SMH Monthly Report on Strategic Metal Pricing

Miner at work nc Mining Truck nc

November 2013

The minor & specialty metals market normal industrial demand tends to ease during the last few weeks of the year and nothing suggests that this year will be any different. This is caused by industrial players wishing to free up stockpiles before year end and corresponding balance sheets. These of course are when describing a normal market pattern.

 But there are a number of forces that exist currently out of the market norms that could have positive outlooks for minor metal prices moving forward – indeed for some metals this is prevalent, Indium for example.

Fanya Exchange

The Fanya Exchange is (or claims to be) the biggest Spot Price rare metals platform globally. It allows Chinese investors an opportunity to purchase small (or large) amounts of rare metals through an exchange format. The metals are stored in various “approved” supplier warehouses throughout China in various free zones. Investors can purchase as low as one gram or as much as a ton. The metals, important to us, that are floated on the exchange include Indium, Gallium, Bismuth, Cobalt and Tungsten. Others can be added at any time.

So what does this mean for the world minor and specialty metal prices and specifically for SMH?

Well, let’s first look inside China. China has a real problem teeing in terms of a housing bubble. This is being caused by cash rich individuals that have limited investment opportunities and time and time again turn to real estate. It is not uncommon for middle class families; this is not the rich, to own 2 or 3 investment properties without even renting them out. It still makes sense as property has only ever known upward trends this past decade. But talk of a market burst is becoming prevalent and so the Chinese are looking for new asset classes. As such, the Fanya Exchange was set up in mid-2011 to offer a real alternative. And it appears the Chinese have an appetite!

In terms of pricing; a gram of Indium, when converted to kg’s cost almost 30% more than exported prices and Fanya have certainly had an effect on the global market. Indium prices this year rose more than 35% globally on pressure from Fanya’s pricing point. While these prices have stabilized last month it appears that as of this week they are on the move upwards again.

It should be noted that Fanya claim that these metal stockpiles compliment the Chinese national stockpile. If true, this can only send prices in the west upwards over time especially if the exchanges appetite maintains at current levels. Danger is of course is that a bubble occurs such as in the housing market, but minor metals are of course at the forefront of most new technologies so “new forces” can always come in to play to absorb and keep prices healthy, as opposed to a housing market that has, even in China, a finite population and market use.

The exchange has as of yet had little impact on the prices of some of the other metals such as gallium but it should be noted that Indium is a more “traditional commodity” in China and often referred to as the “Chinese Silver”. So it could be argues that some of the other metals, although being purchased in large amounts, will soon put a dent in supplier stockpiles caused by the world economic slowdown and cause upward price action again. It should be noted that that it has begun to affect Bismuth in a price positive way.

For more on Fanya Exchange,

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Political Issues affecting Price

Two other political forces have also conspired recently that could assist prices to increase independent of market speculation or actual industrial demand. Both are extremely important and examples of how Geography, more specifically China’s large scale monopoly, bare on the global minor metal price trends.

In late October the World Trade Organization (WTO) found against China in its bid to keep both export duties and tariffs intact. China claims these parameters need to be kept intact to assist to clean up environmental damage caused by outdated mining and refining but the US, EU and Japan disagree. In any event – quotas and tariffs have indeed been implemented already for 2014 and have not been reduced thus maintaining that West’s efforts to reduce price and increase supply out of China of Indium, Tungsten, Molybdenum etc.

Besides this, last week China issued a statement that it wishes to become the key pricing bench marker for most key metals.  The announcement was made following the communist party’s 3rd plema (nationwide party meeting to decide political, economic and social strategy for the decade ahead) and reflects China’s view that they are not only the largest global raw materials consumer but also control much of the production and as such global pricing should be set internally in China. If this is to be successful then if the Fanya project is anything to go by prices have only one way to go in the medium to long term – up, up and UP!

 China – Japan Territorial Disputes

Tension between China and Japan mounted in the aftermath of the trawler collision in the South China Sea in 2011 and this manifested in a restriction of metals being supplied by China to Japan. China conveniently insisted that they were planning on protecting their resources for internal needs. Whatever the case, it is evident this week again there are flaring tensions in the South China Sea with the Chinese regarding mapping the fly zones in the area without consultation with Japan or Korea. Should these relations deteriorate further moving into 2014, the west (including Japan and Korea) could conceivably run short on those metal produced mainly in China which would, in the short to medium term, have a price positive effect on the materials in question including Indium, Gallium, Molybdenum, Tungsten, Tantalum etc.

Moreover, this dispute is just one of a plethora of potential political or natural events that could cause shortages in strategic metal markets thus causing greater demand on the Wests depleted stocks and major price movements. Though other factors must also be considered such as over production, it is no coincidence that Gallium for instance reached price levels 3 times those of current levels in mid-2011 just after tensions rose between the two Asian nations.

EU critical Supply List

The EU recently reiterated their view that metals such as Gallium, Indium and Tungsten, amongst others, remain very much part of their strategic “critical supply list” and that any interruptions in supply would have a significant effect on normal strategic implementation. While this does not necessarily tell us anything new, it does re-iterate the points made above when discussing China/Japan.

Poised to Add Value

The SMH approach has never been to corner the market but simply to enable clients to come together as a private stockpile community so that they can take advantage of supply side effects when certain political or natural events occur around the world. It is a natural synergy where 2 + 2 = 5!

To conclude, any and all of the issues discussed above place an added value on an “SMH managed & client owned stockpile”. With critical mass ever growing, SMH continues to be well positioned to take advantage of “market issues” should and when they occur thus ensuring that clients receive the greatest value for their currency hedge on unwinding their positions.

Swissmetal Inc.s´ offer Four Rare, Strategic Metal Baskets – Basket A (Key Industry), Basket B (Solar & Energy), Basket C (Construction & Engineering) and Basket D (Defense & Aviation),  which makes it now accessible for private investors to purchase and profit from the increase in demand  over the years to come. Click here to contact Swissmetal for a free consultation on procurement & storage of this rare industrial metal.

Story Source: The above story was Published by SMH November 2013.