Strategic Metal Supplies Will Tighten in 2011

By: Anthony_David

According to the World Steel Association, global steel demand in 2011 is expected to fall to 5.3% but in terms of volume, demand will still reach a record breaking 1.34 billion tonnes. As maturing economies continue to struggle to regain their foothold after the global economic downturn, the emerging BRIC (Brazil, Russia, India, China) nations are expected to dominate the demand curve, with India and China at the forefront.

In 2011, China expects domestic steel consumption to grow by 8–9% and reach 650 million tonnes, while 2012 may see a production of 680 million tonnes. India too is expected to witness domestic steel demand rise by 9–10% during 2010–11. Demand is expected to be driven once again by the automobile, consumer durables and infrastructure sectors. Indian steel makers are finalizing expansion plans to take advantage of this growing market. With rising demand in both nations, the raw material market (coal and iron ore) is expected to see sharp rises in demand too.

After 4 decades of practicing an annual pricing mode, iron ore pricing methods changed to a quarterly one in 2010. The new price for Q1 of 2011 will be based on the average spot prices in September, October and November. Although the new model has the support of the three leading mining companies, many steel companies prefer to maintain the old annual model, which was more stable and predictable. Meanwhile, leading iron ore consumer, China, has begun exploring for more iron ore resources. With the number of invested mines and captive mines on the rise, the market expects iron ore supplies to exceed demand by 2012 instead of the earlier forecast of 2015.

Molybdenum in 2011 appears to share a mixed forecast. China’s steel demand, and consequently that of molybdenum, is expected to rise but since molybdenum inventories are already high in China, large-scale imports are unlikely to be required. However, outside China, long-term contracts are already being signed as buyers fear shortness in the supply of molybdenum oxide later in the year due to limited increase in production capacity.

Further, China is likely to classify the metal as a “national mining resource” and play the “rare earth” card with molybdenum as well. By controlling mining and building a stockpile once again, China may cause molybdenum prices to double in the near future.

China is a market leader in the manganese market as well but quality being a prickly issue, South Africa still enjoys the leading position in the global market. In fact South Africa expects to produce 13 million tonnes per year of manganese ore by 2020 and out of that, export about 11 million tonnes per year. Speaking about a new railway line that will transport iron, nickel, and manganese to the port town of San Pedro in Ivory Coast, Mines and Energy Minister Augustin Comoe said, “The west is overflowing with nickel, manganese and iron. Construction of the railway will begin in 2014 and we’re looking to transport about 22 million metric tons of minerals a year.” Ivory Coast’s mining story in expected to create waves in 2011.

In the rare earth market, China’s Ministry of Commerce denied October media reports that stated a 30% reduction in export quotas in 2011. Wang Jian, a Vice Minister of Commerce, assured the global market, “I believe China will see no large rise or fall in rare earth exports next year.” The quota system will however, undoubtedly remain intact. Spokesman Yao Jian of China’s Ministry of Commerce said, “To protect the environment and natural resources, China will stick to the quota system to manage rare earth exports next year, and quotas will also decline.”

In addition to a tighter export quota, China’s Ministry of Finance has announced that it will increase export taxes on select rare earth metals such as dysprosium, neodymium, terbium and lanthanum, from the existing 0–15% up to 25%. According to Peng Bo, an analyst at Guosen Securities Co., “The government simply wants the same tax standard to apply to all key rare earth elements of which it wants to control shipments.” The new taxes will be effective from January 1, 2011. The government also intends to limit the production and exploitation of the metals to ensure sustainable development as per WTO policies.

By Anthony David

http://www.criticalstrategicmetals.com

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