Articles in Category: Minor Metals

The world is not short of tin yet tin prices are still rising. Not short in the total-percent-present-in-the-earth’s crust kind of way, anyway.

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It is also relatively well distributed: the five largest producing countries are China 35%, Russia 12%, Australia 8%, Indonesia 7% and Brazil 6%, according to Platts. These mines are not in unstable or war-torn regimes. Some mines in places such as Myanmar and the Democratic Republic of the Congo are less savory, sure, but as a percentage of the whole they are not mission critical to global ore supply.

Yet, ore grades are falling and much of what is left will require a progressively higher price to be economically extractable. Falling London Metal Exchange and Shanghai Futures Exchange inventories are signalling that real or apparent demand remains strong and the rise by tin to become the second-most actively traded metal on the LME this year as the price has surged underlies strong investor interest.

After falling to the lowest level since 2009 to $13,085 a metric ton in January, tin is now trading at $21,400 per mt. Investor appetite has been insatiable, particularly in China, driven in part by a perception that demand is outstripping supply. BMI Research is forecasting the global tin market will see a supply shortfall deepen to 9,400 mt in 2020.

“This is mainly due to higher average tin consumption than production, as a result of depleting ore reserves,” the research group is quoted by the FT as saying.

But before we all get too carried away, the industry is getting twitchy about the price and that should ring alarm bells. Although the FT says “visible” stocks held in LME or SHFE warehouses are at their lowest level since at least 2000, there is a “high level of under-reported stocks in China.”

Yunnan Tin, suppliers of over one-quarter of global refined tin output, called for a “sustainable recovery” in the market, “rather than volatility caused by hot money or speculation in futures markets.”

While ITRI warned that “…money flows from the investment funds, could be the determining factor in metals price.”

A warning from both that supply-demand is not currently driving prices and therein lies an inherent risk.

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That doesn’t mean to say the price hasn’t got further to go. There is no shortage of liquidity in the Chinese investment market and speculators this year have pushed not just tin but copper and other metals to annual highs. Tin’s fundamentals aren’t bad by any means but the FT reports that nearly 30% of Chinese smelter capacity sits idle today, a warning sign that high prices may not be matched by downstream demand.

Our November metal price trends report showed an industrial metals complex buoyed by strong Chinese demand and bullish on the future, thanks to the election of republican presidential candidate Donald Trump who promises to curtail regulations on metals producers and the energy suppliers that provide power for smelting, steelmaking and mining.

MM-IndX_TRENDS_Chart_November2016_FNL-TOPVALUE100

While some of the metals turned in a flat performance during the month of October, almost all quickly took off after the election. Now, as our lead forecasting analyst, Raul de Frutos, recently wrote, the industrial metal bulls are in full charge.

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The minor metals remained flat, but that’s no surprise to any buyer at this point. The fact that rare earth miner Lynas Corp. received a lifeline from a hedge fund and a Japanese state-owned enterprise was a minor (metals) surprise itself.

It’s a good time to be a producer of base metals as it looks like the bulls may continue to run in 2017. For more information on how to plan your purchases well into the New Year, consult our monthly metal buying outlook.

Two weeks ago, Japanese lenders and a hedge fund struck a deal to save Australia’s Lynas Corp., the only major rare earths producer outside China, from collapse. In doing so, they cut its interest costs and gave Lynas nearly four years breathing room to pay off its debt.

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State-owned Japan Oil, Gas and Metals National Corp. (JOGMEC) and Sojitz Corp. did so to ensure a supply of rare earths from outside China, the world’s biggest producer of the elements. Japan’s interest is understandable. It’s the nation that Chinese producers unceremoniously boycotted in 2011 back when rare earths prices were flying high. Even though that’s not the case today, Japanese manufacturers have no interest in ever being dependent on China’s rare earths industry again. After the collapse of Molycorp, JOGMEC even agreed to slash the interest on its loan to Lynas to 2.5% from 6%.

Rare-Earths_Chart_November-2016_FNL

Lynas will not have to make any fixed repayments on the $203 million it owes to Sojitz and JOGMEC until 2020. It previously faced staged repayments up to 2018.

Our Rare Earths MMI held at 17 for the fourth straight month, the textbook example of a stagnant market with flat demand and more than enough supply.

The one bright spot in the sub-index continues to be the permanent magnets used in electric motors for wind turbines and other products. These elements include neodymium and samarium.

