One topic that has repeatedly appeared in reports about the indium market over the past year is the increasing influence of investors on demand for the metal.
Since 2011, the investment industry has grown to become a significant consumer of indium. In China, two commodity exchanges allow companies and individuals to electronically trade contracts of the metal, while in Europe and the West, private asset companies offer opportunities to make investments backed by various minor metals, including indium.
The potential impact on the market comes from the fact that the inventories held by these investment companies and exchanges can be removed from the market for indefinite periods, depending on investors' goals and expectations.
One of the lead sponsors at this year's World Indium and Germanium Forum, which recently concluded in Kunming, China was the Fanya Metal Exchange, which began offering investors an opportunity to trade units of indium via their online trading platform in 2011. The investors trading on the Fanya Exchange can trade indium in units as small as 500g, while prices are quoted in 100g units.
As the Fanya Metal Exchange promoted and grew interest in the metal amongst investors, it also significantly increased its inventory holdings of indium, which caught the attention of both consumers and refiners.
Many in the industry have questioned the disconnect that seems to exist between electronic trading of indium and the physical market for the metal. This divide is highlighted by the price differential between the Fanya Metal Exchange's price, which is presently over $900/kg of 99.995% min. indium metal, and the physical market price, where equivalent material is currently available for prices around US$ 540/kg.
For both producers and consumers of indium, the concern is that increasing speculation and hoarding of the metal will cause a spike in prices, which would stifle development of new downstream markets for indium products.
One does not have to look any further than the impact that investors and speculators had on the rare earth (RE) industry in 2009 and 2010 in order to understand how much price volatility can have on demand.