EDITOR: | September 2nd, 2016 | 8 Comments

Specialty Metals: There is a Season – Turn, Turn, Turn

| September 02, 2016 | 8 Comments

With the blizzard of noise in the Lithium space and the generalized feel-good in the mining space in general, it is easy to fall into the trap of thinking that all is well in the world. As we all know Uranium remains in the dog house but quite a lot of specialty metals are not exactly in the rudest of health either.

A key factor missing from the specialty metals scene, that would give it an upward boost, is a generalized economic recovery. Sure the US is doing OK and Europe is struggling out of its mire but many emerging economies (e.g. Brazil) have been going backwards and China is still in its swoon.


The price of this key minor metal has moved up by a third from its lows around the start of this year. To get back to its average price over the last five years it would need to rise another 20%. Therefore it looks like there is still good upside potential. The fact that should be overlaid upon this proposition is that the supply situation has considerably weakened over the last five years with the still-dominant Indonesian and Malaysian alluvial deposits in terminal decline and with the former country particularly intent upon squeezing the supply situation by insisting that concentrates be processed and upgraded within the country rather than in China.

The best upcoming Tin deposits are in Africa, most particularly in the DRC and Burundi, neither of which inspire massive confidence in investors. Some underground mines are on the drawing boards (or are old mines that might be reactivated) but they will inevitability skew the average cash cost of production higher. Tin is destined to be a tighter market with higher prices.



It is simplistic to link Tungsten’s fate solely to machine tools and thus to activity or lack thereof in the Chinese economy. More countries’ economies use machine tools than just China’s. Additionally the use in drill-bits etc. took a double blow in 2015 with miners virtually ceasing to do exploration while the oil industry’s long boom came to an end with the steep falls in oil and natgas prices. While oil remains in the dog house, mining is stirring to life and while the drilling is not as frenzied as before it is reviving and there is money to fund it. That alone gives encouragement to those keen on this tough metal.


The chart below shows the Ferro-Tungsten price and it’s clear that this is far from being in boom mode with a rise of only 10% off its bottom and half the level of four years ago.



This metal largely has its application in alloys (with Lead amongst others) and in fire retardants. The plunge from early last year to its nadir in early 2016 was brutal and I believe prompted by the FANYA debacle. The applications that Antimony is used for are not in any sort of swoon and indeed the auto industry (a major fire retardant user) is booming all around the world. Therefore the blame can most probably be laid at the door of FANYA. The problem with that issue is that the market place never really knew the extent of the FANYA overhang and probably never will. The fact that prices have rebounded nearly 30% in recent months probably means that the overhang is gone.

Supplies are reputedly tight and therefore the chances of the price returning to early 2015 levels is good, not that $8,000 per tonne is all that ritzy a price for this commodity.


Rare Earths

This group is down and out purely at the discretion of the Chinese who have decided to bankrupt and drive out the Western players. The turn in this group of metals could be as basic as some Beijing official getting out of the bed one morning and thinking it’s time to lift prices. It has very little to do with supply/demand and almost everything to do with an industrial policy. However the policy has now gone beyond beggaring the Gweilo and China is now beggaring itself in a scarce resource.

The scene is ripe for this bedside conversion as the Chinese could easily hike prices by 50% in the entire Lanthanide group (excepting Cerium and Lanthanum) and there would be no negative effect on demand and only one non-Chinese company would benefit (Lynas) while all the Chinese producers would be banking significantly higher incomes. There is no chance that even such a hefty rise would bring another Western player into contention for 3-4 years and even then whatever new source of production appeared would not be disruptive in terms of volumes added to the global supply.

Therefore, with timing unknown, we would still sustain that a REE breakout is more likely to happen than not with the decision not in the “lap of the gods” but within the purview of a Chinese apparatchik.


This metal is joined at the hip with the steel complex and frankly it’s hard to see why there should be an upsurge in demand for the foreseeable future. Added to that is that the biggest player in the metal keeps a tight rein on prices and operates on a Goldilocks principle of “Not too cold, not too hot, just right”.

