An upcoming auction on Sunday December 29 for Fanya’s 3,609.5 tonnes of indium is likely to be the last held for the now defunct exchange’s hefty minor metals inventories, but the uncertainty clouding the indium market will not be dissipate until the future of the material becomes clearer.
Thus, the global indium market is still expected to experience considerable headwinds in the coming year.
There has been a lot of market chatter surrounding Fanya’s indium stocks after more than 65,000 tonnes of different minor metals once held by the bourse have been purchased by various companies via auctions throughout 2019.
Rumors and discussions have circulated the indium market for several months owing to the significant volume that the 3,609.5 tonnes represents - roughly five or six years’ worth of supply globally - and that this amount would be allocated to a single buyer.
The auction, which is scheduled to begin at 10am Shanghai time on December 29 and end at the same time on the following day, has a reserve price of 2,852,918,274 yuan. This is equivalent to around 790 yuan per kg ($113 per kg) and marks a 14.6% discount to the current spot market price.
For market participants, the extent of the impact will depend on which company acquires it - whether it is state-owned or a well-known player - and whether material will find a way out of the Chinese market and into the global one.
Participants fear material will be released into market
“If the material is sold to a front company of a Chinese company then the material will most likely leak out into the [international] market and keep prices depressed for several years,” a manufacturer source based in the United States said.
“Additionally if it is an [indium tin oxide (ITO)] maker, there is the potential to force other ITO makers out of the market as they will have to write down inventories as well as lose market share as they will not be able to compete on raw materials. Then [there will be] more material available outside of China and force prices further down,” he added.
Another possible scenario that sources have pointed out is that material will be sold to one state-owned company backed by the government with an agreement to keep the material within China. This scenario would be more favorable to prices, but is deemed unlikely by most market participants.
“Even if [the material] is purchased by a state-owned firm and will be in presumably ‘safe hands’… it’s hard to think that a company will expend $500 million on a commodity just to sit on it and not make any profit,” a second US producer said.
“Overall, we think the indium price will hang around historically low levels for quite a long while to digest excess stocks in the market,” a Chinese trader source said.
This material overhang and constant rumors circulating the market have hit prices for the metal.
In Europe, indium prices started the year at $230-245 per kg. Since then, spot activity has been minimal with traders stepping away from the risks of potential auctions.
European indium prices are now trading at their lowest level since 1993. Fastmarkets assessed the indium in-warehouse Rotterdam price at $150-165 per tonne on Friday December 20, down 33.7% from the start of the year.
Chinese prices are also on a downward trend. Fastmarkets assessed the price for indium 99.99%, exw China at 900-950 yuan per kg on Wednesday December 18, down from 950-970 yuan per kg a week before.
The metal’s Chinese price has fallen more rapidly than the European one, dropping by 38% from 1,480-1,520 yuan per kg on January 2. Under such circumstances, some traders do not see much room for further price decreases.
“There is a different magnitude with indium than with the rest of the metals auctioned before…due to the huge volumes. Prices are likely to slightly fall right after the auction, but how further down can it go at this point?” a European trader source asked.
Spot prices nearing production costs
Participants warned that if market prices edge closer to the Fanya price and decrease by around 15% during 2020, it will no longer be profitable for some indium producers to operate and this will force a number of Chinese suppliers out of the market. The Asian country accounts for about half of global annual primary production.
This potential decrease will make it unprofitable for South Korean producers too, sources emphasized.
Production costs for indium are between $100 and $115 per kg, Fastmarkets understands.
“Most of the producers will have to close down their facilities when the [selling] price is lower than their costs,” the above Chinese trader said.
“Some crude indium producers are already reluctant to sell because the price is near to their production costs,” he added.
Excess stocks with or without Fanya
Yet the weakness in global indium markets is not just a symptom of the overhanging Fanya stocks - a quiet trading environment this past year has made producers more reluctant to sell at lower levels, resulting in a build-up of stocks at producers’ warehouses, especially in China.
The total amount of indium held in Chinese warehouses is unclear but the significant reduction in China’s exports of the metal suggest that large volumes are still in the hands of suppliers there.
China exported just 1.9 tonnes of unwrought indium in September compared with 23.6 tonnes in September 2018, according to Chinese customs data. This marked a 91.9% year-on-year drop. Shipments in October fell by a similar amount, dropping by 75% to 2.7 tonnes from 11.1 tonnes in the same month of 2018.
Demand to remain steady - new applications on the horizon?
Meanwhile, demand is expected to remain steady next year, according to market participants.
“The problem remains on the supply side, not in demand from end consumers - which is not changing, it remains flat,” a second European trader source said.
Indium is mainly consumed in the form of ITO, which is used in liquid-crystal display (LCD) screens for flat-panel devices - such as mobile phones, computers and televisions - and in solder, alloys, electrical components and semiconductors. The flat panel display industry accounts for over 80% of all indium uses and is not increasing in part due to improved manufacturing efficiency and recycling.
“Fanya and China are part of the story, but not the whole story,” the first US indium manufacturer said, “Demand for ITO remains good, I am also optimistic about new applications.”
In recent weeks, the market has been eyeing new research by analysts at US technology firm Apple, which anticipates using a new display technology called miniLED in its lineup of laptops and tablets by late 2020.
"MiniLEDs are all made with indium gallium nitride as a semiconductor and contain an extra of layer of ITO, [therefore] the move from the current technology to miniLED is positive for indium usage,” the same indium manufacturer said.
Even though new applications could be in the pipeline and might have a positive effect by 2021, for the time being, only supply will be able to determine next price moves, market sources agreed. One thing is for certain: once the Fanya material is out of the picture, participants will be able to assess new developments with more clarity.
“2020 will be painful at first, but in six months or one year all the Fanya issue will have passed; once Fanya is out of the conversation, we’ll start to see some light and we expect the market to balance again," a Chinese producer source said.
The fate of indium stocks once held by the failed Fanya Metal Exchange and due to be auctioned this week will remain a major concern for indium market participants going into 2020.