Critical materials show mixed price performance in 2014

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Published: Saturday, 10 January 2015

Falling energy prices hit demand for cleantech minerals; CRMs on par with base and precious metals in 2014

By Peter Willis*

It is fair to say that 2014 has been a mixed year for commodity prices. Grabbing most of the recent headlines has been the fall in oil prices, which are down more than 35% over the year, dipping below the $60/barrel mark in mid-December - the lowest point in five years.  

A combination of oversupply, as a result of the shale oil boom from fracking and a reluctance by the Organization of the Petroleum Exporting Countries (OPEC) to cut production, has led to these much lower prices.  

In addition, natural gas and coal prices have also fallen.  In contrast, commodity prices for metals and minerals, as an aggregate group, have been much steadier.

Falling energy prices have clear benefits for energy-intensive mining and refining operations, as well as for other fuel-hungry sectors such as freight.  

However, for industrial minerals with significant cleantech end markets, low fossil fuel prices have a dampening effect on demand.  

Falling petrol prices reduce consumer incentives to switch from internal combustion engines towards hybrid or electric vehicles.  This may begin to have an impact on rare earth prices such as neodymium and dysprosium used for high-strength permanent magnets in vehicle drive trains and for battery materials such as lithium, graphite and cobalt.  

Similarly, falling natural gas and coal prices could make investment in wind energy less attractive, which could further squeeze demand for rare earths, and photovoltaic solar technology, which uses silicon metal, silicon carbide, quartz and other semiconductor materials.

It may also have an impact on the demand for frac sand and proppants, if the falling oil prices mean a curtailment of some drilling operations and the closure of some of the more capital intensive fracking wells in the US.

Tracking the prices of critical raw materials

UK-based research and consulting firm Oakdene Hollins tracks the prices of the European Commission’s basket of critical raw materials (CRMs).  

At the end of May 2014, the commission announced a new list of 20 raw materials that are considered critical to the European Union (EU) economy.  

The list includes industrial minerals, technology metals and metal alloy agents.  Oakdene Hollins led the study which provided the supporting analysis for the EU list.

One common misconception is to confuse the idea of supply risk with the expectation of a shortage of material.  This is unlikely, except in the most extreme examples.  

It is much more probable that the impact of supply risks will be passed onto end users of CRMs through sudden cost increases or greater price volatility - as happened with rare earths between 2010 and 2012.  

Oakdene Hollins’ recent analysis of CRM prices shows that they continue to outperform an index of base/precious metals prices, compared to a start date at the beginning of 2011, by an overall margin of around 20%.  

However, for the year-to-date (YTD) 2014, there is surprisingly little difference in performance between CRMs and base/precious metals.  Over the four-year period, CRM prices have fallen by just over 10%.  

The industrial minerals component of the CRMs index had been outperforming the broader index until 2014.  However, three industrial minerals (phosphate, fluorspar and antimony) top the losers’ board for YTD 2014.  

Phosphate has seen the largest price declines, as additional capacity hit prices at the end of 2013 and into early 2014, before effectively stabilising back at 2011 levels.

Fluorspar prices continue to suffer, as uncertainty relating to the phasing out of HCFC-based refrigerants, pervades the market. 

On the positive side, rare earth prices now seem to have bottomed out, following the steep declines witnessed during 2012-2013.  There has also been support for prices of battery materials (graphite and cobalt), in part following Tesla’s announcement that it plans to build a Gigafactory to manufacture lithium-ion batteries in Nevada by 2017.

Outlook for 2015

Going into 2015, the impact of falling oil prices and the continuing slowdown of global economic growth may pinch CRM markets.  

However, Oakdene Hollins does not expect that metal and mineral commodity prices will experience the same level of price declines that energy commodities have endured.  

The company does not anticipate that base metal prices will return to their pre-commodities boom 1990s levels and believes that commodity markets have fundamentally changed as a result of the rise of emerging markets, growing middle classes and increasing resource nationalism.  

Consequently, in the absence of a major change in world economic growth, Oakdene Hollins expects another steady year for commodities overall.  

Some mineral prices will outperform the broader market; these could include heavy rare earth elements, although the growing shift towards LED lighting and away from fluorescent lamps will start to hurt prices at some point in the near future.  

Minerals exposed to energy-related end markets might underperform during 2015.

*Peter Willis, senior economist, Oakdene Hollins

EU critical minerals

Antimony

Beryllium

Borates

Chromium

Cobalt

Coking

Coal

Fluorspar

Gallium

Germanium

Indium

Magnesite

Magnesium

Natural Graphite

Niobium

Platinum Group Metals

Phosphate Rock

Rare Earths

(Heavy)

Rare Earths

(Light)

Silicon

Metal

Tungsten

Blue= industrial minerals, Red= technology metals, Green= metal alloy agents


CRM winners and losers in 2014

CRM Price Winners

% Change, 2014 YTD

CRM Price Losers

% Change, 2014 YTD

Graphite, Flake

25%

Phosphate Rock

-26%

Rare Earth Index

23%

Magnesia DB

-16%

Silicon Metal

16%

Fluorspar Acidspar

-14%

Cobalt Metal

15%

Antimony Trioxide

-14%

Borax/Boric Acid

7%

Coking Coal

-13%


Source: Oakdene Hollins