Indium buyers hesitant to sign long-term contracts amid Fanya uncertainty

Indium buyers are wary of signing long-term contracts for next year and are instead opting to buy more metal on the spot market amid uncertainty sparked by changes to rules on the Fanya exchange, sources told Metal Bulletin.

Fanya announced last week that it was adjusting its trading rules, which Metal Bulletin understands were imposed on the exchange by a branch of the China Securities & Regulatory Commission as a condition for it to continue operating. 
While the implications of the action are not yet clear, some market participants are worried about pressure on the indium market if the rule change diminishes investor demand, or if it means indium could start coming out of the warehouses.
Although a number of metals are listed on Fanya, the high levels of indium stocks make the metal particularly vulnerable to any potential fallout. Stocks on the exchange now stand at 3,447.38 tonnes, over four times annual world refined production, which was 770 tonnes in 2013 according to the US Geological Survey.
“Customers don’t want to secure the majority of their demand on long-term contracts as prices could be very volatile because of the large volume of stock on the Fanya exchange. The risk is quite high,” a minor metals processor said.
The main buyers who have been willing to buy on contract are those who are able to hedge the risk, by securing material at a fixed price which they can offset by selling to their own customers at a fixed price, he said.
A large indium tin oxide (ITO) producer confirmed that his company was looking at buying more on spot market next year rather than on long-term contracts, and producers in the market also said buyers were either signing less on contract or were looking to sign contracts for shorter periods of time.
“Some smaller buyers don’t want contracts. Bigger customers are still looking for formula-based contracts, but only the first quarter of next year which is a bit unusual,” a second processor said.
The unwillingness to sign long-term contracts marks a shift from the situation at the beginning of the year, when indium buyers looked to secure the majority of their requirements on long-term contracts to minimise the risk of a lack of indium in the market.
“Now no one thinks there is a shortage of indium in the market,” the first processor said.
This is because even when the market was at its tightest in the first half of this year, consumers were still able to secure enough material for their requirements.
Recycling and tolling contracts also helped to make up for the lack of material coming out of China, sources said.
And now buyers think that there is a bigger risk of stocks on Fanya coming off the exchange rather than any shortage.
But some suggested that although customers are cautious at the moment about signing long-term contracts, this could change over the coming few weeks.
“At the moment it’s not certain [what’s going to happen], negotiations are still ongoing,” a third processor said.
In the spot market the government inspection and rule changes on Fanya have also created uncertainty, with many preferring to keep out of the market while the effects are still unclear.
“We are not buying indium at the moment until we know what is going to happen with Fanya,” the third processor said.
The lack of activitiy kept prices stable at $670-730 per kg on Wednesday December 3, unchanged from last Friday.
Read on: What happened at Fanya, and why?
Chloe Smith
Twitter: ChloeSmith_MB

Chloe Smith


Chloe Smith

December 03, 2014

16:00 GMT