Chinese bismuth producers could cut production on tight margins, falling prices – sources

Some Chinese bismuth producers are likely to cut production on squeezed profit margins, market participants told Fastmarkets, adding that it is hard to forecast the resultant impact on spot prices in the near term.

Domestic Chinese bismuth prices have fallen from highs of this year of 71,000-72,000 yuan ($10,303-10,448) per tonne in February and have been mostly under pressure so far in 2018, according to Fastmarkets’ assessments.

The domestic bismuth price was 48,000-51,000 yuan per tonne on Friday November 2, down by 1.5% from Wednesday’s assessment. This reflects a 30.7% drop from the 2018 high.

While raw material bismuth concentrate prices have declined during this period, the procurement cost of other auxiliary production materials has risen, according to market sources. The cost of sodium carbonate, a fluxing agent used to produce crude bismuth, and scrap iron, a reducing agent used in the refining process, have both increased by around 20-30% year on year since the beginning of 2018.

Factories that produce these auxiliary materials have been ordered to install equipment that meets environmental protection standards, pushing up costs for producers who have passed on the costs to consumers. Meanwhile, environmental crackdowns have forced some sodium carbonate and scrap iron producers to cut production, reducing the supply of the material.

This means the total production cost for bismuth has maintained the same level as last year. Combined with the lower price of Chinese domestic bismuth, this has resulted in a narrowing of profit margins for producers.

Now some producers are considering shutting down operations, market participants told Fastmarkets.

But those in the bismuth market are not in agreement about what the effect of the cut will be.

If the production curtailment materializes, it will curb the current price downswing, some market participants said. But others downplayed the impact on the spot prices because they believe the volume of cuts will not be significant.

Bismuth supply down since 2017
Chinese bismuth supply has declined since the beginning of 2017 as a result of some producers reducing production during environmental inspections, according to market participants. If spot supply continues to shrink due to producers shutting down operations on limited profit margins in the near term, this could underpin spot prices.

Refined bismuth production was 11,000 tonnes in China in 2017, down by 3,000 tonne from 2016, according to data by the United States Geological Survey (USGS).

In the first half year of 2017, many producers in Hunan province, a major production hub, closed operation as a direct result of environmental scrutiny.

“The [low] bismuth price will be buoyed because Chinese bismuth production has already declined for the past two years. If some producers indeed cut or shutter productions, it will narrow the gap between demand and supply, which will in return cap current price downsides,” a bismuth producer said.

Conversely, some market participants acknowledged producers who are likely to be forced to close down operations are small refineries who are not able to offset losses. In other words, the amount of production that could be removed is quite limited.

“The potential production cut mulled by small refineries have no influence on the bismuth price because those volumes only account for a small part of total Chinese annul production, and will be offset by the production ramp-ups from relatively bigger producers in China,” a second producer said.

Fanya continues to hang over market
Meanwhile, stocks held by the failed Fanya Metal Exchange still weigh on the market, with participants wary of bismuth stocks being releasing into spot market in the future. This could have a knock-on effect on prices in both Chinese and international markets.

“The sentiment is weaker and weaker; I am even wondering whether Fanya material could be coming out in the market,” a third producer said.

“We haven’t heard any stocks from Fanya would be released to the spot market, but those stocks always pose risks to the spot market,” a trader told Fastmarkets.

There could be as much as 19,228.05 tonnes of bismuth held in Fanya stocks, Fastmarkets estimates.

Concerns of the vast minor metals stocks previously on the exchange recently re-emerged when the trial of suspects involved in the exchange took place in July. But there has been no evidence of Fanya stocks being released in the market, Fastmarkets understands.

Global uncertainty along with US-China trade tensions has made it difficult to predict bismuth prices in the long term. Therefore, producers are following different sales strategies, Fastmarkets understands.

“Some of the producers have already sold out and the others are not that willing to sell as it is unprofitable for them,” a Chinese trader said. “Of course, a few of them are still selling, but their overall stock level has reduced considerably and is being transferred from producers to traders, speculators and consumers.”

European prices under pressure on oversupply
In Europe, weak demand has taken its toll on bismuth prices too. Fastmarkets’ in-warehouse Bismuth quotation has been in a downtrend through October because there is not enough demand to absorb supply material in the market. Fastmarkets assessed the European bismuth price at $3.60-4.10 per lb on Friday November 2, its lowest level since February 2004.

European sources spoken to be Fastmarkets do not expect a trend reversal in the near future.

“It does not look like prices will rebound,” a European trader said. “There is certainly more room for decrease. It is very likely that prices will fall to $3 per lb, at the same level it was a decade ago.”