Research and Markets recently published its “Permanent Rare Earth Magnets Market – Drivers, Opportunities, Trends & Forecasts: 2015-2022” report. It said that the global permanent rare earth magnets market is expected to grow at a CAGR of 13.2% during the forecast period 2016-2022 to reach $41.41 billion by 2022.

For Lynas, and the companies that have invested in it, this market offers hope of salvation but we would exercise caution as always. China is attempting to consolidate its rare earths industry the same way it is attempting to do so with steel. The problem is that Beijing still exerts relatively little control over small, provincial mines that fly under the rardar of national mining standards.

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Permanent magnet demand has always been strong but it will need to grow by quite a bit to exhaust current Chinese production and, just like with steel, the consolidation process is slow and sure to be manipulated by the economic growth needs of the People’s Republic.

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Our monthly MMI saw a boost in October as three metals tied for the biggest gain and markets seemed to tighten as manufacturers started to make decisions for their end of year and early 2017 spending.

MM-IndX_TRENDS_Chart_October2016_FNL-TOPVALUE100

There seemed to be a Q4 tightening across most of the metal markets we follow. Sure, the Rare Earths and Renewables MMIs were flat as a board yet again, but Copper, Aluminum, Stainless and Raw Steels all saw strong gains. Our Global Precious MMI gained again but almost immediately suffered a pullback after talk of a Federal Reserve interest rate hike in December and renewed strength from the U.S. dollar.

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As always, we exercise caution when buying. Today’s gain could be tomorrow’s loss.

Our Renewables MMI was flat this month. While solar and wind still remain hot investment markets, the political discussion going on right now about the next four years greatly overestimates their abilities to provide jobs or a one-for-one replacement of the production of natural gas.

Renewables_Chart_October-2016_FNL

The metals that go into wind turbines, solar panels and other green energy producing instruments are not seeing the fruits of increased adoption. Part of that is still the individual metals markets. Steel, for instance, saw a small increase this month, but it wasn’t enough to make up for losses by silicon and the other metals in the Renewables MMI. Check our our Raw Steels MMI for more on that.

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Democratic nominee Hillary Clinton even walked back her support of solar as a jobs program.

When asked by an audience member, “What steps will your energy policy take to meet our energy needs while at the same time remaining environmentally friendly and minimizing job loss for fossil power plant workers?” Clinton said that the U.S. is, for the first time energy independent and also “we are, however, producing a lot of natural gas, which serves as a bridge to more renewable fuels. And that’s an important transition,” she said.

This is much closer to an “all of the above approach” than what Clinton said last month, implying that production of solar panels could replace coal and oil and gas jobs.

“We’ve got to remain energy independent,” she continued. “We have enough worries over there without worrying about that,” Clinton said.

Bridges to Clean Energy

Natural gas as a bridge to future renewable sources for electrical power generation has long been touted by shale drilling tycoons such as T. Boone Pickens as a cleaner burning alternative to coal and an excellent backup source of power until wind and solar are able to provide stored energy when the sun doesn’t shine or the wind doesn’t blow.

On his website, Pickens says, “Natural gas is not a permanent solution to ending our addiction to imported oil. It is a bridge fuel to slash our oil dependence while buying us time to develop new technologies that will ultimately replace fossil transportation fuels.”

The new generation of gas-fired “flex” power plants, many of which have recently been built in California, are designed to ramp up and down quickly to accommodate shifting supply from wind and solar. Facilities like these bolster the idea that the notion of a “bridge” is misguided and that gas can act as a destination fuel as a backup for solar and wind for generations. But, that wouldn’t get us to cleaner energy, either.

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The push-pull between renewables and back-up sources will continue to play out over at least the next five years. It’s a debate that only storage technologies can decide for good.

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Our Rare Earths MMI was flat for a fourth straight month as the market remains oversupplied and stale ever since China lifted quotas on the magnetic and energy storage metals, the end of a long-running World Trade Organization dispute.

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That happened in January 2015 and rare earths have not moved much since. The elements are still highly important for defense, power and green energy applications but prices show no signs of jumping due to Chinese export embargoes or, really, anything else.

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This has caused a somewhat dangerous lack of urgency about fixing domestic supply problems as there’s currently no real urgency to create another U.S. supplier like Molycorp. U.S. Rare Earths Inc. looks like the only viable option for the foreseeable future.

