Stocks of stored minor metals such as indium growing, but what are the pitfalls?
Scarlett Zhang, vice president of the China-based Fanya Metal Exchange, told the attendees at the Minor Metals Trade Association's 2014 International Minor Metals Conference in London at the end of April that 2,500 (metric) tons of minor metal indium is in stock.
She also informed the conference that figures for other minor metals held in the exchange's 11 warehouses are:
- Germanium: 44.5 tons
- Ammonium Paratungstate (APT - (NH4)10(H2W12O42)·4H2): 10,450 tons
- Bismuth: 10,000 tons
- Gallium: 102.35 tons
- Cobalt 90 tons
- Silver 3.47 tons
- Antimony: 440.55 tons
- Vanadium Pentoxide (V2O5): 35 tons
- Tellurium: 30 tons
- Selenium: 20 tons
You may think, "big deal!" Well, think again. If Zhang's figures are to be believed, then this is a very big deal for some metals—particularly indium, probably one of the largest around.
To give you an idea of what some of these stocks of metal could represent, here's how they stack up against the U.S. Geological Survey's (USGS) 2013 figures for global production of each metal.
|Metal||Global Production – Tonnes||Fanya's Stocks (% Global Production)|
* Total world production not provided because of lack of data from China and other major world producers.
Needless to say, the figures that really stand out are those for indium and bismuth, especially indium, which shows more than three years of annual global production, and more than five times Chinese annual output, sitting in warehouses in China.
Now, the exchange is three years old, so the indium stocks have been built up over this period. However, the exchange only started trading selenium and tellurium toward the end of last month—April 21 to be precise—and look how much is already held.
Some Exchange Statistics
To quote some of Zhang's other statistics for the exchange:
- "Trading volume and Turnover: nearly 160,000 tons, with turnover above $32.7 billion; Memberships: over 100,000 members (producers, traders, consumers, institute investors and personal investors)"
- "Clients Assets: $4.12 billion;"
- "Sales amount for rare metal enterprises: $3.2 billion"
In addition, we learned that the exchange is adding some 500 new clients each day, and "$320 million of new clients assets per month," with considerable interest from the Chinese "Dama" or individual investor.
The Exchange's Three Stated Raisons D'Être
- Perhaps one of Zhang's most illuminating slides was the one that provided three raisons d'être for the exchanges existence: Global rare metal industry needs much more open data and a platform integrating information flow, cash flow and logistics flow.
- The global rare metal upstream and downstream industries need better sales channels, more equal pricing forming system and more comprehensive financial services.
- Global capital market needs new investment targets of being modern and representing high technology development
Zhang was particularly keen to emphasize the last of these points, noting later in her presentation that: "Rare metals become important investment products which can keep value or anti-inflate in the era of electronic finished products which are made from rare metals as the vital functional raw material."
The exchange, therefore, provides not only institutions but individual investors a handy way to invest in various minor metals. They can, if they want, even take them home and put under their beds. As Zhang so rightly pointed out: "With the real estate industry market going down, we need to search for more and better investment categories in 2014."
Other Useful Reasons For Its Existence
In addition to these three, the exchange appears to serve several other useful and important purposes—as described by some of the speakers at the exchange's third anniversary celebration on April 18.
Vis-à-vis the "rare metal industry" and "rare metal production," the exchange enables China both to exert more influence and extract more profit. According to Qinhua Wang, the vice chairman of China Nonferrous Metals Industry Association:
"We hope to increase Chinese speaking right of rare metal industry by the connection between rare metal industry and financial industry.
"Although China has a very important position in rare metal production, consumption and import and export, we have no enough influence on rare metal in the world and we didn't get reasonable profit in the international rare metal industry.
"Under the circumstance that the prosperous development of strategic industries, our position becomes more important. Minor metal, great contribution! We expect to increase our rare metal's pricing mechanism and great influence on international market and strengthen Chinese market speaking right gradually."
