The Conversation (0)
Increasing nervousness and uncertainty about the European debt crisis has acted as a drag on the commodities and base metals sectors this week. China is also creating interest for investors in a number of resource based industries, with impacts in the diamond polishing, as well as the lithium and lead mining sectors.
By Dave Brown – Exclusive to Resources Investing News
Diamond Investing News
China is looking to increase its diamond polishing sector, which only produced $3 billion in exports in 2009 compared to India’s $17.5 billion. It seems a fight is brewing between the world’s two fastest growing economies, China and India, over control of natural resources.
According to new reports, a deal has been struck between Zimbabwe and the Chinese Government to supply weapons in exchange for a steady supply of diamonds. China, looking to grow its diamond processing industry, is reportedly sending military soldiers to oversee the operations. China, which has a long history of human rights violations, may not have many concerns over the Kimberley Process, and domestic consumers of stones seem to care little over the origins of the gems. New reports are claiming that Zimbabwe’s government is secretly giving mining permits to soldiers of the Chinese military. On top of this deal with China, reports from human rights organizations show that up to 2000 carats worth of diamonds are being smuggled out the country, avoiding KP certification. This reluctance to work with the KP and cut down on human rights violations to ensure stones are conflict free is calling into the question the validity of the process to effectively change anything.
China is the second largest consumer of diamonds in the world, and with the increasing use of diamonds as wedding stones, they may move quickly into the number one spot. China is one of the main consumers of India’s diamond industry, responsible for up to 60 percent of the diamond processing market. In 2009, India exported $17.5b worth of stones; this year, with the recovery of the diamond industry, the number should be much higher.
India’s diamond industry has been lobbying the New Delhi government to combat China’s efforts to secure supply lines by providing Zimbabwe and other diamond producing African nations with medicines and infrastructure projects. Surat, India’s diamond polishing industry, looking to secure rough stone supply has made deals with Russian diamond giant Alrosa, and may be looking to Canada’s diamond miners for increased supply, with a meeting set for July to negotiate a deal for rough stone supply.
Lithium Investing News
Developments in the electric bicycle industry in China over the last decade have dramatically impacted lithium investors, as production has grown from a few thousand bikes a year less than 10 years ago, to more than 22 million units last year. Annual sales have reached about $11 billion, with an estimated 120 million electric bikes currently in use.
Until recently there were very few laws regulating these electric bikes, with no registration process and no driving license requirements. There were almost 2,500 electric-bike-related deaths recorded in 2007 in China, and given the increased ownership and use of the vehicles, this number would likely under represent more current data. At night pedestrians are at particular risk, because many e-cyclists drive without lights to save power. The government is suddenly paying attention, but the mechanism of regulation is pulling it opposite directions. On one hand, the government needs to protect pedestrians and drivers; however, it also wants to encourage electric bicycles to curb the pollution and congestion created by other vehicles. Struggling with reconciling these divergent mandates will certainly capture interest for lithium investors and the manufacturers of various types of lithium batteries.
Lead Investing News
Lead market fundamentals remain weak, at least over the near term. Stockpiles are rising and there is no sign of decreasing output, or increasing demand. Lead for three month delivery on the London Metal Exchange hit $1,981, just slightly above the current cash buyer price $1,951 per tonne. Analysts predict that if lead breaks through the $1,950 support, the metal will fall to $1,800 before tracking a rebound. Current LME stockpiles are around 185,100 tonnes.
The International Lead and Zinc Study Group predicts that the lead market will close the year with less than 100,000 tonnes of surplus. The ILZSG forecasts global refined lead production will rise 7.5 percent this year to touch 9.41 million tonnes. Demand growth will nearly match production growth. The ILZSG is anticipating a 7.3 percent growth in demand, equivalent to 9.31 million tonnes of supply. China, the world’s second largest lead producer, produced 859,000 tonnes of refined lead in the first 3 months of the year up 12.4 percent from the same period last year.
Glencore International AG, has begun the process to once again begin mining at Iscaycruz, Peru, at one of the largest zinc and lead mines in the world. The privately held, Swiss-based company suspended its mining projects in Iscaycruz, in March 2009 after a staggering drop in the price of the metal in international markets. According to an executive of the Glencore subsidiary in Peru, reinitiating the mine’s operations will take at least a couple of months, if following the standard process to restart the mines. Glencore’s Iscaycruz produced 175,184 tonnes of zinc and 13,710 tonnes of lead in 2008.
Platinum Investing News
Germany caught analysts off guard and spooked the markets when it introduced a temporary 10-month ban on naked short-selling of government debt and 10 key German financial institutions late Tuesday. Germany encouraged the rest of the EU to follow its lead to prevent speculation from driving stock prices down and protect the strength of the Euro.
In addition to the uncertainty in Europe, changes in the auto industry may have a mid-term effect on platinum prices. Automakers usage of platinum in auto catalytic converters dropped 39 percent in 2009 and they are increasingly switching to palladium-based catalytic converters on gas-engine vehicles. Catalytic converters remain platinum based on diesel-engine models, but their sales are down, and projected to remain down for some time. So, even with auto sales increasing in the US, auto-industry demand for platinum has not returned to 2008 levels.
Despite concerns these two issues will continue to apply downward pressure on platinum prices, precious metal firm Johnson Matthey still anticipates stronger supply-demand fundamentals for platinum in 2010 and forecasts demand will balance supply by the end of the year as the world economy continues to recover. Matthey also outlines investment activity is a major factor in the platinum market. Net long speculative futures positions at high levels and total ETF holdings are becoming even more substantial since the launch of the US ETF early in 2010. Matthey suggests if interest rates remain low and gold’s price stays at its current elevated levels, net investment in platinum may well continue to grow and help to sustain prices.
With help from Assistant Editor Vivien Diniz