One matter that is rarely mentioned is that CBMM is like a one-company cartel (somewhat like Materion in Beryllium) and that it tolerates Niobec and the other small players in the interests of an “orderly market” and not appearing to be a total monopoly. That said, one should not discount that CBMM controls the levers of the Niobium price and if it sees a threat to its dominance from too many players appearing on the scene then it may well (and certainly could afford to) lower the price 20-30% to throw wannabe producers into confusion. Thus any new Niobium player that appears and talks about their massive potential production then that wannabe and its shareholders should watch out that the Brazilians don’t decide to play Whackamole with their project via the pricing mechanism.


One should not discount that the FANYA Exchange debacle is still having some lingering effects on specialty metals and it has definitely sidelined a lot of the speculative players in China who lost their shirts and ended, metaphorically, up to their eyeballs in Bismuth and Indium (and Antimony). The overhangs may have been cleared away but the creative destruction of “locals” in the marketplace for specialty metals has returned trading to the producers and end-users who have failed to provide liquidity to specialty metals in the past and who indeed seem to prefer prices that are set by a combination of smoke signals, nods & winks and Masonic handshakes.

Despite this the signs are there that specialty metals were oversold at their worst and are now in recuperation mode even though the words “boom” or “surge” could not be employed. And that is probably all to the best after past “pump and dumps” in thinly traded commodities.

The lack of pure plays continues to be a problem in some spaces and we continue to admire the consolidation strategy pursued by the likes of Almonty which should be a model for those companies operating in all the specialty metal sub-spaces.

The tide has lifted (almost) all boats in the precious metals space and specialty metals now await their turn. The lack of investment in recent years and the exhaustion of some traditional sources of supply means that any resurgence in prices will need to be fed with new projects to ensure that supply crises do not eventuate again sending prices to the levels seen late last decade. Its up to the hardy survivors to re-emerge from the bunkers and set to work providing this new supply.


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  • Jack Lifton

    I saw today in the Financial Times a piece pointing out that there is a shortage of battery making capacity, because the buy-in is too high and the margins too low. Doesn’t that logic apply also to many, many lithium (as well as all of the other) juniors?
    Also, one overlooked driver for new niobium production sees to be the growing (dominance?) of Chinese ownership in CBMM. This fact has certainly brought religion to some Japanese companies.

    August 31, 2016 - 10:58 AM

  • Tim Ainsworth

    Christopher, given your broader perspective, would be interested your thoughts re REMX as an indicator, based, cleaned out the non producers & dysfunctional, and made a consistent series of higher highs since January:


    While lacking significant volume to date, perhaps suggests the base for Industrial Minerals & Metals is in?

    Re RE, the Dragon could burn ROW simply losing a few containers off the wharf, or some such similar device, it seriously holds the whip hand, far, far more than obvious. With all the intent focus on magnetics recent contrary report should come as little surprise:

    “BEIJING (Info-RE) 26-Aug-16
    Suppliers who are motivated to sell from stocks for the moment have somewhat decreased prices to drive business. Lower prices for praseodymium/neodymium, dysprosium and terbium have been reported in the market.

    Prices for many other rare earth elements, such as lanthanum, cerium and erbium, have maintained steady recently on the back of balanced demand and supply.”

    La should come as little surprise given US FCC demand, and DK flagged Er last year, but to rationalise Ce “in balance” one would have to consider a collapse in domestic NdFeB demand from the previous frenetic pace.

    Maybe look to the “ghost” cities, et al, did the Dragon bite off more than it could chew? Certainly not ROW demand for either REO or NdFeB that’s constraining prices ATM, nor the effort the new Five Year Plan appears to be investing across LRE apps.

    Is RE simply hostage to the broader Chinese economy ATM?

    August 31, 2016 - 11:31 AM

  • Christopher Ecclestone

    Thanks for the question Tim. It is indeed cleaned up. I haven’t looked at it for a while. Gotta say though that its strategic metals credentials are torpedoed by it being heavily biased towards chromite, moly and manganese, which are in no-one’s definition of “strategic”. This has been a common failing of Van Eck over time, “style drift” where they plonk stories that they think interesting but have the most tenuous connection into a portfolio and think the old rag trade axiom “Never mind the quality, feel the width” covers the manoeuvre.

