Iridium: The Precious Metal For The Hydrogen Economy
Summary
- This updates my July 2020 pitch on the platinum group metal, Iridium.
- The price has risen four times.
- Another interesting commodity is Indium, an overlooked electronic metal.
Last July I wrote an article titled "The Chokepoint of the Hydrogen Economy." In it I described the various ways one could invest in hydrogen. I then described what I considered the best, going long the platinum group metal iridium (Ir). If you haven't read the article, you should do it now. In case you won't or you are not a Pro subscriber, here's a quick summary:
Iridium is currently used in a variety of technological applications. It is produced as a minor byproduct of platinum/palladium. There are no Ir mines, and there is no way to easily expand production. If the use of green hydrogen expands like some are forecasting, it will be necessary to produce the hydrogen by splitting water molecules. One of the best ways of doing this uses Ir as the anode catalyst. There simply is not enough Ir for this. Thrifting of Ir will make it more feasible, but higher Ir prices will also be necessary.
Here's a graph of Ir prices since I wrote it.
Source: BASF website
Honestly, I did not expect this to work as quickly as it did. This was a long-term trade, so I thought. However, a few things forced the acceleration:
- Supplies were cut back by the S. African COVID shutdown. This was already underway in July of course, but the new variant made it worse.
- I understand that consumer inventories were somewhat under normal. In view of the dynamic price situation, it's reasonable that they wanted to rebuild.
- Ir is being used for cleaning up ships' waste to meet the new world standards.
- Most important to my mind, nontraditional speculators like I started buying Ir. I believe that there was some spillover from the rhodium speculators, who are obviously flush right now. Ir is a very small market, and shifts like these can have an outsized effect on prices.
Before I continue, I want to address what my more woke readers might complain about: that I am locking up supplies of an essential material for saving the planet. In fact I am doing the planet a service. There simply was not enough Ir to run all the planned water electrolyzers with existing technology. The price of Ir was not giving the officials and businessmen proper signals. With the higher price, they can now concentrate on what will really work: thrifting Ir and concentrating on other technologies.
Ok, where do we go from here? It's always hard to make short-term forecasts in a small dynamic market, but there are some future bullish signs. Most importantly, there has been progress on thrifting Ir in electrolyzers. This is essential for the technology to be implemented. The chemical engineering profession has a wealth of experience in platinum group thrifting, and I'm hopeful that Ir loadings can be reduced by over 95%.
OTOH, the prices of rhodium and palladium is probably going to lead to mines being reopened or expanded in the UG2 Reef. This area has 3%-4% iridium, compared to 1% for the Marensky Reef, so there will be a long term supply increase.
In my previous article, I was somewhat noncommittal about the so-called hydrogen economy. I'm more positive now. There is a lot of money being thrown at it, and organizations that I respect, like Microsoft, are getting involved. Saudi Arabia and APD are jointly developing a huge solar-hydrogen farm. This is not using Ir-based technology, but it still provides momentum for hydrogen. Note that I still feel that hydrogen will not be used for cars and trucks; BEVs are probably better. But there are a lot of other applications like stationary stored power, ships and maybe airplanes where it makes sense.
So I'm holding on to my Ir for now.
New Trade - Indium
I have invested in indium (In). Many readers may not have heard of this.
Indium is a soft silvery-white metal with atomic number 49. It is a fairly rare metal at 0.21 parts per million in the earth’s crust, similar to silver. Importantly, there are no known deposits of Indium with concentrations high enough to induce mining Indium as a primary product or major byproduct. All Indium is produced as a minor byproduct of other ores, mostly sulfidic zinc (>80%), and sulfidic copper. The Indium is collected from the electrowinning residues and is then further refined by electrolysis. Over the longer term, production of Indium will follow the production of sulphidic zinc from mines that do the extra processing. This is expensive, and is the marginal cost driver of Indium.
Supply
No Indium is produced in the United States. World production is estimated at:
2019 | 2020 | |
USA | 0 | 0 |
Belgium | 20 | 20 |
Canada | 61 | 50 |
China | 535 | 500 |
France | 40 | 50 |
Japan | 70 | 65 |
S. Korea | 225 | 200 |
Peru | 12 | 10 |
Russia | 5 | 5 |
Total | 968 | 900 |
Source: US Geological Survey |
Note that production is dominated by China (of course). Indium is considered a "critical material" by the United States. The production decrease in 2020 is a combination of Covid and the low price.