This is by design, too, as China is still consolidating its rare earths industry and will likely drive prices even lower during that process.

What Does Consolidation Mean?

A report from BMI Research says the Chinese government will continue to ramp up exports even as it consolidates companies and shuts down some mines. Better management allowing better production at underperforming operations is what Beijing envisions.

Dysprosium and cerium have seen prices fall from $65,865 a metric and $883 per mt, respectively in May 2015, to $37,524 per mt and $685 per mt by September, according to BMI. If you’re not already a member, join MetalMiner membership to see how closely that mirrors or MetalMiner IndX values. See below for those of you in the know.

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BMI expects that, in a bid to regain pricing power, the Chinese government will pursue a strategy of consolidating the country’s domestic rare earths sector and increasing exports over the coming quarters. That means even lower prices than what we’ve seen over the last two years.

BMI believes that Australia, Russia, Greenland and the U.S. (U.S. Rare Earths) hold significant rare earths output growth potential over the long term. The analysts from BMI do not expect that these countries will be able to overtake China’s market share any time soon due to the low-price environment.

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The tin market, along with nickel and zinc, has been a standout performer this year.

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Whereas copper, aluminum and other ferrous metals have languished due to oversupply, the tin price has risen steadily and robust demand has met a constrained supply market. According to the World Metal Statistics August report, the tin market recorded a deficit of 7,200 metric tons during January to June 2016. That’s less of a deficit than in the equivalent period in 2015, true, but still a deficit and with no DLA deliveries during the period total reported stocks fell by 2,600 mt during June. In spite of rising production of refined metal in Asia, a 12.6% increase in demand from top consumer China kept the market under pressure.

Strongbow!

Against such a backdrop, the reopening of previously abandoned mines is not unexpected. What does raise an eyebrow is the tactics of one junior miner in employing the image of the hit UK BBC period drama “Poldark” in trying to entice investors onto its $150 million fund.

Strongbow Exploration is invoking the romance of the series set in the 18th century mining industry of northern Cornwall to buy-a-bit-of-history, according to the Telegraph. The TV series featuring the dashing Aiden Turner and delectable Eleanor Tomlinson has been a massive hit here in the U.K. — and may prove equally popular to the “Downton Abbey” series once it’s rolled out around the world. It’s just starting its second series (or “season” to you Americans) with even higher viewing numbers.

Poldark: Courtesy of PBS/Masterpiece.

“One Day, this will all be yours.” “What, the curtains?” “No, all that you bloody see!” Poldark is taking audiences by storm and igniting memories of romantic tin mining. Image courtesy of PBS/Masterpiece.

Strongbow may well raise its capital on the romantic idea of buying into a 400-year-old mining tradition, but hard-nosed investors may like to know that with modern recovery technologies, Strongbow’s South Crofty mine has at least a 10-year lifespan.

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“The biggest hurdle renewables have to overcome is not the cost of production, but the curse of intermittency. Where does the power come from when the wind doesn’t blow or the sun doesn’t shine?”

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Those are the words of MetalMiner Co-Founder Stuart Burns writing last month about how efficient and cost-effective energy storage could allow intermittent power sources such as renewables to play a baseload role in energy delivery. The U.S. Department of Energy is funding 75 projects developing electricity storage, funding research at Harvard, MIT, Stanford, and the elite Lawrence Livermore and Oak Ridge national labs in a bid for achieve a breakthrough. But haven’t we heard this all before?

Renewables_Chart_September-2016_FNL

Research has long been touted as the key to unlocking the potential of renewables for at least a decade now. There are plans for hydrogen bromide, zinc-air batteries, storage in molten glass, next-generation flywheels, to name but a few with many claiming “drastic improvements” that can slash energy storage costs by 80–90%, but it will be — at best — years before we see any of these technologies and work.

Our Renewables MMI dropped a point to 52 this month, reflecting the general low-demand market the specialty and rare earth metals used in solar panels and wind turbines are in. We remain skeptical that, even with such a research investment, that a breakthrough in energy storage is imminent. Existing technologies — such as Tesla’s powerwall home batteries — hold the most potential for renewable energy storage right now.

India’s Solar Panel Turnabout

Meanwhile, in an example of turnabout is fair play, India has decided to take its case against U.S. solar subsidies of photovoltaic panel companies to the World Trade Organization and the world’s largest democracy, honestly, has a good chance of winning.

