The application of the demand for strategic metals

To anticipate changes in demand of a minor metal, the general analytical approach is to study the market and outlook for each of its uses, and to deduce the foreseeable consequences on aggregate demand of the considered metal. This section provides general guidance and principles to frame this approach, each metal to obviously be the subject of careful analysis and integrating each of its specificities.

Of final consumption demand for a minor metal, key cogs

For the clarity of the way, here we use consumers and purchasers of property separately words, to make a clear distinction between consumer end products and professionals working in the purchasing departments of industrial enterprises.
That is, ultimately, the demand for end products, and the prospects of their markets, which determine demand for minor metals they incorporate. To predict the consequences of changes from the first to the second, it is important to understand the workings which lead from one to another. They may, depending on the situation, cushion the impact of one over the other, as in the amplifying effects.

 

In this context, a crucial factor to be considered in the analysis: the incorporation rate of the metal in the finished product.

If present at very low doses, the demand will be very inelastic to the increase of its course. If it is especially critical, the only real concern will be the industrial potential shortage. In the profile, then it is common to attend runaway phenomena buyers, leading to an explosion in prices.

For the minor metals incorporated at high doses, the increase in elasticity course will however much stronger. For prolonged and structural rise, manufacturers are actually more prone to seeking sobriety or looking substitutes.

Source : « Les enjeux des métaux stratégiques : le cas des Terres rares » – Report recorded at the Presidency of the Senate on 23/08/2011.

In the late 90s, palladium was supported by its applications for catalytic converters. During 2000, prices have experienced a dramatic rise artificially caused by Norilsk. The latter, a leading global producer and monopoly, has implemented a retention policy to cause this increase. A strategy that ultimately proved against-productive, as the surge was such that automakers have very quickly turned to platinum, thus causing the collapse of the price of palladium. For this application, the importance of the cost of the catalytic metal per vehicle (amounted to several hundred euros) was such that it resulted in a rapid response of manufacturers.

price-platinium-palladium1

For a given product, the various players in the global value chain must be considered carefully.

For a growing number of products and applications, business models today have channels subcontracting cascade which always involve more actors. This is especially the case for highly sophisticated products, including components sometimes prove themselves complex products mobilizing different channels each dedicated outsourcing.

Therefore, many manufacturers have a limited visibility of metals and mineral resources that go into the composition of their products, and sometimes ignore the risk factors that may affect their supply chains. In the context of the generalization of the concepts of “just in time” and “zero inventory”, they find themselves destitute and completions sometimes forced to pay the high prices in times of shortage.

For understand the structural increase in demand

In general, the commodity market is undergoing a period of structural rise in demand, with the main engine of growth in emerging markets. This is also one of the factors leading many analysts to speak of “super-cycle” for raw materials now.
For mineral resources, the increase is unprecedented. In twenty years, major metals saw a doubling of world production, and some experts even believe that we will produce in the next twenty or thirty years, a larger amount of metals that throughout the history of mankind.
To understand the impact of emerging market growth on the demand for minor metals, we must take into account the stage of development of the countries concerned, because the cocktail of metals which a country needs evolve as it develops its economic activities .
Initially, when a country is experiencing strong urbanization, and it develops its infrastructure, it is mainly ferrous metals and copper which are particularly in demand, and aluminum and zinc. At this stage, minor metals derive their game, especially those who enter into the composition of alloys essential at this stage, eg for the construction of buildings, factories and infrastructure. The dynamism of the construction sector in these countries is well reflected for example in the niobium market, used for making special steel in ferro-niobium. China’s industrial development for its part led to the demand for metals for the construction of factories and production machinery, for example tungsten, widely used for the manufacture of cutting tools and machining.
Thereafter, subject to a redistribution of wealth produced, economic development promotes the emergence of a new middle class, and thus a new market for mass-market products. In a recent study, the institute McKinsey estimates that by 2030, nearly 3 billion new consumers who have joined the middle class.
Once countries are advanced in their development, and they have a large park construction and their various networks and infrastructures, their needs for metals linked to these sectors is therefore reduced greatly. They are at this stage a major market for the consumption of final products, fueling demand for minor metals involved in mass products. At this stage, the broad policy guidelines of the countries concerned of the importance of keeping future demand for certain minor metals, particularly energy and environmental policies, the choices related to the defense or the installation of new telecommunications networks.

