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The WTO’s ruling against China will have little impact on the magnesium market. Instead, surging energy prices may drive up demand for the metal amid growing demand for energy efficiency.
By Shihoko Goto – Exclusive to Magnesium Investing News
The World Trade Organization’s ruling that China’s export policies on minor metals violated the treaty’s obligation may mark a diplomatic breakthrough for the international community, but its impact on the magnesium market is negligible. Rather, the surge in energy costs may provide the incentive for U.S. anti-dumping tariffs to be eased and even production outside of China to pick up.
Never mind that shares in rare earths producers including Lynas ( ASX:LYC)and Great Western Minerals Group (TSXV:GWG) rose sharply following the WTO decision. Given that China produces nearly 90 percent of the magnesium worldwide, its domination means that there are simply not enough producers outside of the country to pick up any slack that a punitive WTO action might produce. In short, US Magnesium is likely to remain the sole US manufacturer of the metal for some time. Moreover, the WTO’s ruling is expected to be strongly disputed by China, and unlikely to force Beijing’s export policies to change significantly.
As such, the Geneva-based organization’s ruling “doesn’t mean a thing,” said Bob Brown, publisher of Magnesium Monthly Review. Instead, a significant paradigm shift in the magnesium market may occur should the United States alter its anti-dumping tariffs on magnesium and other rare elements.
Brown’s comments were echoed by Alex Markin, director of the International Magnesium Group, which is a wholly owned subsidiary of China Direct International (NASDAQ:CDII).
Change in Anti-dumping tariffs would have a bigger market impact
“High artificial import taxes, like those imposed on solar and steel and imported magnesium, simply detract from the ability of the USA downstream manufacturers to be globally competitive. We hope our government will ease and remove these constraints,” Markin stated. China Direct noted that under the current US trade policy, US manufacturers pay over $5,500 per ton for magnesium, while their European counterparts pay $3,200 a ton.
“Look at how aluminum sales is going down,” directly impacting demand for magnesium which is an integral part of the aluminum producing process, as it is for die-casting, Magnesium Monthly Review’s Brown said. Indeed, according to the North American Die Casting Association, about 1,875 jobs as well as 8,000 supporting jobs have been eliminated since the US anti-dumping measures for magnesium were introduced in place in 2005.
The recent surge in oil prices may, however, prove to be a boon for magnesium. With Brent crude reaching over $120 a barrel and seen rising still further amid heightened tension in Iran and across the Middle East, manufacturers may be forced to invest more in magnesium-heavy technology to become more energy-efficient.
Higher energy costs May lead to magnesium innovation
After all, magnesium is the lightest of structural metals that is used to strengthen aluminum alloys. Being 40 percent lighter and aluminum and as strong as steel, magnesium is a critical element in producing energy-efficient cars as well as lightweight laptops, cell phones, and other electronic devices. Moreover, as the Obama administration looks to lower emissions standards and auto manufacturers in particular see greater financial incentive in producing more energy-efficient products, demand for magnesium may rise accordingly, which in turn would push prices up.
The potential for greener cars and demand for magnesium will certainly rank high on topics for discussion among participants of the International Magnesium Association’s annual World Magnesium Conference to be held in San Francisco late May.
“Not only is magnesium the material of choice in all forms of transportation due to its low density and environmental credentials, new applications are being developed in areas such as more efficient and greener primary production, hydrogen storage, lower flammability alloys and biotechnology,” stated the association’s president Keith White.
Securities Disclosure: I, Shihoko Goto, hold no direct investment interest in any company mentioned in this article.