Demand
Indium is primarily used in electronic applications. The major use is in LCD screens, where its electronic properties and transparency are useful. These same properties make it useful in solar panels. It is also used in semiconductors, where it provides increased performance at higher frequencies, but at lower cost than Gallium Arsenide. This includes 5-G lasers and receivers, a probable high growth market. Outside of electronics, Indium is used in certain high performance solders and seals. Exact percentages of use are not known, but is highly likely that electronic uses are the vast majority.
Fanya Metals Exchange
The Indium market was severely disrupted by the (Chinese) Fanya Metals scam which collapsed in 2015. Fanya was an investment company that used investors’ money to buy and store minor metals, including Indium. Previously, China was the major refiner and exporter of Indium. However, Fanya bought large amounts, absorbing the Chinese supply and cutting exports to near zero during 2012 - 2014. After Fanya failed, Chinese exports went back to normal levels. The Chinese authorities decided to sell off the Fanya inventories. After several failed auctions, the whole stock was bought by Vital Materials, an existing indium producer.
A big question in the indium market is how large the Fanya stockpile actually was, and whether it is now in strong hands. Before failure, Fanya claimed it was 3,609 mt. This would be over four years of world consumption. However, it is hard to see how that level could have been accumulated. The cumulative reduction in Chinese exports during Fanya’s buildup was at most 900,000 mt. Additionally, it did not appear that Chinese industrial users suffered from shortages. China did not import any Indium. The Fanya executives were prosecuted for embezzlement and many other financial crimes (One got 18 years!). So it's entirely possible that this is another thing they lied about.
Price
As the market anticipated the liquidation of the Fanya stockpiles, the constant dollar price of Indium fell to near record low levels. These graphs chart the price of Indium in both actual dollars and 2020 dollars deflated by the PCE (note the log scale).
Recent Developments
It took the Chinese authorities almost a year, but they did manage to sell off the Fanya indium stockpile. After a failed attempt that attracted zero bids, Vital Materials bid for and won the entire hoard. Vital is a large minor metal producer and user. It is recognized by the state as an official high-tech enterprise and hosts the strangely translated National Engineering & Technology Research Center of Scattered Metals. I would assume it has close ties with the government. Vital's strategy is to become fully integrated in indium and grow its leading position in finished products.
The sales announcement was a head scratcher. According to Vital,
“With all these metals being moved to Vital, can be relieved as all the metals will be consumed and leveraged internally.”
Source: Nasdaq
Vital also said it would continue to purchase indium and other minor metals at the same levels as before both spot and on long-term annual contracts. Why would Vital buy this enormous stockpile of indium and then not reduce its purchases? Is the stockpile destined for a Chinese strategic stockpile? Also, if the quantity of indium was the full 3,900 MT, Vital got an incredibly good price. Why would they not want to use this?
At any rate the stockpile, whatever its size, is now in strong hands. At current world import prices of about $200 per Kg, there is no incentive to build new refining facilities, or even keep some existing ones running. Future fundamentals will depend on the development of demand. Since indium’s largest uses, LCD screens, 5G chips and solar panels, are growing, demand looks good.
How to buy it
This is not your typical financial investment. There is no company that produces indium as a material part of their business. Vital Materials is not investible. There are no medals or coins. Indium is too soft to coin. (There's a video on YouTube of someone biting into it!) So you have to buy bullion. These can be bought in 1 Kg ingots. I bought mine from Exotech Inc. in Pompano Beach FL. If you search online, you will find other sources.
Analyst’s Disclosure: I am/we are long APD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Where to start? Both these metals are much less liquid than typical stocks or bonds. You are buying from a dealer who could choose not buy back from you. These have to be stored in an appropriate safe place. Remember, you are investing in a physical object; it can be destroyed, stolen or whatever.
I write these articles for education only. I would never recommend an investment to anyone whose financial situation I do not know personally. So this is just a record of my own investing analysis. Do your own research; following others (even those as smart as I) is a sure road to ruin.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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