LME WEEK 2019: How the bismuth market mirrors the macroeconomic effects of the US-China trade war
The protracted United States-China trade war has deterred trading in many minor metals for most of 2019, with bismuth in particular taking a hit.
The trade dispute between the two largest global economies has directly resulted in the introduction of import tariffs in both China and the US, making it more expensive to trade and causing oversupply because of slower downstream consumption.
The US introduced a 10% import tariff on Chinese bismuth products in September 2018 and increased it to 25% in May this year.
The import duties forced suppliers to cut their offer prices during the first half of 2019 to stimulate export demand. The bismuth price in Europe has fallen close to the cost of production; suppliers are now operating at very low margins.
The price of bismuth 99.99% Bi min, in-whs Rotterdam was assessed at $2.55-2.90 per lb on Friday October 11, its lowest in Fastmarkets’ assessment history.
The price has fallen by more than 40% year on year from $4-4.60 per lb on October 4, 2018.
Other minor metals such as gallium and germanium are also subject to US import tariffs but those prices have maintained stability or softened only slightly during the year. This reflects steadier demand, supported by growing wireless infrastructure in Asia and the strength of the communication and military sectors.
In contrast, demand from downstream bismuth oxide and the pharmaceutical industry has been weakening this year, making the metal more vulnerable to trade tensions.
“[This year] has been one of those years… all the minors have deteriorated but bismuth is much worse off,” a European minor metals trader said.
After the US import duty was raised to 25%, several Chinese bismuth exporters and domestic producers claimed they were unable to sell profitably into the US. Consequently, US buyers turned to other countries, reshaping traditional trade flows.
Before the tariffs were introduced, nearly 80% of bismuth imported into the US came from China. Now US buyers are also looking to Mexico, Canada and increasingly to South East Asia and South Korea to secure bismuth.
The latest data from the US Geological Survey shows China exported around 130 tonnes of bismuth to the US in the first three months of 2019, comprising 13.7% of the 950 tonnes of total bismuth exports in the period. In the whole of 2018, China exported 4,016 tonnes of bismuth; around 1,200 tonnes of this went to the US.
Repercussions in China’s economy and fiscal stimulus measures
The trade war with the US hit the Chinese economy hard, forcing the East Asian country to introduce various fiscal stimulus measures.
In the second quarter of 2019, China’s GDP grew by 6.2% - its slowest pace in 27 years - from 6.4% in the previous quarter.
The Chinese government took several measures to support the local manufacturing industry and to boost liquidity in the financial system such as cutting value-added tax for manufacturers to 13% from 16% in April.
“For some enterprises that are fighting a shortage of cash flow, the tax cut was a momentary relief,” one Chinese bismuth exporter said.
China’s central bank, the People’s Bank of China, meanwhile, released liquidity by increasing the supply of short-term funding to banks, which injected 150 billion yuan ($21.7 billion) through open-market operations in May.
Chinese exporters hoped the weakening yuan, caused by the economic slowdown in China, would provide some support for business because Chinese products became cheaper to buy in dollars. The Chinese currency has fallen gradually since February 2018, reaching its lowest in more than a decade in August when it surpassed 7 yuan to the dollar. It was at 7.066 yuan against the dollar on October 14.
But these measures were insufficient to counteract the bearish macroeconomic outlook and resulting tight margins for producers, causing some small refineries in China to consider reducing production and even closing operations, according to market sources.
And it is not just smaller operators that have been affected. China’s Hunan Jinwang Bismuth, one of the world’s biggest suppliers of high-purity bismuth metal and bismuth chemicals, started to face delays in product delivery under long-term contracts earlier this year. This was attributed to Jinwang’s difficulties in opening letters of credit at banks, meaning it could not purchase raw materials. Exact tonnages affected have not been made public; the delivery delays had not been resolved by the time of writing.
European market participants told Fastmarkets that Jinwang is not offering material. Jingwang declined to comment on the delay when approached by Fastmarkets.
New business tactics
Under such circumstances, some bigger market participants have been looking for ways to manage their risk from a declining bismuth price, mostly by focusing on reducing exposure to the metal.
In July, Canadian minor metals and specialty chemicals producer 5N Plus “significantly” reduced production of bismuth at its refining and recycling facilities. To maintain operations, it instead increased procurement of bismuth, meaning it could benefit from the low metal prices.
Before the July announcement, the company refined around 3,000-3,500 tonnes per year of bismuth, depending on actual feeds available. Since the procurement strategy change, it has purchased big quantities - of around 100-200 tonnes per month, according to market sources - on long-term contracts.
The increased spot buying led to a rise in the Chinese spot market price, which rebounded between mid-July and early August to 42,00043,000 yuan ($5,883-6,023) per tonne from 40,500-42,000 yuan per tonne at the start of July.
But the Chinese price remain volatile during the third quarter. While producers cited lower inventory in warehouses and reduced supply in the spot market, fears that bismuth stocks held by the failed Fanya Metal Exchange could be released into the spot market capped price increases.
Fastmarkets’ bismuth 99.99% Bi min, in-whs China price stood at 39,500-41,500 yuan per tonne on October 11.
There are around 19,228 tonnes of bismuth held in Fanya warehouses, accounting for close to two years’ global production.
The momentary uptick in the Chinese bismuth price in July-August did not have an effect in the international market, where market participants continued to buy hand to mouth.
“It seems there is still a lot of inventory despite the fact that some big players are out of the market as we continue to receive very competitive prices,” a supplier and bismuth consumer said.
But some European traders and new market entrants are now eyeing the bismuth market for possible price increases due to the fundamental and macroeconomically driven volatility witnessed so far.
“If the toughest period has passed, it could be a good time to trade the metal,” a minor metals trader told Fastmarkets recently.
A resolution of the US-China trade war could restore market confidence.
Some market participants say they expect a deal to be announced after US President Donald Trump meets with Chinese counterpart Xi Jinping at the Asia-Pacific Economic Cooperation summit in November in Santiago, Chile.
But even if this uncertainty moves out of the picture, any long-term bismuth price rise could be hampered by the lack of significant global demand growth forecast in the near term