INTERVIEW: ‘Our business model is to be competitive in our field’ - Vital’s George Zhu
“We want to be leaders in what we do,” Vital Materials’ chief executive officer, George Zhu, told Fastmarkets MB during a visit to the company.
Vital Materials, one of the largest and most diverse minor metals producers in China - has five sites across the country: four in Qingyuan and a pigment plant in Tianjin, and employs more than 2,500 people worldwide.
Each of the plants runs 24 hours per day, seven days a week, with the majority of employees living on site.
Zhu, who founded the company that is now known as Vital Materials in 1995, still maintains close control of the day to day business.
“Our business model is to be competitive in our own field,” Zhu said.
Vital is now a top three producer in each of the fields it is active in, and number one in selenium, tellurium and cadmium, according to the company.
“Niche materials are especially difficult to grow. You need to diversify to survive,” he said. “But we are now growing much faster than before.”
“Our business model is not only selling materials but also sub-systems and components, finished products.”
“You have to keep changing otherwise you cannot survive in this market. We keep adding more products related to current applications and technologies,” he added.
Vital can take in almost any minor metal-bearing material between its sites and produces around 160 products and advanced added value components, ranging from selenium powder to metalorganic compounds, speciality gases, targets and lenses.
Company organized into four units
“We are reorganizing our company into four units,” Zhu told Fastmarkets MB, “which will be our new business plan for the future.”
Three of the units are downstream, he explained.
The first unit is thin film and targets business unit, including indium tin oxide (ITO) and magnetic data storage (MDS) targets.
Vital has recently acquired a high performance sputtering targets production facility from Heraeus.
“We are now the only Chinese supplier in this supply chain, which used to be supplied by Japan, Taiwan and the US,” Zhu said.
“We will be very competitive as we already are a big target producer and we can leverage this, use it to sell into China and expand our production into China,” he added.
Last year, Vital acquired an ITO sputtering target business for large area coatings from Umicore.
“We now cover all the major application areas with all the targets covered. We want to be a market leader in the target business,” Zhu said.
The second unit is laser and infrared that includes zinc selenide, zinc sulphide, and germanium, among others, Zhu continued.
The semi-conductors unit is the third unit, which includes gallium arsenide, indium phosphide and germanium wafers.
“This market is growing rapidly, especially due to iPhones and facial recognition technology,” he added.
“Mini TVs, microLED, 3D sensors - these are the trends for the future and we are well positioned in this industry,” he added.
The fourth upstream unit, Heyun plant, does all the raw material processing, metal refining, traditional products manufacturing, including bismuth chemicals, cadmium salts, up to 7N-refined metals, selenium chemicals and tellurium dioxide. It also incorporates Vital’s Cleantech plant to provide a closed-loop service to its downstream customers, he explained.
“Each business unit has a very big potential to me,” Zhu said.
“We leverage our current platform and technology to expand our business. There are too many opportunities,” he added.
The company is constantly on the lookout for new acquisitions, Zhu said, and there are plans to expand further.
“It’s always better to buy existing companies,” he said. “We are always looking for production facilities in Europe.”
“Buying gives you a quick access, it’s easier, better. We have a narrow list of what we want to buy,” he said. “We want to grow faster. When you buy existing companies you don’t need to train your people, you have skilled workers and a list of customers.”
Zhu is always looking for talented people, more foreign experts and investing in new equipment, he said.
“We invest for the future”
Vital is the biggest ITO producer in China after last year’s acquisition from Umicore.
“We will be the biggest [ITO producer] in the world next year. We are a closed loop business and we are very competitive,” Zhu said.
Vital had set up a joint venture with Umicore in 2014 to meet rising ITO demand from the fast-expanding large area display market in Asia.
Annual demand for ITO is about 1,500 tonnes per year, with the vast majority of this demand coming from Asia. South Korea, China, Taiwan and Japan account for almost 1,450 tpy of that.
Global ITO production is over 2,000 tpy; rotary targets make up over 7% of total ITO use annually.
“ITO business is very competitive in China right now with many Chinese companies trying to enter into this field with the whole industry shifting to China.”
The field had previously been dominated by producers in South Korea and Japan, according to Zhu. But South Korea and Japan may reduce their production with the whole industry shifting slowly to China, he added.
“It’s difficult to make money in the ITO business in other countries. Recycling is easy in China as indium is produced here. There’s a lot of competition in China right now,” he said. “It’s also difficult to ship targets back and forth because of the environmental regulations.”
China is already dominant in the indium metal market, producing over half of the world’s indium metal.
“If you are fully integrated, you can be competitive, if you do recycling yourself, and have good sources of indium, you can be the leader.”
“But most of the current producers don’t have it. They either don’t do their own recycling or they have to source their indium from China. It’s difficult.”
Vital is now a top three producer of indium, producing up to 400 tpy.
“China will become big in ITO targets,” he said adding that there will be more Chinese players in two to three years. “Targets are now a hot business in China.”
Advantages of a global company
China continues to determine the direction for minor metals markets, with environmental inspections and supply disruptions leading to another volatile year for most of the markets.
And the US President Donald Trump administration’s tariffs on imports of a number of China-produced goods, including selenium, has added to an already uncertain outlook for minor metals demand.
Zhu said Vital has already been affected by tariffs in their targets business. “Some of our sales to the US were already affected,” he said.
Last month, the United States announced it is imposing new tariffs on $200 billion worth of Chinese goods.
The higher import taxes will apply to almost 6,000 items - the biggest round of US tariffs so far.
“But we have a global presence and we are global players. We export to other destinations too,” he said adding that the main demand for their materials comes from Asia.
“For our products that we ship to the US we will try to leverage our production worldwide,” he said.
The trade war will hurt both sides, he added. “The US can’t find alternatives or products at the same price as Chinese,” he added.
“It will distort the economy. You can manipulate it for the short run, but the market will correct itself eventually in the long run.”
Zhu said the company has contingency plans in case the trade war between the two countries escalates. “We buy and sell globally so maybe we even have an advantage. We can do what some small players cannot.”
The US is a very important market for Vital and the company will find a solution, he added. “It’s easy for us to have production lines outside of China if needs be.”
“There will be a supply chain reshuffle. China will be forced to produce out of China but it will all eventually balance itself out,” he added.
Still, “with China we have big enough market and we can survive on our own,” Zhu said.