Strategic Metal Report

From Kobolds to Goblins: The Full History of How Cobalt Got Its Name

The subterranean spirits are those who dwell in caverns and other recesses of the earth, where they kill or suffocate or render insane miners in search of precious metals. The Germans call them Kobolds. They are gnomes, dwarfs not over an ell in height, and they help in cutting stones, getting out metals, packing them in baskets and hauling to the surface. They laugh and whistle and perform a thousand tricks, but their services often redound to the injury and death of those whom they serve. They cut the ropes, break the ladders, cause the fall of rocks, send poisonous vapor; and you will see rich mines abandoned for the fear of them . . . It is they who cause earthquakes . . . They are not only the guardians of the mines, but of hidden treasures, which they allow no one to take… 

-Pedro de Valderrama (c. 1617)^[1]

By the 16^th century, the Ore Mountains of Saxony (known in German as the Erzgebirge) had already been mined for silver for over three centuries. The Ore Mountains run south of Freiberg along what is now the German-Czech border, extending for about 150km (90 miles) east to west and 40km (25 miles) north to south. 

One of the earliest references to mining in the area was in a contract dated in the year 1237, which noted a number of swords would be paid for with “good silver from Schneeberg”, one of the key mining centres of the Erzgebirge.^[2]

Misappropriation of Over US$100 Million Linked to Vital Materials Co. Chairman Zhu Shihui

Nearly five years after the Fanya Metal Exchange halted trading in 2015, the last of the stockpile of minor metals amassed by Fanya were finally auctioned off in early 2020. And, so, the book seemed closed on the story of the short-lived Chinese minor metal investment scheme.

But, here we are one year later, and it is beginning to look like there will be more to this story.

On January 10, 2021, a lesser-known, publicly traded Chinese aluminum alloy company (Harbin Zhongfei New Technology Co. Ltd.) released a public statement advising that RMB 831 million (approximately USD 129 million) in company funds had been withdrawn by the company's Actual Controller*, Zhu Shihui, and transferred to companies that he is affiliated with. 

The Continuing Saga of the Fanya Metal Exchange

The ongoing saga of the Fanya Metal Exchange (Fanya) continued last week with the Kunming Intermediate People’s Court levying a fine of RMB 1 billion (about USD 149 million) and sentencing 21 defendants associated with...

Continue reading "The Continuing Saga of the Fanya Metal Exchange">

Indium Market Update - September 2017

Since peaking at over US$ 700 per kilogram in 2014, indium prices have steadily declined for three years. Efficiency gains in ITO sputtering and greater recycling of indium, along with increased production from... 

Continue reading "Indium Market Update - September 2017" >

Gallium Market Update - January 2017

The end of 2016 saw gallium prices rise for the first time in five years. Welcome news for refiners who have been selling the metal at decade-low levels. Yet, there are few reasons to believe gallium prices will continue rising through the first quarter of 2017.

Continue reading "Gallium Market Update - January 2017" >

Indium Market Update - December 2016

Despite indium prices dropping 70 percent over the past two years, downward pressure continues to weigh on the metal. The end of speculative buying by the Fanya Metal Exchange, in combination with more... 

Continue reading "Indium Market Update - December 2016" >

Strategic Metal Report Restart & Looking Towards 2017

It has been a while since I last updated the Strategic Metal Report blog, so I apologize to those readers who had been relying on the site for market updates. Having recently completed my writing contract at About.com, I now have more time to again focus on those metals of more interest to myself, minor and strategic metals...

Continue reading "Strategic Metal Report Restart & Looking Towards 2017" >

Minor Metals Market Update - December 2015

The tone among presenters and delegates at this year's Argus Metal Pages China Metals Week (held November 17-19th in Guangzhou, China) was the most subdued since 2009. 

With minor metal prices following the trend of base metals and other commodities over the past twelve months - touching five to ten year lows - there was not much for delegates to be optimistic about. 

Most agreed that the uncertainty that hangs over the indium market as a result of the Fanya Metal Exchange's implosion will not disappear anytime soon. This drag will likely continue so long as the 3600 metric tonnes of indium that Fanya purports to have sitting in warehouses remains embroiled in a feud between investors and the Exchange. 

The Yunnan provincial government authority tasked with investigating Fanya's activities has, itself, already stated that the investigation could take some time. 

The Fanya Metal Exchange Scrambles to Adapt to New Regulations and Falling Prices

For years the Fanya Metal Exchange has sold itself as a medium for everyday Chinese investors to satisfy their desire for a stake in the world of physical minor metals.

