China determined to build iron ore hub in Africa

World’s largest untapped iron ore reserve could be online by 2025, expert says

KEN MORIYASU, Nikkei Asia chief desk editor

There was a time when Japan, like China today, was the rising power in the East. That kept military planners in the West awake at night.

“It is very certain that no other nation at the present time is spending so large a part of its revenue on naval preparations,” military author Hector Bywater wrote in the 1921 book “Sea-Power in the Pacific — A Study of the American-Japanese Naval Problem.”

But Japan had a critical weakness: a lack of steel.

“Since the close of the Great War, shipbuilding in Japan has been seriously hampered by the difficulty of obtaining steel,” Bywater observed in his book. He accurately predicted a naval conflict between Imperial Japan and the U.S. two decades later.

Japan had imported large quantities of American steel under a special agreement between the two governments prior to 1917. Then the U.S. imposed a steel embargo that stemmed the flow to the Asian country.

“So serious has the shortage become of late that the output of tonnage in Japan during 1920 was 25% short of the forecast of 800,000 tons which had been made in January of that year,” Bywater wrote. “This scarcity of steel reacted on the naval program, delaying the launch and completion of ships.”

The armored cruiser Izumo, flagship of the Third Fleet of the Imperial Japanese Navy, is seen in Shanghai in 1937. Japan struggled to procure steel after the U.S. enacted an embargo in 1917.   © Getty Images

China learning from history

Chinese state planners looking to learn from history would quickly notice that the glaring vulnerability for Beijing today is its dependence on iron ore from Australia. While Beijing has tried to squeeze and punish Canberra for proposing an international investigation into the roots of COVID-19, it has been unable to wrestle itself away from Australian iron ore, which accounts for over 60% of China’s imports.

Australia deepens its connection to the Quad grouping with the U.S., Japan and India, forming a de facto anti-China tag team in the Indo-Pacific. Beijing has found it increasingly uncomfortable to depend so much on Canberra for iron ore. Also the basic material behind its own military buildup.

But that dependence may very well change by 2025, says Peter O’Connor, senior analyst of metals and mining at Australian investment firm Shaw and Partners.

“They are very serious” about diversifying supply and flattening the cost curve of iron ore.

The top focus for China’s diversification push is Guinea. An impoverished but mineral rich country in West Africa. A 110 km range of hills called Simandou is said to hold the world’s largest reserve of untapped high-quality iron ore.

Commodity watchers have known of Guinea’s potential for many years. However, the lack of infrastructure has hamstrung such development efforts. A roughly 650 km railroad would need to be built from scratch. And also a modern port from which the iron ore would be shipped.

Cost calculations have always discouraged potential entrants, such as Rio Tinto. But Beijing has more incentive to carry out the project than mere return on investment calculations. Because China needs to avoid the fate of Japan in the early 20th century.

Infrastructure building – not a problem for China

“Infrastructure is a function of time, money, the willingness to invest and, more importantly, the capability.”

China is building railroads around the globe through its Belt and Road Initiative and has no shortage of experience.

But what about the funding?

China currently buys 1 billion to 1.1 billion tons of iron ore yearly from third parties, O’Connor said.

“For every $1 the Chinese can lower the long-term iron ore price … that’s $1 per ton times a billion. It is a billion dollars of saving per year. It’s not just about diversity, it’s about lowering the price. It is not about the return on equity or return on capital of the actual investment. It is more about the benefit of the longer-term structure of the price.”

The long-term trajectory envisions the price of iron ore dropping to around $60 per ton from around $160 currently.

The project to develop Simandou has been split into four blocks. China holds either a direct or indirect stake in every one of them. The area holds an estimated 2.4 billion tons of ore graded at over 65.5%.

“Extraction of Simandou’s iron ore reserves would transform the global market and catapult Guinea into an iron ore export powerhouse alongside Australia and Brazil,” Lauren Johnston, a research associate at the SOAS China Institute of the University of London, told Nikkei.