The complaint alleges the states of Washington, California, Montana, Massachusetts, Connecticut, Michigan, Delaware and Minnesota prop up their renewables sector with illegal subsidies and domestic content requirements – an obligation to buy local goods rather than imports.

India lost a case at the WTO earlier this year after the U.S. complained about local supplier requirements to provide silicon photovoltaic panels for India’s massive new national solar power initiative. We said, at the time, that the U.S. might want to rethink taking the case to the WTO and even accepting the win.

Now, India is saying what’s good for the goose has to be good for the gander, and that the U.S. shouldn’t be able to subsidize its solar industry at the expense of Indian panel importers. It’s difficult to see how our nation will argue the exact opposite of what it said about free trade and market forces just one year ago when U.S. panel manufacturers were salivating over the prospect of providing of the 4,5000 megawatts of panels needed for three phases of India’s massive. Jawaharlal Nehru National Solar Mission and didn’t want India’s local subsidies to keep them out.

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SolarWorld and several other U.S. panel manufacturers cried foul and the Commerce Department and International Trade Administration appealed the case all the way to the WTO and won. Now, those chickens have come home to roost. By filing the complaint, India has triggered a 60-day window for the U.s. to settle the dispute, after which India could ask the WTO to adjudicate.

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California’s clean energy law, alone, has some of the richest solar subsidies in the world. Not only does the state offer cash back for installation of panels, it also doesn’t include rooftop generation by homeowners as mw that go toward meeting the state’s ambitious energy targets (50% of all energy from renewable sources by 2030). That means utilities creating their own solar parks get more impact toward meeting government goals, and rewards and lawmaker consideration, than homeowners and businesses do. Ratepayers essentially subsidize utility companies toward meeting the state’s renewable goals.

21 states and the District of Columbia include rooftop solar panels in their mandates for clean energy but not California.

What Does This Have to do With Renewables?

California’s subsidies for providing panels to solar projects are also quite rich. The California Solar Initiative offers rebates to buyers of the panels whether they are installed on homes, businesses or in utilities’ solar parks. The value of each rebate is defined by a complicated equation, but if India can prove those subsidies are against WTO — especially considering how much more consideration big buyers like utilities receive than homeowners and businesses — the case could be a serious slam dunk against U.S. solar subsidies.

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Many grain-oriented electrical steel market participants know that macroeconomic drivers and general steel price trends often diverge from GOES trends.

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Comments from the most recent Steel Market Update summit at the end of August suggest it may be hard to “buck the trend.”

Macro Trends

What are these macro trends?

  • Steel demand looks weak overall and overcapacity will continue unabated. According to Tony Taccone, Partner at First River Consulting, “global steel demand has stalled and there will be no growth going forward.” In addition, Taccone indicated the world has 700 million metric tons of overcapacity and the problem is set to become worse.
  • Trade cases will put the kabash on Chinese export growth. China has produced too much steel at unsustainable prices and has exported materials at the marginal cost of production, according to Taccone.
  • Automotive demand may have peaked and aluminum demand may weaken steel demand.

Despite weak demand in some sectors, others paint a more positive picture. According to Alan Beaulieu, Principal of the Institute for Trends Research, many factors look more positive for demand including light vehicle production, U.S. industrial machinery production (recently turned positive), a booming office building construction market, a stabilized oil and gas extraction market and healthy global demand for crude oil.

GOES_Chart_September_2016_FNL

In addition, Beaulieu pointed to rising mining, electricity generation and manufacturing sectors, that certainly bodes well for power equipment production and demand.

Micro Trends

With the loss of Allegheny Technologies, Inc. capacity for GOES, the uptick in electricity generation and construction, and the more bullish outlook for other commodities and non-ferrous metals, we might expect GOES prices to creep up accordingly.

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Though the macro trends paint a slightly more negative picture for steel prices in general (negative for producers, positive for buying organizations) for the near term, GOES markets don’t cleanly align with steel markets. September marks the second month of a rising price trend.

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The sole major U.S. rare earths mine will stay safely mothballed even as its former owner, Molycorp Inc., exits chapter 11 bankruptcy freed by the process of the obligations of owning it, likely ending for some time any attempt by a U.S.-based company to locally produce the specialized battery and magnetic elements on a mass scale.

