DETROIT () -- I'm planning to make this discussion an introduction to a series of articles discussing both individual and groups of "minor metals" as investment opportunities, and I'm hoping that the editorial management of Resource Investor will add a hot link to the top bar of its website called "Minor Metals" where all contributions, not only mine, to RI on that topic can be collated for interested readers.
Before I proceed let me admit that I do not really like the catch-all term "minor metals" because its increasing use is, I believe, a historical relic of the myopic view of narrow minded, uneducated in the sciences, Chinese bureaucrats. It certainly is not believed to be an accurate label by today's Chinese long-term, strategic, economic planners who draft the successive five-year plans regularly published by the Central Committee of the Communist Party of the People's Republic of China as a mandatory agenda, not a suggestion, for achieving stated economic goals, in specific areas, to be accomplished within five years.
I decided that this topic, minor metals, was due for some daylight when I recently read on RI that the rather elite platinum group metals trading and marketing specialist, Johnson Matthey, had announced not only that it had decided to add rhenium to the very special list of metals which it "handles," but also that it was joining the Minor Metals Trade Association, which represents companies involved in the production or trade of some 35 minor metals, according to the JM news release. This is an interesting jump for JM; rhenium is not a platinum group metal, nor is it, by any stretch of the imagination, a "precious" metal. I think that JM is hoping that by handling rhenium it will give this very rare and limited, though very important, metal a panache that will allow its price to be manipulated as "precious metal" prices are today.
For clarification, let me point out that the London Metal Exchange, on which are traded contracts for the future delivery of its "exchange traded metals" - none of which are, therefore, by this definition "minor" - has been ruminating recently about adding futures contracts for steel, molybdenum and cobalt to its armamentarium of contracts profitable, for the exchange, and critical for business strategies for reducing the risk of volatility of both price and availability of critical raw materials.
Note, for all future discussions of adding futures contracts to exchanges, that the members of the exchanges are required to guarantee to clear all trades of the contracts. Therefore if someone has a contract for the future delivery - in some future universe - of a specific quality and form of a minor metal, say rhenium for example, the issuer of the contract, primarily, and all of the exchange members in general, must be ready to deliver the actual, physical metal on the contract's expiration date. This requires agreement among exchange members, who may be producers, trading companies, or financial institutions and also end-user contract buyers and holders as to exactly what is having its future delivery guaranteed, and it requires the existence of a warehouse inventory level of physical forms consistent with an "orderly market." This last fictional term means that if the exchange hasn't got the metal when you demand it and you don't wish to have a financial substitute, then not only are you in a world of woe but so is the credibility and the future of the exchange.
This is why minor metal futures and futures for metallic products, which are not primary, can only come about after a long period of negotiation, compromise, financial commitment, agreement on openly known metallurgical processes and so forth. The purchasing management of the Ford Motor Co., for example, has recently been promoting the creation of a "steel" futures contract, but the other major players in Detroit have refused to support Ford in this, saying that there is no agreement on what form or quality of "steel" anyone is speaking about. A pig iron contract is a more likely starting point for an iron-based futures contract regime for steel.
Now, back to minor metals. What are they? Let's look at some possible definitions:
- Minor metals might be classified as any primary metal for which no exchange traded futures contract exists;
- Minor metals might be classified as those primary metals not produced in quantities greater than some number, for example, 150,000 metric tonnes per year;
- Minor metals might be classified as those primary metals for which there are very few uses no matter what their production;
- Minor metals might be classified as those primary metals, which are very difficult to separate from each other, and thereby have limited availability,\ and economical uses as pure metals; or
- Minor metals might just be classified as those primary metals so defined by the Minor Metals Trade Association of the UK.
Clearly minor metals may well be classified as possessing one or more of the above qualities - or even all of them.
Clearly also, the last definition above is the most important one to the members of the MTTA, including its newest member JM.
This fact has made me decide to add a 6th definition to the group above, which I will state as follows:
- Major Minor Metals are, as of this month, classified by the Chinese government as those metals, which are now listed in an open-ended decree, that meet some or all of the above criteria , and in the production or processing of which ownership is forbidden absolutely to foreign corporations or individuals. (Note: Chinese government agencies have always listed some metals as minor, but this was not ever a legal definition; that oversight seems to now be in the process of correction.) I do not mean to say that the new Chinese prohibitions on foreigners owning the means of production and processing of listed metals only covers "minor metals"; but it is clear that this classification is of great significance to the Chinese government due to the high technology drivers for many minor metals produced today globally, mostly in China, such as tungsten, indium and the rare earth metals, for example.
The Chinese approach to resource nationalism by codification of metals, the ownership of the means of production of which is prohibited to foreigners, is an issue that needs its own discussion. For now let's look at how industrial metals are grouped by my minor metals classifications above.
For this purpose I will group industrially useful minor metals according to my classification number two above.
I need to get production figures so that I can add tellurium, germanium, gallium, the minor platinum group metals, iridium, ruthenium, osmium, thorium and I think both rhodium and uranium, to the above list, but, even so I will only apparently get 26 entries. If, however, you add all of the metals contained in the definition "rare earths" to the list, you will get a total of 40, and I didn't count yttrium twice. The MMTA seems to highlight some metals on its web site which I didn't count as "minor." One of those is molybdenum, which because its 2006 global production was 179,000 metric tonnes I didn't list.
I think that gentlemen can disagree on the nuances of classifications and still agree on the main points, so I'm going to start off with my list of minor metals and amend or emend it when evidence of an appropriate kind comes along. I've written about some of the above named minor metals already, but have no fear - I intend to cover all of them with regard to their opportunities as investments for you in both the short and the long term.
I wrote about thorium last week, and I will not write about uranium because anything I write will get lost in the vast volume already done. I've also written recently about both rhenium and lithium.
I am therefore going to start off my minor metal series next week with a report from the International Investment Conference in San Francisco. My friend Ivan Herring is speaking there on the special topic of "Rare Earth Metals," and I will tell you what he is saying about the investment opportunities arising from some new industrial uses as well as from the expansion of existing uses of some of the rare earth metals.