“Group of 77 plus China”

If China unlocks Simandou’s reserves and drives a drop in international iron ore prices, “it could see selective commodity markets increasingly driven by intra-developing country dynamics,” Johnston said.

China would find such waters easier to navigate than having to do business with Quad member Australia.

Guinea is this year’s chair of the “Group of 77 plus China” at the United Nations. It is a grouping of 134 developing countries that form a large voting bloc China can depend on. Guinea has actively made statements on behalf of the group since assuming the chairmanship in January.

Johnston predicted that China would be pleased if progress on Simandou were achieved ahead of the Forum on China-Africa Cooperation. It is to be held in neighboring Senegal this year. It is the first time the Beijing-led gathering — held every three years — will be hosted by a West African country.

China is “preparing the pathway” to develop Simandou, with an expeditious 2025 timetable. That would seem stretched if you’re talking about a Western producer in Australia or Brazil. However, it is entirely plausible that China could be producing in that time frame.”


This article was originally published by NIKKEI ASIA

Tsingshan plans nickel smelter in Indonesia powered by renewables

World’s top nickel and stainless steel maker plans to build solar and wind facilities to power a 2,000MW smelter in eastern Indonesia within the next three to five years

by Tim Daiss

Chinese steel and nickel producer Tsingshan Holding Group, the world’s top nickel and stainless steel maker, plans to build a 2,000-megawatt ‘clean-energy’ facility in Indonesia within the next three to five years, while laying the groundwork for further green development, the Wenzhou-based company said last week.

It will build solar and wind power stations needed for the plant. As well as supporting facilities at its Tsingshan and Weda Bay industrial parks in Indonesia.

The plant will supply power for the company’s production of raw materials used in batteries for electric vehicles (EVs). Tsingshan wants its battery-materials operations to have net-zero carbon emissions. It already holds investments in Indonesia for battery-grade nickel chemicals production. It has been trying to expand its footprint in the new energy sector.

Earlier this year, the firm unveiled plans to make battery-grade nickel from material reserved for stainless steel. However, that process usually uses smelters that consume large amounts of coal for power generation. It is making Tuesday’s announcement even more important.

Tsingshan also announced plans to supply nickel matte. It is a main feedstock to produce nickel sulphate, to domestic cobalt smelter Huayou Cobalt and new energy materials producer CNGR. Last July, the group started trial nickel matte production with more than 75% content of the metal to meet increasing EV battery demand.

Chinese firms like Tsingshan have been stepping up their focus on EVs in China, the world’s largest car market, as Beijing promotes greener vehicles to help reduce high air pollution levels, particularly in its major urban centres.

EV MANUFACTURERS’ CATCH-22

EV car manufacturers, however, have been caught in a seemingly Catch-22 situation over its need for nickel. On the one hand, they need more nickel production for EV batteries. They also need to address the carbon footprint coming from production of the metal. 

Tesla Motors founder Elon Musk last July pressed miners to produce more nickel. The cost of batteries remained a large hurdle for the company’s growth. However, he is also pushing for cleaner nickel production at the same time. A call that some in the industry say may still be hard to come by.

“Tesla will give you a giant contract for a long period of time if you mine nickel efficiently and in an environmentally sensitive way,” Musk said on a post-earnings call at the time. Tesla needs more nickel supply to support not only its increased auto manufacturing numbers. They also need it for larger vehicles and trucks.

While some analysts say that nickel is still in abundant supply, others claim supply could be stretched by the end of the decade. Nickel demand is expected to increase from 2.2 million metric tons to somewhere in the range of 3.5 million to 4 million metric tons by 2030.

“The current challenge is to nearly double supply while meeting environmental, social, and corporate governance (ESG) requirements.”

Nickel is crucial for EV battery efficiency. It makes batteries energy dense so cars can run further on just a single charge. It’s now widely viewed to be the second most expensive component of EV batteries. EVs, for their part, will comprise 58% of global passenger car sales in 2040. Compared with 10% by 2025, according to a Bloomberg NEF report.

