Minor Metals: The Year in Review for Lithium, Tungsten, Tantalum & Rare Earths

LONDON, December 15, 2016 /PRNewswire/ --

It was a mixed year for commodities in 2016. Overarching trends included debt reduction by the major public mining companies, adjustment to China's slowing economy, and market reactions to the growing public sentiment against 'business as usual' - the European referendum vote and the presidential election in the USA.

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Prices for a number of commodities were at several-year lows as the New Year began. But by mid-2016 commentators and companies alike were calling the bottom of the market, and commodity prices appeared to be supporting this: increases were seen in aluminium, crude steel, iron ore and across a range of minor metals and industrial minerals.

Moving into 2017, stability appears to be the key aim of the major miners. For minor metals in particular, the outlook for 2017 is positive - although governmental issues in the Democratic Republic of Congo may lead to challenges for tantalum in the near-term.

Lithium 

Arguably the year's hottest commodity, albeit overshadowed by coking coal's similar stellar price performance in Q4, lithium has once again become front and centre of the growing electric vehicle (EV) and renewable energy revolution. At all mainstream mining shows lithium has become the poster child for investment, while technical events add raw material streams as the hunger for information grows.

Early 2016 was focused largely on China, as industry participants, commentators and analysts tried to understand what had caused a tripling in prices for hydroxide and carbonate in a matter of months starting late 2015. Alongside this, a spat between Tianqi and Shanshan became public, albeit over relatively minor volumes and on quality rather than price. Meanwhile Tesla's order book for the newly announced Model 3 swelled. Quite suddenly lithium was back in fashion.

As the investment world woke up to lithium (or arguably re-awakened since the last boom quickly faded after 2011), Australia saw a lithium rush in Q2. Galaxy and Neometals had secured off-take for spodumene concentrate in 2015 and early 2016 with Chinese converters, hungry to diversify from Talison. Seeing a replicable business model, predominately ASX-listed junior miners staked ground, negotiated options, re-sampled drill core and brushed the cobwebs off greenfield and brownfield projects - with the expectation lithium would become iron ore version 2.0 and they too could become the next supplier to land a deal with the Chinese. Signs that electric vehicle sales were continuing to grow strongly emerged mid-year and added further fuel to the fire. The lithium boom was back.

The second half of 2016 saw spot pricing start to fall, while contract prices played catch-up and the incumbent producers' bottom lines inflated quickly. Incentivised by price, alongside a realisation that demand growth was finally increasing for EVs and the threat of potentially alternative supply, the incumbents stepped up their capital expenditure plans: FMC announced new hydroxide plants in China and an off-take deal with Nemaska; Tianqi kicked-off a hydroxide plant project in Australia; Albemarle sought out brine in Argentina with an option agreement and bought a Chinese converter; and SQM, having already agreed a joint venture with Lithium Americas in Argentina, also announced an expansion in Chile. At end 2016, spot prices (ex. VAT) for battery-grade carbonate delivered in China were US$15,600/t and hydroxide US$20,100/t, down from peaks in April of US$22,600/t and US$24,350/t, respectively.

There were also developments on the demand side. With 'dieselgate' and strengthening emissions legislation, as well as heightened attention on CO₂ and particulate emissions, automakers continued to roll out their EV strategies in 2016. Not even president-elect Donald Trump, with promises to rejuvenate the US oil and gas market, can seemingly stop the trend to electrify now - economics are starting to replace incentives as the main driver for adoption. Energy storage systems (ESS) implementation also continued to grow in 2016 as stabilising the grid becomes an urgent issue for power suppliers.

The focus for the incumbents has been on resource/diversification and hydroxide, the latter reflecting the shift in battery technology to high-nickel cathodes from cobalt-dominant and low-nickel variants. While lithium prices are unlikely to impact lithium-ion battery use (the contribution of lithium to the final pack/vehicle price is only a few percent), direct consumers will be feeling the impact. With such high margins at lithium producers, will downstream consumers now seek to take control?

M&A could well be the theme for lithium in 2017, however unless consumers believe the price hike will be sustained (Roskill thinks not beyond 2018 as greater price incentivised supply emerges) more than likely they will instead seek to absorb it, pass it on or find a way to reduce exposure through thrifting or substitution. Those industries where the final product price is more sensitive to lithium, and there is an alternative material with positive cost/benefits, such as greases, ceramics and glass, may see a dip in demand. Batteries' share of the market may grow organically but also through less competition. China and Australia will probably be the centre of lithium activity in 2017, with the flow of alternative Australian feedstock shaking up 15 years of Talison dominance. Tesla may kick demand higher in Japan as it readies for Model 3 production.

Tungsten 

The global tungsten market began the year in a state of high stocks and low prices; a theme which continued to run for most of 2016.

The average value of ammonium paratungstate (APT) shipments from China, the world's largest producer, remained below US$200/mtu in January to September 2016 but did show some improvement in June and July when it topped the US$180/mtu level. APT is the main intermediate for the global tungsten industry and prices for primary tungsten concentrates are discounted against this.

High stockpiles in both the concentrates and the APT markets weighed down on prices at the start of the year, but by mid-2016 the availability of concentrates from non-Chinese producers was reported to be tight. Concentrate stocks within China are said to be back to more traditional levels as of November 2016, while the country is thought to be prioritising the domestic market over exports - possibly in a bid to strengthen prices.

It was a challenging environment for tungsten mine developers, with mixed results. A successful development was the fast-tracked production of tungsten from W Resources' mine in Spain, which came online in September 2016. First concentrates were shipped from La Parrilla in October.

Wolf Minerals experienced difficulties at Hemerdon in Devon, UK from the initial mining and processing of near-surface weathered portion of the granite deposit. This had negatively affected recoveries from the fine particle ore, and Wolf was subsequently unable to meet its contracted supply commitments.

