EDITOR: | March 18th, 2013

The Pulse: Silver is shining; Israel’s potash fears; Tungsten is tight

| March 18, 2013 | No Comments

Pulse-Robin-BrombyA further sign that Chinese keep buying silver.

The South China Morning Post reports that China Silver Group is planning to expand ingot capacity by 60 per cent, from 250 tonnes a year to 400 tonnes. The newspaper quotes the company’s chief financial officer saying: “Silver is a special kind of commodity. There will be customers buying it as long as you can produce it.” The refiner plans to continue to increase its production capacity — to 550 tonnes in 2014, then to 650 tonnes in 2015.

As I have written before, in 2011 the Hong Kong Mercantile Exchange began trading a silver futures contract, hoping to tap into the growing demand for the metal in China. Silver demand rose by 67% in China between 2008 and 2010 (against 17% globally in that period). This should be no surprise: the white metal was the standard for currency from the time of the Ming dynasty until November 4, 1935. It was abandoned then only because, as investors sought safe havens during the Great Depression, the price of silver rose sharply and China could not control the silver price.

A paper on precious metals out from BNP Paribas in London notes that the annual silver contract trading volume on the Shanghai Gold Exchange failed in 2012 to break the 2011 record — but that was only because in April-May 2011 there was a tremendous surge in trading volume as the white metal flirted with $50/oz and then collapsed to $32/oz. BNP adds: “Since the start of 2013, high trading volumes suggest strong interest in silver in China”.

That’s the investment side. There’s also the industrial side to silver.

At the recent PDAC convention in Toronto, the Silver Institute’s executive director Michael DiRienzo said industry consumption of the metal would average 483 million ounces a year from 2012 to 2014; this is 53% up on the 313.4 million ounces a year consumed by industry between 1992 and 2001. These applications include electronics, communications, solar power, health and medicine, batteries, superconductors and computers — and then there are the jewellery and silverware markets.

Eric Sprott of Toronto-based Sprott Asset Management was earlier this month reported saying silver was the investment of this decade, replacing gold which he sees as the investment of the previous decade.

POTASH: Potash Corp of Saskatchewan’s proposed takeover of Israel Chemicals Ltd is causing considerable angst in Israel itself, according to The Financial Times. Unions and MPs in the Knesset fear that Potash Corp, which owns 28% of Jordan’s Arab Potash Co., will cut jobs in Israel and send work to Jordan where wages are much lower.

The newspaper says the key to the deal is Prime Minister Benjamin Netanyahu who is forming a new government this week. The government holds the “golden share” in ICL and can decide if the Canadians increase their holding. But the new finance minister, Yair Lapid of the Yesh Atid party, is strongly opposed to the Canadian bid.

ICL is the largest employer in Israel’s Negev region. The Financial Times reports that Potash Corp has given assurances it will not cut jobs.

CRITICAL METALS: Over the past 12 years, China’s consumption of tungsten has tripled, severely restricting its ability to export the metal. Given that China mines 72% of the 72,000 tonnes of annual global production, this is a looming problem.

Peter Strachan, the well known analyst with Perth-based StockAnalysis, has sent out a client note on the issue. He makes the point that about 30% of world usage is made up from recycled metal. But cobalt is usually a co-product of tungsten when recycled; the present low price for cobalt (under $12/lb) could hold back supply of recycled tungsten.

Tungsten concentrate is sold in metric tonne units (mtu) — that denotes 10kg of contained metal. The price for ammonium paratungstate rose from under $200/mtu in 2009 to $480/mtu in 2011, then fell back to $295/mtu last year because of stalling Chinese industrial production growth. Now, however, the price is back to $360/mtu, well over the average price for the past 10 years.

“Tungsten price movements have outperformed other steel alloying metals as a result of its scarcity and the actions of Chinese authorities to restrict export sales,” writes Strachan.

Non-Chinese consumers have long relied on Chinese suppliers of processed metal for 23,000 tonnes a year for their own requirements. Yet, China has now become a net importer of concentrate and will export only downstream tungsten products.

Strachan says that during 2012 new, non-China capacity totalling 2,400 tonnes a year was commissioned and another 6,000 tonnes will be added by the end of this year with new projects in South Korea and Vietnam.

Tungsten is No. 2 on the British Geological Survey’s “Risk List” No. 1 is rare earths.



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