SE ASIA TOPS NICKEL PRODUCTION

Indonesia passed the Philippines in 2018 to become the world’s largest nickel producer and could soon pass Canada and Australia combined. 

Indonesia had 13 operating nickel smelters with an input capacity of 24.52Mt by the start of 2020. And another 22 nickel mines are under development, government data shows, while Jakarta is trying to boost the sector. Indonesia holds about a quarter of all global nickel reserves. 

Meanwhile, several junior miners, such as Vancouver-based Giga Metals Corp and Canada Nickel Co are also planning to produce more environmentally friendly nickel. However, that may still not be enough ‘clean’ producers of nickel for EV makers in the long-term.

Race is on for Indonesia’s untapped rare earths

Tin mining tailings could contain commercial quantities of rare earths both US and China would be keen to tap

By JOHN MCBETH

JAKARTA – Rare earth, the experts like to say, is neither rare nor is it earth. But given its use in everything from smartphones to high-tech aerospace and defense systems, a potential buried treasure from the past may soon become the next big thing in Indonesian mining.

Indonesia appears to have only modest proven amounts of the v valuable minerals, but much of what it does have is locked away in the rock waste, or tailings, left over from centuries of tin mining on the islands of Bangka and Belitung, south of Singapore.

Although preliminary studies show state-owned PT Tambang Timah’s tin sands contain 13 of the 17 chemical elements in the periodic table present in rare earths, it will take further investigation to determine whether it is present in commercial quantities.

If it is, that would make Indonesia a player in an industry that is fast becoming a new trade war flashpoint between the United States and China because of its strategic significance for numerous civilian and military technologies, including both laser and precision-guided missiles.

China currently controls 80% of the world’s trade in rare earths and could conceivably  block US access in retaliation for any future Washington sanctions on Chinese-made goods.  

With proven reserves of 327,500 tons, Timah still produces about 30,000 tons of tin a year from an offshore-onshore concession covering 512,369 hectares; other private firms add 40,000 tons, making Indonesia the world’s largest tin producer. 

Rare earths also occur in Aceh, Jambi and Riau’s Singkep Island and in West Kalimantan, where they are associated with rich deposits of bauxite, the feedstock for a US$695 million alumina smelter the Chinese are building north of Pontianak, the province capital.

Historically, most rare earths have been produced as by-products from tin, copper and gold mining, but were not considered worth processing and have invariably ended up in stockpiles, as is the case with Tambang Timah.   

With the US distracted by internal problems, the only outside interest so far in Indonesia’s potential has inevitably come from China, which has 55 million tonnes of rare earth reserves, by far the largest in the world.

But in looking for investors elsewhere, such as the US and Australia, the government is anxious to develop domestic expertise in the complex seven-stage process of refining monazite and xenotime, the two minerals that house REE elements.

Where the US may have an edge over China is in handling radioactive thorium, which is released in the course of the processing and must be treated with extreme care, even if it doesn’t produce uranium’s dangerous gamma rays. 

Laboratory results indicate Timah’s tailings contain significant quantities of neodymium and praseodymium, which in combination with iron and boron are used to produce high-power magnets for electric motors and military guidance and control systems.

Indonesia already possesses 80% of the mineralsrare earths included, needed to manufacture lithium batteries, part of the government’s policy of venturing into electric vehicles as a way of creating a future industrial base built around its vast natural resources.

Neodymium is responsible for most rare earth demand, with a market value of $11.3 billion in 2017. Demand is currently outstripping supply by about 2-3,000 tons a year, but that gap will widen as more lithium battery-powered electric vehicles appear on the world’s roads.

Future prospects depend on the government enacting policy and regulation and in initiating incentives for downstream and upstream industry, according to Fadli Rahman, co-author of a 2014 Colorado School of Mines paper on Indonesia’s rare earth potential.

