“Tellurium: Nerd’s Gold”, an article recently published on Resourceinvestor.com, examines the potential demand growth for tellurium in contrast with its relatively low natural occurrence. Like many minor metals, the potential demand for tellurium is significant, particularly due to its use in cadmium-telluride solar cells. However, to date, this demand has largely not materialized and global production has kept prices relatively stable.
The article provides an interesting analysis of the applications and potential demand for tellurium, but due to some fundamental mistakes in assessing the supply and demand characteristics of tellurium is misguided in its efforts to value the metal. Investors, analysts and traders must be cautious of such mistakes so as not to under- or over-value their investments.
One tendency that we at SMI Ltd. are particularly cautious to avoid when analyzing price trends for minor metals is not to draw comparisons with base or precious metals. Analysts of minor metals must remember that minor metals are produced as by-products, therefore, the supply of these metals is far more dependent upon the demand, price and production of the corresponding carrier metal (copper and lead, in the case of tellurium) than on the existence of and demand for the minor metal itself.
The growth of metal recycling is changing this dynamic for some minor metals, but the ability to recycle also faces numerous supply limitations and is ultimately dependent upon primary production. Moreover, important differences in the market characteristics for base metals, precious metals and minor metals, in terms of liquidity, thickness (gross quantities traded) and the involvement of capital markets and institutional investors, create irreconcilable differences between these three groups.
Another tendency that should be avoided is correlating the value of elements with their natural occurrence. There is a large and significant disconnect between the natural occurrence (often measured as parts per million in the earth’s crust) and global production, or extraction rates, as well as between extraction rates and market value, which make any correlation virtually useless.
A good example of this is bismuth, which has a natural occurrence of approximately 0.5ppm, much more rare than, say, tungsten (approximately 160ppm), but due to bismuth’s high content in lead bullion and tungsten ore bodies in China, as well its substitutability in primary applications, prices for bismuth are nearly half that of tungsten.
The natural occurrence of many rare earths in certain mineral ore bodies may also be misleading to many investors who have little understanding of the technical ability of exploration and development companies to extract the REEs and, therefore, no way to accurately assess potential production costs.
Drawing comparisons between metal markets with widely differing supply and demand characteristics, and valuing elements based on natural occurrence, are just two of the many commonly made mistakes in minor metal reports. For minor metal traders, tellurium, gallium, germanium and indium may be ‘nerd’s gold’, but traders must be cautious of how we value these metals or they may be left with nothing more than nerd’s fools gold.
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