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2012: A Year of Transition for Strategic Metals

Commodities / Metals & Mining Jan 03, 2012 - 01:31 AM GMT

By: Anthony_David


China announced its rare earth export quota for 2012 on December 27. The initial quantity has been reduced by 27% in comparison to 2011 but the whole year’s quota is slated to remain almost unchanged from 2011 levels. Officials have launched a new system whereby the export quota would be split among the different types of rare earths—such a move is expected to better match supply and demand. China has, for the first time, split its export quota into light and medium-to-heavy categories. Mining companies that cannot meet the environmental standards of the government would be excluded from the quota.

In an official statement, the concerned ministry said, “In order to protect international demand and maintain the basic stability of rare earth supplies, the total export quotas for 2012 and 2011 will be basically the same.” In 2011, China’s export quota limit was set at 30,184 tons but only 14,750 tons were actually shipped out until November.

Outside China and India, there are now over 350 rare earth mining projects that are being developed across 35 countries by about 200 companies. According to a recent report from Roskill, non-Chinese projects are expected to add 56,000–57,000 tonnes of rare earth oxide to global supplies by 2015. Such a development would reduce China’s share of the global market to 70%.

The state-owned China Securities Journal has estimated that China’s steel products consumption would reach 646 million tonnes in 2012, which would be about 6% higher than 2011 estimates. Steel production is estimated to increase by 5.8% and touch a very high 728 million tonnes. Steel demand from the construction sector is expected to reach 350 million tonnes, up about 4% from this year. The auto and machinery sectors are expected to consume 44 million tonnes and 128 million tonnes respectively in 2012. That would translate to a rise of 10% and 8.5% respectively.

The US steel sector has been continually challenged by low capacity utilization rates and rising raw material prices. Although it showed signs of recovery in 2011, the industry is unlikely to recover fully until 2013. According to Fitch reports, demand is growing in the heavy-equipment manufacturing sector, the auto sector and the energy sector. Demand from the construction is at record lows and is not expected to gain much momentum until 2015. Demand from the auto sector is expected to continue rising all through 2012. However, the constant fear of a downturn is making steel producers extremely cautious about building inventories.

Rod Baxter, Managing Director of Australia’s manganese producer Consolidated Minerals said that the demand for manganese is expected to increase by 7% per year over the next 5 years. He said “The landed price for our material has been stable for the last six months. Indeed, we have seen small price gains made during the September quarter. This trend has continued into this current quarter for both ourselves and the other industry participants. Strong demand for manganese has continued from China, with increased activity from the Indian and eastern European markets.”

The steel industry is also the largest consumer of molybdenum. Steel alloys that contain molybdenum are corrosion resistant and can hold much higher heat—both of which are critical in nuclear reactors. Steel alloys used to build nuclear reactors contain more than 7% of molybdenum, so each new reactor will use at least 400,000 pounds of molybdenum. Since the steel will be used to retrofit existing nuclear facilities as well, the prospects of molybdenum are quite positive over the next few years.

The last few months has seen an upward trend in magnesium prices with a large number of companies based outside China showing interest in the metal. This trend should continue even while some analysts indicate that using magnesium and certain other metals in place of steel in the auto industry may not be as energy efficient as believed. However, auto makers still prefer magnesium to build car parts because of its inherent light weight and durability.

On the other hand, China’s domination of the magnesium market and its tendency to restrict export quotas continue to raise concerns about the metal’s continuous supply over the next few years. Political friction between China and the rest of the world over the metals market is unlikely to surprise many market observers.

By Anthony David

The mission of the Critical Strategic Metals Web Site

is to serve as a monthly compass for those who take a fundamental view of investment regarding the Molybdenum, Manganese and Magnesium metals markets, are concerned with the emerging critical under-supply of these strategic metals to Western nations and wish to profitability chart their course. Each month we will research and provide, in as short and concise a manner as possible, the most applicable information available on resources that will have the biggest impact on our day to day lives. Click here to sign-up for our FREE monthly report.

© 2011 Copyright  Anthony David- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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