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.
Some colleagues of SM Report have suggested that the attention recently paid to exchange operations in Yunnan may be a result of recent leadership changes in the province and at the Securities Exchange Commission.
The new provincial leadership, led by Party Secretary Xiao Gang, appears very concerned about operations at the exchange and, in the report, advises that changes must be made to risky exchange activities by year's end.
What changes will be made are yet to be seen, and - as the removal of the initial report from the government website suggests - it is unlikely that there will be any transparency in the actual process.
Nevertheless, if the new leaders are as concerned about Fanya's operations as the report suggests, it is hard to imagine that the Exchange will be able to continue as they have been. This could result in a new landscape for a number of metal markets, including indium, germanium, bismuth and tungsten.
Any immediate impact on markets will depend upon whether Fanya can continue operations during the inspections, as it is a common first step for authorities in China to freeze the accounts of any individual or company being investigated for financial crimes, including fraud or corruption.
Without the Fanya Metal Exchange purchasing virtually the all indium produced in China - as it has for the past couple of years - as well as becoming a destination for imported indium, any interruption in operations could bring a significant amount of indium back to the global market. The result of this, of course, would be substantial downward pressure on prices for the metal.
While the Exchange has yet to make any public comment regarding the published report (and one would be foolish to think they would), the real harbinger of what is happening with investigations will likely come first from those companies who have been selling into the Exchange. If these companies start to again aggressively offering material in overseas markets, it will not bode well for the prices of indium.
As yet, it is not yet clear whether recent reports of Chinese indium producers offering material at lowered rates in Europe is directly related to the news out of Yunnan.
We will be watching this closely in the days and weeks ahead.
Links to .pdf version of original report
English (Unofficial translation. For reference only)
Chinese (Source: www.lutous.com)
Note: Online versions of the original article have now removed any direct references to Fanya Metal Exchange. The attached .pdf versions are original copies. Deleted parts are highlighted in red. The screen shot of the Chinese Securities Regulatory Commission website metadata (above) also shows the direct reference to concern about the Fanya Metal Exchange.
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Terence Bell / SM Report
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