Challenges in figures…

  • 75% Between 2010 and 2030, steel demand could grow by nearly 75%.
  • 10 times faster and a hundred times more people: In China, the growth in average per capita income is ten times faster than that recorded in the United Kingdom during the industrial revolution … For a population about 100 times important.
  • 3 billion: In 2030, the middle class should have 3 billion additional consumers.
  • 2.5 times of the city of Chicago: Each year, the floor space available in China increases by a size equivalent to 2.5 times that of the city of Chicago, including residential and commercial spaces.
  • 750 million inhabitants: In China and India, cities should host more than 750 million additional inhabitants by 2030.

Source : McKinsey Global Institute. “Resource Revolution: Tracking global commodity markets”. September 2013.

The minor metals’ rise

n this context of global increase in demand for minerals, the proliferation of applications and higher amounts are incorporated additional growth factors important to consider for the analysis of minor metals markets. Indeed, the sectors that are growing, such as information technology and telecommunications, green energy or the future of the vehicle, require the development of new materials that mobilize greater range of minor metals, and generally increasing proportions.

New growth drivers are expected, as this trend continues in emerging technologies, especially as the minor metals have not yet revealed all their properties. For some, shortages looming could lead to competition between different industrial sectors that use them, and give rise to arbitrage, economic or political, with such stockpiling for most applications strategic.

To know how to anticipate violent explosions in demand

With the globalization of trade, some innovative products, especially high-tech products, are purchased by everyone, at the same time and in every corner of the planet. For metals miners that are embedded in these products, this translates into so dazzling increases in demand. When the distribution is very massive, and the metal is very rare on the market, real shortages can occur, sometimes resulting in three-digit price increases … The last decade has seen the advent eg smartphones and tablets, with important implications for many minor metals embedded in these high-tech products, such as the popular gallium by the semiconductor industry.

New sources of growth are expected in the near future to the demand for certain metals. The industries of the new information and communications technology (ICT) are constantly innovating and driving the demand for many minor metals indispensable and irreplaceable in these applications.

These advances result in the proliferation of devices among consumers, but also by the realization of infrastructure required, which usually also require minor metals. For example, the deployment of fiber optic networks has very important consequences for the application of germanium, as this application represents 30-50% of global demand (source: BRGM).

Environmental issues will also have an increasing role in the upward trend of certain metals. Indeed, the technologies developed to reduce the environmental impacts are usually very fond of minor metals. This is particularly the case for certain sectors of renewable power, including wind and solar, and for the automotive sector, including hybrid and electric cars seem poised for massive distribution.

 

bubbleThe evolution of automotive technologies, including the high penetration of electric and hybrid vehicles announced, could have the impact on neodymium and lithium request an increase of 120 to 200 times the application recorded in 2010 for these resources.

Source : Resource Revolution: Meeting the world’s energy, materials, food, and water needs, McKinsey Global Institute and the McKinsey Sustainability and Resource Productivity Practice, November 2011.

To know anticipate declines in demand

If the context is found, the favorable global scale for growth in demand for minor metals, it is important to closely monitor the impact of bearish factors, which may, depending on their importance, dampen or reverse the trend the rise.

There are two main types of events whose consequences can lead the application of a minor metal downward:

  • The events that induce a decrease in the demand for the final product, including the renewal of technologies and obsolescence phenomena.
  • The events that cause a decline (or even disappearance) in demand of the metal in the final product, such as R & D work to reduce employment or find him a substitute material, or environmental laws that may prohibit or limit the use of certain substances.

Regarding efforts to reduce incorporated material quantities, it is a quite natural axis of research because businesses associated with cost reductions, so much effort has been devoted to it. This is particularly the case in the NICT sector, deeply marked by the constant miniaturization of components and the famous “Moore’s Law” (predicting the increase exponentially and continues to date of computer performance.

In search of alternatives, the situation differs depending on the particular metal. It is important to follow the work that focus on the search for alternative wide area, but also throughout the final product, because for minor metals very specific and non-substitutable, it is at this scale overall that substitutions may nevertheless occur.

When performing alternatives exist, these are the courses that the decisions arbitrate industrial buyers, but often happens to be the substitute another minor metal. In many cases, because of the unique properties almost certain minor metals, no substitute is envisaged in the short term, unless accept significant performance degradation.