And, according to Feng Cheng, chairman of China Chamber of Commerce of Metals Minerals & Chemicals Importers & Exporters (CCCMC):
"Seen from the worldwide value chain, Fanya is function as the protector of Chinese rare metal resource and promoting the national market pricing as well. In the meantime, Fanya also makes the ordinary investors get profit, which realized the four parties win-win situation of country, industry, enterprises and investors."
On the pricing front, too, the exchange has been helpful to a number of minor metal producers—extremely helpful if two producers, one of gallium and one of antimony, are to be believed. And they are probably not alone:
"Fanya, who combines with the real economy and capital achieves a surprising effect. I think the most sad thing is that we sell our resources at very low price to overseas markets currently, but we have no resource to use when our industry is well developed and upgrade to a new level in the future. With the platform of Fanya, antimony enterprises need unite together to maintain antimony market order and seek more reasonable pricing mechanism." —China Minmetals Corp.
"Gallium is not raw ore, of which about 90 percent is extracted from the production of aluminium oxide. If we don't produce the gallium from aluminium oxide, it will be washed away. Chinese gallium resource takes up about 90 percent of the world, but current gallium price in the market failed to show its resource value, that is to say that we give the resource to the overseas market without taking any payback. Gallium industry should have a better future." —Libing Jia, Chairman of the board of Zhuhai Fangyuan
The discussion following the presentation, the last of the conference, could perhaps best be described as "lively," especially with the need for decorum to be maintained. (One need remember that many delegates make their livings trading the very metals Fanya is holding.)
However, perhaps understandably, very little concrete information could be learned from Zhang:
Q. Why so much indium, as opposed to silver – both are industrial metals?
A. It was the exchange's first metal.
Q. How much can the market move on Fanya?
A. There are market limits of 5-6 percent per day.
Q. Can people take stocks out?
A. They can take metals back home if they like.
Q. What stock levels is Fanya targeting?
A. Depends upon the market.
Q. Who is buying: industry or individuals?
A. Open an account and we'll tell you.
Q. Are individuals not being "seduced" into minor metals by adverts on TV and the like? There are not enough of them and the volumes are too small.
A. There's a market in base metals. Why not minor metals? If it weren't Fanya, it would be someone else.
What To Make Of Fanya?
First and foremost, the exchange appears to function as a very useful domestic price support mechanism for various minor metals produced in China. Throughout Zhang's presentation, she returned again and again to the theme of Fanya providing a way in which the "true" value of various metals could be realized. (The individuals quoted above confirm this.)
Can individuals really take their metal holdings "back home" and pop them under the bed? I doubt it somewhat, especially if they hold only 100 grams of this or that metal. And, as a corollary to this, when it comes to selling, I can't see who would be on the other side of the deal, especially in a falling market.
Indeed, the fact that no information was forthcoming from Zhang on the split between institutional and individual membership and/or trades makes one wonder whether it is small-time individuals who are being targeted as investors. And if they are, and something goes wrong and they come to harm, what may the effects be on the minor metals trade? (One need remember that this is China, where the concepts of culpability—especially that of government officials—and individual rights are not necessarily the same as they are elsewhere.)
And what's the government's involvement? The exchange must certainly have its, if only tacit, approval. Trade in such metals is too important not to come under the purview of at least some part of the administration.
This could lead one to cynically surmise that the exchange and the stocks of metal it "holds" are actually a nifty way for China's State Reserve Bureau to complement, with "buffer" stock financed by exchange members, the country's national stockpile of such metals.
In times of national emergency, who knows if the government would not see its appropriation (with or without compensation) of these metals as perfectly justified? And in a crashing market, what easier way to pick up such metals at fire sale prices?
But I am probably being too cynical and, "[w]ith the real estate industry market going down," the exchange does, simply—for Chinese investors anyway—offer an excellent investment alternative. Hey, Thomson Reuters, Bloomberg and Metal-Pages either are, or will soon be, carrying Fanya data.