Rare-Earths_Chart_September-2016_FNL

We believe in you, Texas Mineral Resources Corp., but we’re waiting on the results like the rest of the country. Also, we love the new name.

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Molycorp failed to sell its Mountain Pass mine in San Bernardino County, Calif., as part of its bankruptcy case. Molycorp became Neo Performance Materials after it exited bankruptcy and no longer has any connection to the Mountain Pass mine and facility where it shut down production a little more than a year ago.

Paul Harner, the chapter 11 trustee in charge of the mine, warned recently there was no point in continuing a separate bankruptcy for it as there was no money to do anything with the property even if the trustees wanted to.

Zombie Mine Lease

Lexon Insurance Co. offered to lend Mountain Pass’ estate $4.2 million to maintain the mine and continue the search for a buyer. The mine still costs money to keep in a safe condition and California environmental authorities are watching. Until the maintenance fund runs out — or prices change enough to make it able to reopen and don’t take that bet (see below) — Mountain Pass will exist in a state limbo, neither fully closed nor able to be restarted.

The Lahontan Regional Water Quality Control Board, part of California’s network of water safety overseers, said that it least wants to keep the lights on, the gates locked and the pumps running.

Pumps at Mountain Pass confine groundwater contaminated with barium, nitrate, radium and uranium.

Low Prices = Closed Mines

The open-pit mine was the sole U.S. source of rare earths. When rare earths prices were high back in 2011, Molycorp plowed $1.5 billion into the Mountain Pass facility but shut it down last year as prices continued to erode for both light and heavy rare earths. Before declaring bankruptcy, Molycorp vowed to focus its production on its operations in Estonia.

Prices have stayed low for the last three years so it’s no surprise that Molycorp and the bankruptcy court couldn’t find a buyer. Our Rare Earths MMI registered another 17, charting pretty much the same flat course it’s coasted through for the last three years.

China removed export quotas on producers of the magnetic and battery metals at the end of 2014 and — while demand from cell phone, computer and defense manufacturers has remained steady to up ever since — supply of heavy rare earths from China and Australia’s Lynas Corp. has more than filled the gap.

Other nations are still interested in developing their own rare earth resources as no one wants to experience a Japan-style Chinese producer boycott, which actually happened in 2011 when Chinese producers cut off their neighbor with no official statement or explanation why. The boycott ended just as mysteriously as it began, but one thing it did do was inspire major Japanese manufactures such as Honda Motor Corp. to find substitutes for heavy rare earths so they could scale back reliance on their testy neighbor.

Why Didn’t Molycorp Fail Earlier?

Molycorp probably stayed alive longer than it should have due to such sentiment. It even got kid-glove treatment on 20/20 in a last-ditch effort to avoid bankruptcy, one that MetalMiner Co-Founder and Executive Editor Lisa Reisman poked several holes in when it happened. The concern over rare earths was actually a market distortion caused by hype and not a reflection of the actual availability and abundance of the materials.

Canada’s Rare Earth Quest

Yet, in Canada — as with TMRC’s Round Rock, Texas, deposit — exploration is continuing and there is plenty of investor interest in providing manufacturers with a source of yttria, neodymium and dysprosium oxide.

Quest Rare Earth Minerals, a Canadian company, has vision for a mine at Strange Lake, on the Labrador-Quebec border, and it inched a bit closer to reality this month after submitting environmental impact statements to the Canadian government.

The company hopes to mine rare earths there and process them in a facility they will construct very similar to the what Molycorp did at Mountain Pass. Yes, they’re planning to do the exact same thing Molycorp did only with a government that will likely place even more restrictions and market disadvantages on the project than the U.S. federal government slapped on Molycorp. There are caribou where Quest wants to mine, so hold onto your wallets, investors!

Quest President Dirk Naumann, however, acknowledged that the market environment might be a bigger hurdle than any environmental hurdle such as local caribou paths.

“The economy around the globe (as far as) mining and resources is concerned, faces lots of difficulty,” he said.

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If that’s not the understatement of the year, he should also note the difficulty the PARTICULAR rare earths market faces. Being able to produce and refine its own rare earths is a laudable goal for any nation’s government, just as supporting local manufacturing and enough farm capacity to feed all its people in case of a disaster is, but to blindly throw money into an oversupplied market in hopes of prices coming up someday in the future?

That’s just called bad economics. Check out that chart. We usually expert our price curves to, well… curve. It really does all come down to the third rule of acquisition.

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