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