behind, which reduced the profit margin.
On the other hand, due to the shortage of sea containers and the continuous spread of Covid-19, global shipping rates have skyrocketed, leading to a corresponding increase in our operating costs. For example, for 20 tons of containers exported to the Americas, the ocean freight is more than 2,000 US dollars in normal years, and this year has reached 20,000 US dollars. However, our export quantity this year has increased significantly. As a result, in the first three quarters of this year, PRCO Group paid over 70 million yuan of ocean freight more than that in normal years. Excluding the impact of this part, the profit is close to that of previous years. If there is no lagging effect of cost transfer, our operating quality is improving.
Short-term market changes will not affect the overall development strategy of PRCO Group. Internationalization is our established policy. As the epidemic subsides and world economic development gradually resumes, the shipping market will gradually return to normal, and the increase in costs caused by rising raw material prices will also be transmitted to refractory products. PRCO's overseas market expansion plan will not be adjusted accordingly.
Refwin: The financial report also shows that the overall contracting service is more able to give full play to the technical advantages of PRCO Group. Do you think this is the reason why PRCO Group specially established its kiln engineering subsidiary and why the kiln engineering company perform well?
Mr. LIU: PRCO kiln engineering company was established in 2003, mainly for ease of management and unsafe accidents. PRCO Group has been engaged in project contracting for nearly 20 years. From the initial more than a dozen people to the current 3,000-person team, it has served more than 100 China domestic construction units, including R&D and design, on-site construction, and logistics.
At present, the service function of the kiln engineering company has not yet shown any performance. It is mainly an extension of sales. Many of them are mainly based on the whole package plus labor costs. The hot repair area requires mature technical judgments, so more value expression is needed in terms of technical skills, experience value, etc.
Refwin: PRCO Group has more than 30 years of history. What do you think are the key factors that support the successful development of PRCO?
Mr. LIU: Since its establishment in 1988, PRCO has been focusing on the refractory industry, focusing on technological innovation, and innovation-driven is the cornerstone of PRCO's development! At present, in terms of technological innovation in China's refractory industry, there are still many areas that need to be improved, and we still need to continue to work hard.
PRCO has been committed to the development of new refractory materials and new products, and is a nationally recognized and Henan provincial-level enterprise technology center.
At present, PRCO Group owns a nearly 500-people technical team, and has four R&D centers in China. Among the 4 R&D centers, one is in Puyang of Henan province, which is an applied materials research and development center focusing products currently in production; the second R&D center is a forward-looking research and development center with industry technology established in Beijing Airport Enterprise Park in 2019; the third R&D center, currently under construction in Shanghai, with a planned investment of 150 million yuan, is the R&D center for PRCO’s functional refractories, high-end raw materials, and non-refractory materials (such as electrical grade magnesia, magnesia chemical products, surface additives for acetate fiber, etc.); the forth R&D center in Zhengzhou of Henan province as a shareholding system, mainly involves research on refractory industry common technologies and key technologies. In addition, each branch and subsidiary of PRCO Group has its own R&D team, solving technical problems.
Refwin: In terms of green production and intelligent manufacturing, what efforts has PRCO Group made? What phased results have been achieved? What other plans can be expected?
Mr. LIU: In terms of intelligent manufacturing, PRCO Group made a five-year plan in 2018 to complete the automation, intelligence and information transformation of all production lines from 2019 to 2023. At present, the production lines in Yingkou PRCO, Shanghai Baoming, and the sliding gate production line in Puyang of Henan province have completed the automation transformation. The original investment budget was 300 million yuan, and it is estimated that about 600 million yuan will be invested with the relocation of some production lines.
Green production and intelligent manufacturing are the general trend, coupled with the current situation of difficult recruitment, so PRCO Group will continue to increase investment in this area.
From the perspective of dual-carbon economy, PRCO Group has been doing technical research on the consumption of refractories for per-ton steel in ladle. At present, the consumption of refractories for per-ton steel in ladle is about 3kg. Our goal is 1kg for large steel ladle and less than 2kg for small steel ladle. PRCO Group is also working hard in resource recycling.
In addition, we are also discussing the use of new energy to generate electricity and hydrogen, which can store energy besides self-use. In the future, we do not rule out the possibility of establishing new energy power plants in western China, by taking advantage of the good local light conditions.
Refwin: This time, PRCO Group participated in The 3rd China International Metallurgical Furnace Charge Exposition (CIMFCE 2021) in the form of a specially designed booth. What kind of PRCO image do you want to show?
Mr. LIU: As a leading company in China's refractory industry, PRCO Group wants to show everyone a corporate image that continues to innovate in technology, pays attention to green development, and plays a leading role in intelligent manufacturing.
China's refractory industry needs intelligent and green development. The refractory industry should be an energy-saving and environmentally friendly industry. With the continuous advancement of technology, the proportion of monolithic refractories will become higher and higher. At present, the output of unshaped refractories and unburned products of PRCO Group can account for more than 2/3 of its total output. Low-carbon emissions and circular economy are the general trend and also the responsibility of enterprises.
Refwin: Thank you for accepting the interview with Refwin! We believe that PRCO Group will develop better and better and realize its three major development goals soon!
Mr. LIU: I am also grateful for such a good platform built by Refwin, which has provided help and brought convenience to our refractories companies. I also believe that Refwin will do better and better!