Japanese Chemical Trader blog

Japan Chemical Trading Blog

Rare Metal Prices Fall

Crude oil, natural gas, grain, coal, iron ore, base metal, precious metal,
real estate, dairy, charge at a hostess bar in Osaka Shinchi … prices on
anything and everything have been falling due to the worldwide recession;
the price falls for rare metals are devastating as well. Today, I would like
to look at the falling prices of the rare metals in which we trade.

In retrospect, prices of resources have greatly increased from about 10
years ago owing to the expanding demand in China. Crude steel production is
one of the indexes that shows how the world has changed in the last 10 to 15
years. Crude steel production in the world has doubled from around 2000 as
China rapidly increased production (about 800 million tons in 2000 to 1,600
million tons in 2014). Is the current amount of crude steel production
adequate when considering the current world population and its rate of
increase in future? If it is a more than adequate quantity, it must be a
“bubble” and will adjust over time.
In the meanwhile, the prices of base metals such as copper and crude oil
have also significantly increased. The prices of rare metals have increased
as well, reflecting China’s increasing demands in the last 10 years.
Especially, rare metals are prone to be an object of speculation and
price-fixing so that the prices of many of them increased about 5 or 10
times than those of a dozen years ago. Their declining pace is sharp, too.
Dealers who sell inventory cannot avoid selling them at prices lower than
the cost.

Let’s take a look at the recent situation of several rare metals:

. Bismuth
Its price was more than USD12 per pound a year ago. The price dropped to
around USD5 now. Metal Bulletin on September 11 said the price had slightly
recovered from USD4.8 to USD4.9. Almost all of the raw materials of bismuth,
produced as a byproduct during lead mineral processing, come from China, and
its offering prices to Japan have bounced back somewhat lately. Bismuth is
used as an additive for free-cutting steel, or in electronic component
materials for condensers and medicines. Since the demand for industrial use
has generally eased, we need to watch carefully to know whether the current
increase in price is a technical rally or an initial stage of full-scale
inversion.

. Selenium
Its price was more than USD23 per pound a year ago. The price has now
dropped to around USD10. Selenium is traditionally used in glass coloring,
electronic component material, feed, agriculture and pigment, but its usage
as an electrolytic manganese additive increased mainly in China about 10
years ago. Accordingly, the prices, at a point, tentatively increased more
than 10 times from the former USD5 or so. The prices have dropped to below a
half in the last 6 months due to poor demand in the manganese industry in
China. Will the price go back to the levels before the demand increased from
the manganese industry, which exceeded 40% of the total demand of selenium
at the peak?

. Tellurium
Its price was more than USD100 per kilogram 6 months ago. The price has now
dropped below USD50. We expected that the demand for cadmium telluride for
thin-film solar panels would increase, and actually its price was as high as
USD400 in 2011, but 4 years later, its price became about one-tenth of that.
Tellurium is used for Peltier devices, free-cutting steel additives and
rubber chemical along with solar panels.

. Indium
Its price was around USD700 per kilogram a year ago. The price has now
dropped to around USD300. Indium is produced as a byproduct of zinc and used
for transparent electrodes for liquid crystal panels. The price has
continued to fall recently as people are aware of the risk, such as
inventory release by the rare metal exchange in China, the Fanya Metal
Exchange, which I will mention later.

More than 10 rare metals are traded on the Fanya Metal Exchange (Kunming
City in Yunnan Province). According to their website, Fanya Metal Exchange
stores indium at a volume equal to global demand for 3 to 4 years at
designated warehouses, and it had a peculiar presence. However, information
from Chinese trading companies stated that transactions of the main rare
metals such as indium, bismuth and germanium have been suspended since July
this year after an audit by the local authorities at the end of last year.
Some investors had a demonstration to ask for an investigation by the
authorities. It is rumored that an executive of the Exchange had tried to
escape to Canada and was detained by the authorities. Anyway, private
investors who are said to be 70% of all the investors of the Exchange have
held latent losses because further transactions cannot be made for a long
time. It faces growing risks, such as inventory release. However, hearing
such a rumor, we may begin to doubt whether the Exchange has ever had
adequate quality stock in its designated warehouses.

Since the Tulip mania in Holland in 1637, many “bubbles” were created and
burst in the world. How will this rare metal “bubble” be concluded?
In the Tulip mania, once the tulip bulb price reached an incredibly high
level over several years, one day, suddenly, there were no purchasers. Then
the price fell to less than one-hundredth its original level.

Masa