“If the Indonesian government remains passive and unassertive to the viable options, the rare earths will merely remain rare to Indonesians for the foreseeable future,” said Rahman, now state oil company Pertamina’s youngest commissioner.

With estimated reserves of only 13 million tons, the US is waking up to the fact that China’s domination of the increasingly strategic material leaves it vulnerable.

At one point, neodymium was even on the Donald Trump administration’s list of tariffs it placed on Chinese imports in 2018 before it was quietly removed, an indication of how important it has become to the US economy.

Last year, China threatened to strengthen controls on rare earth exports to the US, one of the reasons why Washington recently formalized an existing partnership with Australia to develop new sources of critical minerals, including rare earth, cobalt and tungsten.

Australia, with 2.1 million tons, is one of a handful of countries possessing significant rare earth reserves. Others include Brazil (22 million tons), Russia (19 million), Vietnam (11 million) and India (3.1 million).

Vietnam, whose rare earth concentrations are along its northwestern border with China and the South China Sea coast, is reportedly keen on using two relatively common elements, cerium and lanthanum, to develop a clean energy capacity.  

The US began mining rare earth at southern California’s Mountain Pass mine in the 1960s, but since 2010 China has become the dominant player, producing 100,000 tons a year compared with the US output of 43,000 tons over the past two decades. 

An open-pit mine close to the Nevada border known as Mountain Pass was recently saved from a second bankruptcy by MP Materials, a company owned by a Chicago hedge fund. It remains the only rare earth mining and processing facility in the US. 

Most rare earth projects have proven to be uneconomic because of mining costs which can contribute 25-39% of the total expenditure for extracting from hard rock deposits. But Bangka-Belitung’s Monazite has the advantage of being in sand form and therefore does not require crushing and grinding.

In the end, thorium and how to deal with it remains a major impediment to the development of monazite deposits.

Indonesian nuclear advocate Bob Effendi, the local representative for American nuclear reactor design company ThorCon, asserts that safety concerns around the stockpiling of the radioactive waste is a “non-issue.”

But local geologists say it will need to be contained in stainless steel casks and stored in reinforced concrete buildings, possibly on a small uninhabited island, until such time as it is needed as fuel for a long-planned nuclear power station.

For decades now, part of the International Atomic Energy Agency’s (IAEA) mission has been to simply monitor the volume of monazite in Tambang Timah’s tailings, as it has done with similar mine waste around the world. 

In the meantime, nuclear power remains on Indonesia’s agenda, initially set down in a 2007 long-term national development planning law that envisaged an operating plant by 2024. 

In 2014, the Ministry of Mines and Energy regulation listed nuclear in the same category as other sources of renewable energy, but with the proviso that it should only be considered as a final option.

A second ministerial regulation in 2019 called for the drawing up of a concrete plan for the construction of a nuclear power station, followed by a presidential regulation earlier this year which listed it as a priority program for advanced studies.

Bangka-Belitung governor Erzaldi Rosman Djohan sent a letter to the Coordinating Ministry of Maritime Resources and Investment on August 3 supporting the construction of the nuclear plant in the southern Sumatran province.

But the Indonesian citizenry may first have to get over their innate fear of nuclear power, which has so far stymied plans going back to the New Order era for a station to be built on the Muria Peninsula in heavily-populated Central Java.

A member of President Joko Widodo’s National Economic and Industry Committee (KEIN), Effendi argues that a thorium-fuelled plant is not only immune to meltdown but is cheaper to build and produces less waste.

The former oilman also challenges the widely-held perception that Indonesia has limitless sources of energy, noting that coal and gas reserves are not finite and claiming that solar and wind potential is only 15% of what it is claimed to be.

Indonesians are not alone in their fear of anything nuclear-related. In Malaysia, the government faces public opposition to the Lynas Corporation’s facility near Kuantan, which processes rare earth oxides shipped from its Mt Weld concentration plant in West Australia.

