Critical metals — Critical insight: how the technology metals may be the best window into economic trends
That’s the only explanation I can find for what is happening across the minor metals sector, from rare earths to graphite to rhodium. We’re no doubt regarded as fringe-dwellers in the metals world, but those who follow the commodities we follow may be gleaning an insight into what is happening below the surface, an insight which seems to have eluded those who follow the major commodities and who all seem blithely unaware of the trends (assuming that the critical metals are providing a true reflection, of course).
One reason for this is that none of the products we follow here, from potash to rare earths to tin to graphite to niobium, is vulnerable to speculators. Those guys can play with the gold price, short copper, stockpile oil — but our ones reveal real demand. They may have been able to get involved in the uranium (2007), phosphate (2008) and rare earths (2011) surges in order to get equity prices up, but that is unlikely to be happening now.
The economics won’t affect the importance or the long-term value of those metals we follow here on Investor Intel. In the years and decades ahead we might find it wise to remember Bette Davis’ line in All About Eve: “Fasten your seat belts. It’s going to be a bumpy night”.
Conversely, many may be scared off — as so many investors have already. Since 2007 we have had stock market frenzies for uranium, phosphate, potash, and rare earths. All ended abruptly. But the fundamentals of those sectors have not changed. And they probably won’t. Just remember this if your confidence is tested.
Those who try and pick what is going to happen with oil, copper or gold have got it easy. No, I’m not suggesting that analysing those commodities is a no-brainer. What I am saying is that, by comparison with the technology metals, there are plenty of known-knowns, and some known-unknowns. On our side of the fence, however, we have very few known-knowns but great lashings of known-unknowns — and even a few unknown-unknowns.
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Of those known-unknowns, why are prices across the board still so low? We have all these technology metals which are regarded as critical (so critical people like the European Commission and the British Geological Survey keep compiling lists of them) yet no one apparently wants to pay good money for them.
Just take rare earths. Even closure of China’s capacity for a while did little to give prices a boost. Tungsten is in short supply and much of the new capacity due to come into production is spoken for through off-take agreements, but the metal is failing to get anywhere near its 2011 high. Sure, tungsten producers will still be able to make good money, but it’s not exactly raining dollar bills.
Take lithium. Everyone’s been talking about the boon to Bolivia and Argentina once their brine lakes start to be exploited. Yes, sounds fine, but then we see that Japan’s big trading houses are moving to cut their dependence on South America for the key component of lithium-ion batteries. Itochu is starting to ship lithium carbonate from the U.S., from Simbol Materials which can take lithium chloride and can refine it into carbonate within 10 hours.
Marubeni Corp. is moving to sell to its Japanese customers lithium carbonate extracted from ore in Canada, starting this fiscal year. It plans to import 5,000 tons, or about 30% of Japanese demand, in 2015 from Canada Lithium Corp., which owns a mining site in Quebec. Production will cost around the same as in South America but take just a few days, says Nikkei.
In today’s edition of The Financial Times we hear that orders have plunged for three technology metals found in platinum deposits. The price of iridium has dropped 43% so far this year. Iridium crystals are used in screens for smartphones and flatscreen TVs. Ruthenium, used in computer hard drives, is now at its lowest price since 2005. Since 2005! That’s even lower than post-global financial crisis.
And rhodium has never recovered from its GFC tumble, having lost 90% of its 2008 high (and, according to Platts, should settle around $1000/oz). Rhodium is used catalytic converters.
Earlier this year it all looked quite different. Suppliers were expecting a price rally, but that never happened. In fact rhodium was then $1800/oz.
So confident was the industry that Ross Strachan at London’s Capital Economics put out a note forecasting rhodium to be at $2000/oz by the end of 2014. It may well be, but there are no signs yet. China is the biggest customer at 30% of world usage, followed by Japan on 24% and North America only 7%. Capital saw rhodium gaining for two reasons: one, vehicle emission regulations continue to be tightened and this will increase auto catalyst demand for rhodium; two, South Africa’s production of the metal is likely to fall by about 10 per cent due to industrial troubles and strikes.
Indium prices are down again this week, graphite prices look range-bound and poor old uranium wallows along at spot $35.25/lb.
What will be interesting is to see who starts moving in to secure operations and future supplies. Watch the critical metals space: it may reveal a great deal.
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