If steel is the rice of industry and oil is the blood, then ‘minor metals’ are the vitamins – since only a small amount of these commodities are needed to alter the properties of metal alloys. This description comes from a delegate at the Minor Metals and Rare Earth Conference held in Hong Kong last week – a group of commodities UBS Securities’ Peter Hickson labels “not very transparent,” but growing rapidly.
Indium, bismuth, gallium and antimony are just a few of the names that have become critical to both new high tech and material inventions, the analyst told clients in a note.
While China contributes to more than 95% of rare earth supply, its “changing attitudes to energy, resources and the environment is tightening supply,” Mr. Hickson said. “Costs are being passed through and future supply is strategically vulnerable, in our view."
He expects the strain to come from technological demand linked to climate change as well as other new energy and environmental trends. However, investors looking to get a piece of the minor metals action are limited by the small size of the market.
Valued at less than 4% of the current copper market, the minor metals and rare earth segment addressed at the Hong Kong conference is worth only US$2.5-billion, Mr. Hickson estimates. Only small-cap names offer leverage in the sector, including names like Lynas, Navigator Resources and Arafura Resources in Australia, as well as U.K.-listed Central African Mining and Nikanor. There are also Chinese companies with leverage, he noted.
The key takeaway from the conference is China’s dominant role in the global minor metals and rare earth markets, Mr. Hickson said, highlighting the fact that its attitudes are changing. China is tightening restrictions on exports, more closely managing resources and environmental controls, and boosting taxes on resources through royalties.
He thinks these policy moves signal that China will continue to tighten its supply of all major metals, such as aluminum, steel and nickel.
So with demand for rare earth and minor metals surging in technology-related sectors, with an estimated annual mean growth rate between 10% and 15%, investors should get to know these names – even if they haven’t heard of rhenium or neodymium before.