2017 PREVIEW: Unresolved Fanya stocks cast shadow over China’s minor metals market

Chinese commodities prices received a boost with the start of nationwide environmental inspections in the third quarter of 2016, and the subsequent shutdown of several smelters has led to a surge in some minor metals prices. But uncertainty surrounding the release of vast inventories from the collapsed Fanya Metals Exchange continues to weigh heavily on China’s minor metals market.

Going into 2017, China’s Ministry of Environmental Protection had vowed to take serious action against those who fail to meet environmental protection standards, with some market participants predicting that minor metals prices will receive support from further shutdowns of illegal smelting operations.

Following a bout of environmental inspections, several plants in the minor metals market, primarily raw materials processing facilities, had been ordered to shut – either permanently or temporarily while improvements were made. These closures were mainly due to the illegal emission of waste water.

Several selenium dioxide plants had halted production in November last year which subsequently led to a sudden surge in prices for the material in early December.

However, a shadow continues to loom over the Chinese minor metals markets, a shadow in the form of the failed Fanya Metal Exchange.

The Kunming, China-based bourse was initially a boon to China’s domestic market, providing another outlet for producers to sell their material, and giving a group of new investors the opportunity to step into the often-complicated financial markets.

However, cracks began to show at the end of 2014, with some investors becoming wary as metal stocks continued to pile up. As sentiment soured, the exchange found itself exposed to metals prices that were continuously falling, while also being accused of failing to pay suppliers.

But this would prove to be only the beginning of the Fanya saga which would see months of uncertainty, protests by angry investors, the arrest of the exchange’s chairman and investigations into the bourse’s activities.

An investigation into ‘illegal fund-raising’ at the collapsed Fanya Metal Exchange still continues, despite many market insiders predicting the case would be resolved by the end of 2016. As such, concerns regarding the vast minor metals stocks the exchange held will continue to suppress prices in the year ahead, at least until such a time that the inventories on the failed exchange platform are appropriately dealt with.

Prior to its collapse, Fanya reportedly held 3,629 tonnes of indium, equalling around ten years of China’s domestic production. If this huge amount of stocks flood the spot market, indium prices will drop steeply and many producers in the indium market could be forced to exit the market.

In addition, Fanya’s warehouses are reported to have held 19,228 tonnes of bismuth (China’s annual output is around 13,000 tonnes), as well as gallium stocks of around 197 tonnes – equivalent to twenty months of domestic production.

“Antimony prices will rise to 55,000 yuan ($7,940) per tonne in China and $8,000 in Europe in the first quarter or [early] second quarter as supply of antimony concentrates in China has been very tight in […] past months and will continue to be tight in 2017,” an expert in the antimony market said.

A government crackdown on the smuggling channel through the China-Vietnam border during China’s Spring Festival holidays should limit additional material being taken out of the country, the expert said, while adding that the market also expects greater demand from international consumers who had failed to stock sufficient antimony ahead of the Christmas and New Year holidays.

“Antimony prices will be underpinned by the short supply of antimony concentrates [throughout] 2017, and are unlikely to fall to below 45,000 yuan per tonne again next year,” the expert added.

“The biggest support for [the jump in] selenium prices in December 2016 was the [surge] in electrolytic manganese flake prices [during] the year, but the phenomenon [is unlikely to] be seen again,” a major selenium producer said.

“Selenium prices in 2017 will still be weighed down by the sluggish demand and high inventory, though the supply in crude selenium has tightened after some small plants [were] closed for not complying with environmental protection standards [during] the fourth quarter [of 2016],” another selenium producer said.

“Investors purchased large amounts of tellurium at below 300 yuan per kg, [driving] the metal’s price in 2016, however, it is [unlikely that] the hot money will favour the rare metal of tellurium in 2017,” a tellurium producer told Metal Bulletin.

Currently the tellurium market remains oversupplied, and given additional concerns that the market may soon be flooded by 170 tonnes (85% of China’s annual production and consumption) of tellurium stocks from Fanya, it is unlikely that prices will see any major gains in 2017 without the support of speculative buying.

Indium and bismuth

“The indium market will see frequent upward and downward [movements] continuously [throughout] 2017 owing to frequent trading by investors,” a market insider said.

“It is hard to see prices soar before the Fanya case is completely [resolved] due to 3,629 tonnes [nearly ten years’ global consumption] of indium stocked in […] Fanya Metal Exchange [warehouses],” another market source said.

The bismuth market saw a similar situation last year with prices changing frequently, mainly due to speculative trading.

“The relationship between supply and demand in [the] bismuth market has not seen much change, so it is estimated the market will [remain] in the range [of around 60,000-76,000 yuan per tonne] seen this year [unless] the Fanya case [is concluded and stocks flood the market],” a major producer said.

“It is very likely that major germanium producers will [try to] push the [metal’s price] above 7,000 yuan per kg, which is [the] production cost of China’s [main] germanium producers,” a market source said.

“Germanium prices have [remained] […] below 7,000 yuan per kg since [May 2016] and major producers [have] suffered great losses [in] past months, so they will try to support the prices to a reasonable level in the coming year,” the source added.

See also:
FANYA: What will happen to its stocks of minor metals?
2017 PREVIEW: Environmental inspections squeeze metals producers

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