1 Surplus capacity and decreasing profit in 2007

With negative impacts from the recession of the color TV picture tube production and the elimination of the export rebate, China's strontium carbonate manufacturing sector suffered from oversupply in 2007. Many domestic producers cut their

operation rates or shifted to producing other chemicals in order to deal with the slack demand, but the price of strontium carbonate still dropped from around RMB4 200 per ton at the beginning of 2007 to around RMB3 200 per ton at the end of the year. As the requirements for saving energy and reducing pollutants get higher and higher, producers have to invest more to save energy and treat pollutants. All kinds of expenses such as the price of raw materials and auxiliary materials, payroll and the cost of treating pollutants are constantly increasing. So heavy costs and declining profits have hit the sector. Hydrogen sulfide-containing flue gas generated from strontium carbonate production can however be recycled and used in the production of sulfur and thiourea. The price of sulfur increased from less than RMB2 000 per ton at the beginning of 2007 to RMB4 000 per ton at the end of the year and the price of thiourea also shot up to RMB12 000 per ton. The profit gained from byproducts can to a certain extent offset for the loss for many strontium carbonate producers.

Strontium carbonate is mainly used in color TV picture tubes, magnetic materials, metallurgy, fireworks, ceramics and fine chemicals. National sales of strontium carbonate were around 280 000 tons in 2007 and the total output was around 300 000 tons. The overall supply was larger than the demand.

China exported 16 000 tons in the first half of 2007. Due to the elimination of the export rebate, the exports reduced drastically in August, September and October but had a pickup in November and December, and finally reached 28 000 tons throughout 2007.

2 Severe situation in 2008

(1) Consumption

The situation of the strontium carbonate market will be even more severe in 2008. The steady shrinkage of the CRT sector will reduce demand for strontium carbonate even further. To hold successful 2008 Beijing Olympic Games, China is using government policy to accelerate the use of digital video displays. The consumption of flat screen TVs will be promoted by nearly 20%. It is expected that the sale of panel color TV sets will reach around 15.0 million units in 2008, pushing the consumption of strontium carbonate for CRTs down by around another 20%. After a rapid increase for several consecutive years, the growth of demand for strontium carbonate in the magnetic materials sector will slow down. The demand for strontium carbonate in the ceramic production sector will enter a period of rapid growth, but as the base is very small the effect on total demand is not big. The demand for strontium carbonate in other sectors will also grow, but as the base there is also small the driving effect is also limited. It is expected that the consumption of strontium carbonate will be around 260 000 tons in 2008.

(2) Strontium ore supply

Strontium carbonate is a product that consumes a lot of resources. The major raw materials include strontium ore and coal. The tax for natural resources imposed by China will be shifted from the method counting on quantity to the ad valorem method. New policies for the compensation fee of ecological resources (fines for environmental damage or taxes for consuming materials that are vital to the local ecology) will also be implemented. Increasing unfavorable factors in mining enterprises will lead directly to a faster growth of strontium carbonate costs.

(3) Transformation

Strontium carbonate production has always been under the supervision of environmental protection departments. Producers will have to increase their investment in saving energy and reducing pollutants. Investment in scientific research will also be higher, and the innovation ability will be higher. Reduced demand and aggravated competition will force producers to speed up the development of new products. An projects will be necessary to develop more refined strontium salts and to penetrate other sectors with high added value to improve economic performance and enhance competitiveness.

Energy prices will continue their rising trend in 2008. There will also be an increase of other expenses. The production cost of strontium carbonate will be higher and the product market price will be lower. The competition in the strontium carbonate sector will be cruel. Producers with poor advantage in technology, resource and management will be kicked out and the pace of shifting to the in-depth processing sector and other sectors will be accelerated. It is expected that in 2008 the strontium carbonate sector will still have to depend on byproducts sulfur and thiourea for profit making.