Conference after conference brave staff faced questions and struggled to explain who these investors were, why - it seemed - they all took the same buy and hold strategy and how an independent audit of the exchange's incredible inventory numbers was unnecessary.

How much a year can change.

While the exchange continues to insist that it is positioning itself as a global hub for minor metal transactions, there are now few outside the organization with faith in its ability to succeed.

Since the leak of Chinese government investigations into the Fanya Metal Exchange came to light in December of 2014, the exchange's claimed purchases have effectively ended. And rumors that Fanya's business model was not as it seemed, which had circulated last year, started being openly discussed by those with direct knowledge of the company's operations.

Reports of Irregularities & Risk at the Fanya Metal Exchange All Just a "Careless Mistake"?

As originally reported here on SM Report, concern about risk associated with irregular operations at the Fanya Metal Exchange arose last week following a report published on the Chinese Securities Regulatory Department's official website.

The report was quickly deleted from the official government website and summaries of the report published by local media were subsequently edited to remove any reference to the Fanya Metal Exchange. Questions about what exactly is happening at the exchange, however, have begun to swirl.

Is the Fanya Metal Exchange, which has become a topic of debate amongst participants in the industry since it began purchasing large stocks of indium in 2013, under investigation by authorities in China?

And will the exchange be able to continue operating, as it currently claims to, by selling millions of dollars worth of minor metals to individual investors each week? (Note: Based on current market prices, Fanya's published purchases, last week alone, totalled more than US$ 50 million).  

As always seems the case with the Fanya Metal Exchange, there are more questions than answers.

While there has obviously been censorship of the original report, discussions about its contents have continued on a number of Chinese business and investment websites, forcing Fanya to respond.

Chinese Regulators Concerned About Irregularities at the Fanya Metal Exchange

The limited number of postings made on SM Report so far this year is fairly reflective of the lack of newsworthy events impacting the minor and electronic metal markets.

With readily available material and limited spot deals, gallium and germanium prices have effectively been pegged for months. Indium, meanwhile, which soared in 2013 on the back of the Fanya Metal Exchange's enormous purchase announcements, has seen prices level off for most of 2014 despite continuing, incredible weekly purchases by the Exchange.

The monotony may have come to an end this week with a report published - albeit temporarily - on the China Securities Regulatory Commission website that explicitly named the Fanya Metal Exchange as an area of very high concern.

(Note: the original article has now been taken off the website, but a .pdf version, with English translation, is available at the bottom of this posting).

According to the report, which appears to summarize the minutes from a recent meeting regarding the Yunnan Stock Exchange Tidying and Reorganization Project, spot inspections of the Fanya Metal Exchange uncovered "irregularities" in the organization's operations, that risk stemming from the Exchange is "very large" and that immediate corrective action should be taken.

Chinese Monetary Policy & Metal Prices

For the second time in less than a year, China's central bank - the People's Bank of China (PBC) - has moved to moderate the country's shadow banking sector by limiting lending to banks, leading to higher borrowing rates.

A similar effort was made in June of last year, which resulted in a sudden increase in demand for copper, as cash-strapped borrowers were able to get lower interest rates on USD loans financed using copper as credit.

This time, however, the PBC's effort to tighten liquidity was strategically coordinated with a significant depreciation in the RMB - USD exchange rate, the currency's largest depreciation against the dollar since becoming de-pegged in 2005. The depreciation was an effort to deter speculators who profited from the spike in interest rates last June.

With all this monetary action in the world's largest metals economy, SM Report has finally come back from a longer-than-planned break to look at the effects that these developments are having on the market for minor and strategic metals.

Indium Market Update - November 2013

Question: What do indium and Bitcoin have in common?
Answer: Prices for both are being driven by speculative buying in China.

While indium prices may not be up 1000 percent over the past six months, they have risen 30 percent since April, a remarkable run considering that many still believe the market is in oversupply.

The correlation between Bitcoin and indium prices may be explained by the suppressed investment environment in China.

In a country flush with cash, where capital controls restrict overseas investment and the government sets interest rates below the rate of inflation, individuals are desperately searching for alternative investment opportunities. The Fanya Metal Exchange and Bitcoin are just two opportunities, among many, that have moved into this void and been sold to investors not knowing where else to put their renminbi.

Evaluating the Influence of Military Spending on Germanium Prices - Part II

As outlined in Part I, the IR optics and thermal imaging market has been a major consumer of germanium for much of the past 20 years and, consequently, many have come to associate demand from this market with prices for the metal.

Demand from IR applications, however, has fallen since 2010, steadily reducing the influence of military spending on prices for the metal.

In order to fully understand the factors re-shaping the germanium market and driving prices for the element, we must look at recent changes in demand.