Cowboys and Indiums
Minor metals, such as indium, rarely hit the headlines. But, when they do, it is not usually for the right reasons. So, to quote Neddie Seagoon, ‘let me tell you a tale’…
To be clear, indium is not the most minor of minor metals. It is not as minor as, say, iridium (6mtpy), rhodium (23mtpy) or rhenium (45mtpy), but with annual primary output of about 700mt it is compact enough to fit into a double-garage. If you add quantities recovered via recycling, it is about two double-garages.
Produced as a by-product of lead-zinc smelting, the top world producer is China and its main application today is in the form of indium tin oxide. As such, it is used for coating glass for flat screens because the substance is invisible to the naked eye, and yet conductive. Without sufficient indium over the last two decades, the circuits which operate our touch screens would not exist.
So, the story of how about three and a half thousand metric tons of indium (3609.461378 mt precisely) five times annual primary output and two and a half times total supply came to exist, and how on December 30th 2019 its liquidators failed to sell the package, must surely contain lessons. Mustn’t it?
The origin of the metal for sale all relates to the now defunct Chinese Fanya Exchange. For Lord Copper readers, occupied with base metals, the matter may not have come to their notice. Fanya was an exchange set up in Kunming and launched to great fanfare in 2011. The ambition was to offer a Chinese public with limited domestic investment opportunities, a vehicle with which to buy minor metals directly. The exchange could in reality have been called ‘Minor Metals Direct’. The sales pitch was not unlike similar fateful exercises in the west of the 1970s – of which Strategic Metals Corp is an example. ‘The world (bar towing an asteroid back to earth) was said to be running out of elements essential to the modern world’.
For those involved with minor metals as the day job, schemes which might seem crackpot to us have the misfortune to appear entirely plausible to the unwary when matched against the theory that things are going to run out. Sea bed mining, capturing elements in gas form from the mouth of live volcanoes or underwater vents – some of these ideas are current even as I write. What the owners of Fanya did, was to make the fear that the supply of critical elements might dry up, seem real.
To assist Fanya’s case, the Chinese state business TV Channel called – without irony – CCTV 2, hosted business programmes, promoted by the Kunming Exchange, which broadcast wild predictions of how the world was on this course. Most of the metals alleged to be going extinct were, surprisingly, elements of which China was the main producer – tellurium, cadmium, bismuth, gallium, and indium amongst others.
For a while things went well. Meetings, in formats similar to religious rallies, were held around China in stadia at which investors were left panting to invest. As money flowed in, prices rose on the Fanya Exchange and those in Europe echoed them even if they did not believe them. The Metal Bulletin, the world’s most trusted and august publisher of metals prices founded in 1913, was seen to be advertising on their platform, perhaps keen to attract subscribers. And meantime, Fanya applied for membership of the Minor Metals Trade Association (MMTA).
As luck would have it, following the crash of 2008, Fanya perhaps further benefited indirectly for a while from its timing, as the world was awash with quantitatively eased dollars, an anxiety about paper, and a general flight into metal. What could possibly be more secure than a collection of minor metals that were going to run out?
Mercifully, for the MMTA, our prickly owner-occupier members had some misgivings about Fanya and were peculiarly perplexed, although slightly flattered, that an entire Exchange wanted to become a member. At presentations to our conferences, questions were asked about proof of the alleged tonnages in warehouse, the nature of those warehouses (whether independent or not) commissions earned or payable on trades, who were the brokers, what was the liquidity, lot sizes, who was entitled to membership etc.
Strangely, and perhaps fortunately, the answers were not as transparent as expected, but luckily too MMTA rules do not encourage membership by investor entities. Our rules forged in the decades following our foundation in 1973 were formed and evolved to retain an industry profile for our trade. To serve non-business customers we would have to change our model and become regulated by the investment community, something we still want to avoid, as it is not the main goal of what we do.
Following its hard-sell sales techniques, prices in all Fanya elements rose, with indium reaching $800 per kg by 2014. The exchange, which turned out not to have been an exchange at all, because it only allowed purchasing, collapsed soon after the first investors began attempting to take profits. When this did not prove possible, investors demonstrated outside the offices of the exchange asking for their money back, or at least the metal they had paid for. Neither was forthcoming and some of the exchange’s customers were locked up for their impertinence.
This therefore is the context for the news only a few days ago that the 3600 mt of indium failed to sell at an auction starting price of a mere $113.4 per kg (CNY 790.4/kg)
Looking back on these events, it is astonishing to the average minor metals merchant that Fanya was able to acquire 5 times the world annual primary output of indium in the first place. In copper terms this would be equivalent to JP Morgan having spent its quantitatively eased dollar handout to acquire 125 mln tons of copper cathodes. Some of us question whether the alleged indium parcel is entirely indium, or whether it is indium-bearing material in crude form, or simply something shiny but not indium at all. Perhaps we shall never know. Fellow members of the minor metals trade are surprised too that Chinese government-backed entities have not yet stepped in to remove this carbuncle from the market.
Indium is an element genuinely rare in nature. As a rough rule of thumb it requires the smelting of about 12,000 mt of zinc to generate 1mt of indium. For indium to be below $100 per kg looks rather like an aberration and yet so tarnished is Fanya that the trade simply does not believe that the goods for sale would be as advertised. There are too many unsolved questions. These are damaged goods and no amount of dressing up seems to make them appetising.
The last time the indium price was near these levels was in 2002 when it reached $60 per kg. To give this context this was prior to the flat screen revolution and following a period in the 1990s when huge stockpiles from the former Soviet Union were moving from East to West. Later that year Europe’s largest producer MetalEurop ceased production and by 2005/06 the market had reached $1000 per kg. So indium is a volatile market that in 20 years has rocked between $100/kg & $1000/kg.
For today’s metals funds keen to buy into the post-carbon economy, and perhaps pondering a position in a basket of minor metals – these are generational opportunities. Indium will always remain a minor metal, one with constrained supply, but with enduring applications likely to fuel our high-tech economy for many years to come. While caution is advised, Fanya’s ham-fisted liquidations might just prove helpful to some.
As Neddie Seagoon would say, ‘Ying tong iddle I po!’
Published January 15th 2020 on www.lord-copper.com