2019 PREVIEW: Three themes to watch out for in the minor metals markets

Fastmarkets looks at key factors that are likely to influence minor metals prices in 2019.

China’s slowdown dampens sentiment
For minor metals production, China leads the way globally, contributing an estimated minimum of 70% of world output of indium, bismuth, gallium and germanium.

Last week, the world’s biggest producer and consumer of minor metals said its economic growth dropped to its slowest annual rate in almost three decades last year.

The news has dampened further already weak sentiment across the minor metals complex with buyers now preferring to stay on the sidelines cautious about the growth in sectors, including construction and technology, which require the use of minor metals.

“Global uncertainties are weighing on prices with not only the Chinese but also the world economy not performing well,” a trader in Europe said.

“People are cautious, markets are quiet. It’s looking like we are in for a quiet period with China’s anemic growth looming over,” a second trader said.

For the whole of 2018, China’s economy grew by 6.6% – the slowest pace since 1990 – and down from 6.8% in 2017.

Some minor metals prices are already at historical lows this year – selenium is now hovering at its weakest level since December 2016, while bismuth is trading at its 2005-low.

But despite the negative outlook for this year, some analysts see a potential upside for the metals complex in general.

“While economic data is showing a slowdown in the Chinese economy, the recent talk of more stimulus has underpinned some strength in iron ore, steel rebar and the base metals prices, which may well indicate that, having sold off, downstream manufacturers are now looking to restock. This could be good for the whole metal complex,” Fastmarkets MB head of research William Adams said.

“Needless to say, any price rebounds are likely to remain fragile until a new US/China trade deal is signed, but some of the noise from the trade talks sounds encouraging. A new deal could be a much needed, just-in-time, game changer,” he added.

Trade war
Along with the slowdown of China’s economy, the tit-for-tat trade war between the United States and China keeps adversely affecting the minor metals industry. 2018 was a year of uncertainty and high volatility fueled by the escalation of the US-China trade standoff, and sources expect uncertainty to continue at least for the first quarter.

However, market participants believe the US and China are closer to reaching a deal than they were before. Sources recently polled by Fastmarkets in both countries are positive about the outcome of the key meeting between Chinese Vice Premier Liu He, who will lead the Chinese delegation, and US President Donald Trump on January 30-31 in Washington.

“This time we do expect an agreement between Washington and Beijing since it is pretty clear that an escalation of tensions is to benefit of none,” one of the biggest minor metals producers in China said.

Beijing and Washington have until March 1 to reach a new trade deal. If talks are unsuccessful, tariffs are set to increase to 25% from 10%. The metals affected will be bismuth, cadmium, gallium, germanium, germanium dioxide, selenium, tellurium, silicon, magnesium, mercury, arsenic, rhenium, hafnium, ferro-tungsten, ferro-vanadium, ferro-silicon, ferro-manganese, vanadium pentoxide, titanium, cobalt sulfate, cobalt metal and cobalt tetroxide.

Even if duties do not increase, the impact is already visible this year in terms of oversupply and slow trading, market participants said.

“Either way, with or without an agreement, the damage is already done,” a US-based trader said. “We are suffering the hangover of the tariffs.”

Because suppliers moved large amounts of indium and other minor metals into the US at the start of the US-China trade war, these markets are now facing oversupply. Ultimately, indium, gallium and antimony were excluded from the final list of trade duties, but part of this stock is yet to be depleted.

Indium has been heavily affected already by thin demand, with prices pressured further after Fanya attempted to auction 34 tonnes earlier this month.

Fastmarkets’ latest assessment of the Chinese domestic 99.99% indium price was 1,300-1,460 yuan ($192-216) per kg on Wednesday January 23, down 5.8% from the prior week and at the lowest level since October 2017.

The United Kingdom is due to leave the European Union on March 29, 2019. With the final Brexit deal yet to be agreed, the main concern for minor metals participants whether the EU’s Registration, Authorization and Restriction of Chemicals (Reach) regulations will continue to apply. Reach monitors the production and use of chemicals and their effects on health and the environment.

“The main implication for us is Reach-related and this is the same regardless of deal or no deal,” a UK- based trader said.

The UK government intends to achieve “associate membership” of the European Chemicals Agency (ECHA), which means the UK would avoid duplicate testing and related costs under Reach regulations. But this is not yet guaranteed, and several companies polled prefer not to take the risk. Thus, contingency plans are already in play, Fastmarkets has learned.

“We have set up an EU company and are in the process of transferring our Reach registrations over to it so that we can continue all our EU business,” the trader said.

“At this point, we have already spent thousands of dollars on the Reach registration, and therefore we have no choice but to open a new company in a European country so we will not lose it,” a second UK-based trader said.

In case of a no-deal scenario, sources agree some macroeconomic consequences are likely to affect minor metals prices in the short term such as volatility, inflation or the weakness of the dollar due to its linkage to sterling. Overall, however, they said, Brexit should not disrupt the industry massively, and not to the same extent as the other two events aforementioned.

“Our actual business with UK consumers is relatively limited, so although we do anticipate that there could be delays at the border, we should be largely unaffected,” the first European trader concluded.

Fastmarkets’ minor metals team hosted a web seminar, discussing recent market trends in minor metals, and the factors expected to drive price moves in 2019. If you missed it, click here to listen to the free recording.