Price retreats in aluminum and palladium became newsworthy following the considerable headline story of Afghanistan’s potential of $1 trillion of untapped mineral deposits including critical industrial metals such as iron, copper, and cobalt; in addition to strategic resources like lithium, rare earth deposits of niobium and large deposits of gold.
By Dave Brown – Exclusive to Resource Investing News
Aluminum is currently trading around $1,938 a tonne on the LME, having slumped 20 percent during the past two months after the European debt crisis and fears over falling Chinese demand scared away risk adverse investors. On June 7, prices closed at $1,867.50 a tonne, the metal’s lowest price in eight months. After aluminum’s recent price retreat, many smelters are unprofitable- a reality that may lead to forced shutdowns.
Alcan is struggling to maintain profitability in the face of plummeting aluminum prices. After more than six weeks’ worth of negotiations, Alcan and the Steel Workers Union Local 5668 failed to reach an agreement this past Saturday. The union voted to turn down the final offer for a new collective bargaining agreement made by Alcan Metal-Ravenswood LLC. The union and company agreed to continue production under the terms of the current collective bargaining agreement until further notice.
Vale S.A.’s (NYSE:VALE), venture partner, Nippon Amazon Aluminum Co., has agreed to permit Vale to sell its $4.9 billion holdings in aluminum production ventures with a Japanese partner to Norsk Hydro ASA. In return, Vale will obtain a 22 percent stake in Norsk Hydro.
On Friday, Brazilian Finance Minister Guido Mantega said the country may reduce duties on steel imports in a bid to contain inflation after reported wholesale prices rose the most in two years. Inflation has been running above the government’s 4.5 percent target since January, as the fastest growth in 15 years raises concern that Latin America’s biggest economy may be overheating, led up by prices of iron-ore and wholesale goods. Across Brazil, companies are struggling to keep up with demand that’s been climbing steadily as unemployment hovers near a record low of 6.8 percent with rising salaries and increasing consumption.
The current challenge for Vale S.A. (NYSE:VALE), the world’s biggest supplier of iron ore, within its domestic market will be to remain cost competitive if tariffs are eliminated. The purchasing power for consumers and increasing borrowing costs for Vale will present a threat to the company’s operating margins. The Brazilian currency, the real, appreciated 33 percent last year, the biggest relative gain among major currencies and is expected to strengthen according to median estimates of more than 20 economists.
According to the New York Times, U.S. government officials suggest that Afghanistan could be holding $1 trillion of untapped mineral deposits including critical industrial metals such as iron, copper, and cobalt; in addition to strategic resources like lithium, rare earth deposits of niobium and large deposits of gold. The U.S. study released by a team of geologists and pentagon officials indicates the biggest deposits discovered so far are of iron and copper and the quantities are large enough to make Afghanistan a major world producer. Afghanistan does not have any mining industry or infrastructure, so it will take decades for the country to fully exploit its mineral wealth, the paper quoted U.S. officials as saying. A large contract to mine an estimated 1.8 billion tonnes of high-quality iron ore in the remote mountainous region of Hajigak is expected to open for international bidding this year.
After the lows of 2008, where spot prices for palladium fell to $175, prices rebounded over $550 in December of 2009. Prices have undergone a correction since then and have fallen off slightly with the values trending lower over the past few weeks. Since May 15, the price has fallen from $540 to the $470 closing price on June 15th. The role of ETF’s and bullion in the fluctuation of prices, due to speculation are important; however, auto sales still dominate the industrial demand for the metal.
Data on auto sales show only a moderate slowing, and in fact a continued growth over a year on year basis. The only significant decline in sales was recorded in Europe, where auto sales declined 9.3 percent, following the termination of government sponsored incentives on trades. In the U.S., sales through the first five months of 2010 rose 17 percent mostly on the back of commercial vehicles, which rose 32 percent. In China sales slowed slightly, but are still high with a 26 percent increase year over year. The Chinese auto market eclipsed the U.S. last year as the single biggest market for new vehicles. The picture is also strong in the Asian sub-continent of India where sales of new cars jumped 39 percent also on the back of commercial sales, which jumped an astounding 57.7 percent.
The picture for the long term price of palladium looks strong due to long term secular trends via the growth of auto sales with continued urbanization and expansion within China and India. In the short term, palladium prices will fluctuate due to debt concerns in Europe and fears over a slowing recovery.
Recent reports on the global electronics industry show steady growth continuing in 2010 and onwards as emerging economies, particularly in Asia, drive demand for electronic products. Tantalum capacitors are an integral part of many such products and several capacitor manufacturers have recently come out with new products likely to be in high demand. However, tantalum supply lines may soon come under increased pressure as the U.S. Government, various international NGOs, and the consumer public push for measures to curtail the flow of conflict minerals into the electronics industry supply chain.
Several factors are currently impacting the supply/demand fundamentals of the tantalum market: one of the world’s biggest tantalum producers, Talison Minerals, still has yet to bring its Wodgina mine back into production; there is increasing pressure on capacitor manufacturers and the electronics industry to avoid minerals from the conflict-zone in the Democratic Republic of Congo (DRC); and very few currently producing mines exist outside of the region. According to Under Secretary of State for Economic, Energy and Agricultural Affairs Robert Hormats, the strategic action plan on conflict minerals includes: raising public awareness of the issue; enhancing diplomatic efforts in the region; encouraging responsibility in the minerals trade; supporting the UN in the DRC; building DRC Capacity; and protecting small-scale artisanal miners and the mining communities.
Many in the tantalum and electronics industry expect the mounting effort to curtail the flow of conflict minerals from the region into electronic materials supply chains will lead to further supply shortages in the face of increasing demand.
With help from Assistant Editor Vivien Diniz