    The biggest weighting though is in a strategic metal,Titanium, but frankly the fact that Tungsten, Antimony, Beryllium (Materion!) and Tin don’t get a look in is very poor.

    August 31, 2016 - 2:09 PM

  • teri beckoff

    Christopher, let me say how much I enjoyed this article, probably because I agree with your premises. I would however state unequivocally that with regard to many of the specialty metals (most notably minor metals such as Bi and In) the blame for the crash can in a large part be “laid at the door of FANYA”, and despite Fanya’s more recent crash and burn (and multiple arrests) Fanya is most definitely NOT done influencing the market. Part of the issue is due to the quantities (i.e. an estimated 2 years supply of Bi) still sitting in Fanya’s warehouses. While traders and producers in China keep trying to talk up their books, the glut of material sitting there, poised for release into the market, is putting some downward pressure on pricing, and so those minor metals most influenced by Fanya in the first place, are now adversely effected. While the market does not know exactly the amount of material sitting in Fanya, an audit will eventually shed light on that. I doubt we will ever really understand the full effect the shadow banking loans, and the shady math employed to bilk millions from investors, but the stocks that sit there will eventually see the light of day. While this keeps some speculative players out of the market, not all, and you can see this in the small, short lived, uptick in Bi last month. While many traders are feeling the burn of the recent crash, others, with brave trading souls, will try to create excitement in a market where multiple inquiries for a few hundred tons can send waves of excitement through the market, hopefully for just long enough to talk up their books, and make 10 cents a pound on a few containers. Unfortunately, this is unsustainable in the economic times outlined in your article. Until there is a real, sustained, global economic recovery (inclusive of the now anemic China), I just don’t see any long term upward momentum on the minor metal market (inclusive of REE). Just my personal thoughts on the matter.

    August 31, 2016 - 4:30 PM

  • Bill

    Christopher, in relation to rare earth it’s appearing the Chinese tactics of lower prices in order to bankrupt and drive out the Western players is failing

    We now have news that the bankruptcy trustee tried to get a court to shut down the bankruptcy due to lack of funds, but on Tuesday, he revealed that Lexon Insurance Co. “has offered to lend the estate $4.2 million to maintain the mine and continue the search for a buyer,” the Wall Street Journal reported.

    Perhaps Mountain Pass mine is being earmarked to supply Japan’s Daido Steel rare earth magnet plant which is to be established in the U.S. You don’t establish such a plant at huge cost unless you can supply the raw material.

    Over in the land of Oz, we have Japanese lenders propping up Lynas at any cost it would appear. As Lynas misses one debt payment after another “no problem”, the lenders just restructure the debt, again, and again and again.

    Now that the Chinese have failed in their attempts to drive off the Western competition with the use of ever lower rare earth prices – what next by the Chinese? Do the Chinese now:- 1) drive rare earth prices lower or 2) do they now cut of supply of critical rare earths to the West or 3) do they now drive rare earth prices higher?

    Christopher what do you think would be some of the potential consequences of each of these scenarios

    Rare earths have been the one commodity which in recent times have defied economic logic, with consumption and demand increasing and prices continuing to fall

    September 1, 2016 - 10:44 AM

  • Tim Ainsworth

    Cheers Christopher, can see that clearly now, not really an attempt at a broader index, rather an attempt to pick “winners”, hence recently loading up on the “new” RE, which no doubt has contributed to the recent run.
    Are you able to share any broader indicators that you keep an eye on?

    September 1, 2016 - 11:13 PM

  • Tim Ainsworth

    Lol Bill, it is very plain to see RE are actually responding to economic logic, in defiance of 9 yrs of manipulation.

    What will be more than interesting is the true economic value of the respective elements once some broader supply/demand balance is achieved.

    September 1, 2016 - 11:27 PM

  • Alex

    If we consider possibility of “reset” of global financial system and freezing money in banks – it is better to sit in rare-earth stocks then in phisical gold.
    phisical gold can be restricted by goverment and it has rather high value now. on the contrary rare earth are on the bottom and can be rather easy sold after ‘resert’ to industrial companies, instead gold which will be sold to banks with big spread.

    September 2, 2016 - 1:39 AM

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