On the demand side, lower drilling activity in the oil and gas market continued to impact demand for tungsten-based tools. The shift from discharge lamps and incandescent lighting to light emitting diode (LED) lighting also continued to negatively affect tungsten use in wire rod and fine wire.

Most market participants agree that a strong recovery in tungsten demand and pricing is likely to take some time to materialise, and will probably require a sustained improvement in the oil price - possibly to above US$70/bbl. The intrinsic importance of tungsten to industrial applications will ensure that the sector recovers, however; it is a question of not if, but when.

Tantalum 

At the start of 2015, the market price of tantalum concentrates was about US$80/lb (CIF China, 30% Ta₂O₅ basis). By the end of the year it had fallen to US$55/lb. There has been little or no improvement in 2016. A modest rise to around US$60/lb took place by mid-year but it did not last. By November, prices were back at US$53/lb. That is not as low as had been seen up to the beginning of 2010 although it is far below the level of up to US$130/lb reached in subsequent years.

The main reason for this, apart from generally flat demand for tantalum, has been the growing availability of low-cost and ostensibly 'clean' tantalum concentrates from Central Africa. Conventional hard-rock mines cannot produce at costs as low as those for artisanal miners. This has rendered most new hard-rock tantalum projects uneconomic and the many projects that were in the pipeline a few years ago are on the back burner (at best).

Almost all recent announcements regarding new tantalum supply relate to lithium projects in Australia, Canada and Africa. Tantalum would be a by-product. The outlook for tantalum supply is thus partly tied to the outlook for lithium, which is currently the most popular minor metal in the investment world. Turning that idea on its head, AMG has recently announced that it will install a circuit to recover lithium from tailings at its Mibra tantalum mine in Brazil. While that will not increase the supply of tantalum units, the lithium credits could provide some mitigation to the reportedly relatively high cost of tantalum produced at Mibra and which is currently being supplied only to the processor GAM.

A potentially major factor in the tantalum supply chain is the worsening political situation in Central Africa, and most particularly the issues surrounding the presidential election in the DRC. The deferment/abandonment of the election has already created tension and some violence. That tension could turn into full-scale conflict and with one likely outcome. The rest of the world would shun tantalum concentrates from anywhere in Central Africa, again, except in cases where the final user has complete control over the supply chain. The real origins of material exported by certain countries in Central Africa are often rather obscure and analysis of official trade statistics demands a degree of understanding that few industry commentators possess. Official numbers are not always true and this is certainly the case when it comes to tantalum.

The tantalum market has been dull in 2016. Things could be very much different in 2017. It will not be on the demand side because nothing dramatic will happen - there are no new major applications for tantalum on the horizon. The supply side is the one to watch. Tantalum prices have a history of moving very sharply on the back of individual events. It could happen again.

Rare earths 

The Baiyun Obo iron ore mine in Baotou, China, responsible for around a third of global rare earth production, remained closed throughout 2016. China Northern Rare Earth Group marginally increased production from stocks to meet increasing demand, mainly from the neodymium-iron-boron (NdFeB) magnet and fluid catalytic cracking (FCC) catalyst sectors.

Illegal mining remained one of the main themes for China, accounting for an estimated 44,000t to 46,000t REO - around a third of global production this year. China released plans to once again crack down on illegal mining; this time setting out a tracing scheme in order to confirm the origin and path through the supply chain of materials.

China's exports increased by almost 50% in 2016, following the World Trade Organization ruling and withdrawal of 'illegal' export quotas and taxes the previous year. Most of this increase was for lanthanum, yttrium and other rare earth compounds, excluding cerium.

Molycorp's exit from the rare earth market in mid-2015 left a small vacuum in the supply chain for light rare earths outside of China. Silmet of Estonia previously processed material from the US Mountain Pass operation and is thought to have replaced this with greater shipments from Russia in 2016.

Meanwhile, Lynas is producing >10,000tpy REO from its Malaysian plant. The company restructured its debt with its Japanese investors Sojitz and JOGMEC in October, meaning it no longer needs to make fixed repayments until 2020 and its interest costs have also been significantly reduced.

Rare earth demand grew strongly in 2016 with increased use of NdFeB magnets thanks to growing global wind turbine installations and hybrid/electric vehicle production capacity worldwide. The rapid increase in Chinese electric vehicle purchases, established in 2015, faltered in 2016 as recent incentives were withdrawn in the wake of widespread corruption.

The use of light rare earths lanthanum and cerium in FCC catalysts grew with increases to global refining capacity. The low oil prices and subsequent low costs to the consumer that prevailed through 2016 encouraged greater consumption of transportation fuels, especially in the USA. Use of rare earths was counteracted somewhat by the continuing shift to tight oil production in North America, which requires lower levels of refining.

Demand for europium and terbium in phosphors continued to nosedive in 2016 with the rapid uptake of LED lamps; prices for these previously-critical heavy rare earths have now fallen back to levels last seen a decade ago. Terbium oxide (99.9%, FOB China) prices were US$423.17/kg in late 2016, similar to prices in mid-2006, while europium oxide (99%, FOB China) prices were US$62.5/kg - compared to US$240/kg in June 2006.

Overall, rare earth prices in 2016 remained fairly subdued. The rare earths industry is expected to see greater recovery in the coming years, however, as the NdFeB magnet market takes off. Industry focus will intensify on the rising deficit of neodymium and concomitant rise in neodymium prices over the next five years. Yet the long-term performance of this sector is threatened by potential substitution of NdFeB technologies in HEVs/EVs (with induction motors) and wind turbines (with induction/synchronous motors).

SOURCE Roskill Information Services