With more low-level radioactive waste piling up at the plant, and the issue heading for Malaysia’s High Court, Lynas has now been forced to move the cracking and leeching part of the process to the outback mining center of Kalgoorlie-Boulder. 

GOLD

The Great Physical Gold Supply And Demand Illusion

By Koos Jansen

https://www.bullionstar.com/

Gold supply and demand data published by all primary consultancy firms is incomplete and misleading. The data falsely presents gold to be more of a commodity than a currency, having caused deep misconceptions with respect to the metal’s trading characteristics and price formation.

Numerous consultancy firms around the world, for example Thomson Reuters GFMS, Metals Focus, the World Gold Council and CPM Group, provide physical gold supply and demand statistics, accompanied by an analysis of these statistics in relation to the price of gold. As part of their analysis the firms present supply and demand balances that show how much gold is sold and bought globally, subdivided in several categories. It’s widely assumed these balances cover total physical supply and demand, which is incorrect as the most important category is excluded. The firms though, prefer not to share the subtle truth or their business models would be severely damaged.

The supply and demand balances by the firms portray gold to be more of a commodity than a currency, as the gist of the balances reflect how much metal is produced versus consumed – put differently, the firms mainly focus on how much gold is mined versus how much is sold in newly fabricated products. However, in reality gold is everlasting and cannot be consumed (used up), all that has ever been mined is still above ground carefully preserved in the form of bars, coins, jewelry, artifacts and industrial products. Partly because of this property the free market has chosen gold to be money thousands of years ago, and as money the majority of gold trade is conducted in above ground reserves. Indisputably, total gold supply and demand is far in excess of mine production and retail demand.

As most individual investors, fund managers, journalists, academics and precious metals analysts consider the balances by the firms to be complete, the global misconception regarding gold supply and demand is one of epic proportions. Physical gold is a profound anchor in our global financial system and thus it’s of utmost importance we understand the fine details of its trading characteristics. 

Supply & Demand Metrics By The Firms

The firms can argue that the difference between what they present as supply and demand (S&D), as opposed to what I deem to be a more unadulterated approach of S&D is due to contrasting metrics. Accordingly, we’ll discuss their metrics to reveal their infirmity. In a nutshell, the firms only count the physical gold S&D flows that are easy to measure, while leaving out the most important part: institutional supply and demand. 

Although the firms all have slightly different methodologies to measure S&D, from comparisons the numbers appear to be quite similar. For our further investigation we’ll spotlight the metrics and models by GFMS. The reason being, GFMS has been the only firm that was willing to share a full description of their methodology for publication – to be viewed here. Metals Focus (MF) provided a partial methodology, the World Gold Council and CPM Group declined to comment.

Let’s have a look at GFMS its S&D categories. On the supply side is included:

  • Mine supply (newly mined gold)
  • Scrap supply (gold sourced from old fabricated products)

On the demand side is include:

  • Jewelry demand (gold content used in newly manufactured jewelry products bought locally at retail level, adjusted by jewelry exported and imported).
  • Industrial demand (the volume of gold used in industrial applications, for example bonding wire, products used in semiconductors/electronics and dental alloys).
  • Retail bar investment (the net volume of bars that are purchased by individual investors through retail channels).
  • Coin investment (a combination of published data from mints and also a proprietary survey conducted by GFMS detailing where coins are sold).

The above four demand categories summed up are often referred to as “consumer demand” by the firms.

Furthermore GFMS includes:

  • Net hedging (change in physical market impact of mining companies’ gold loans, forwards, and options positions)
  • Net official sector (total central bank selling or buying)
  • ETF inventory build (change in ETF inventory)
  • Exchange inventory build (change in exchange inventory)

The last four categories can be either supply or demand. In example, when central banks (the official sector) in total are net sellers this will be listed as a negative demand figure, as is shown in the S&D balance by GFMS below from 2006 until 2009, when central banks in total are net buyers this will be listed as a positive demand figure, as is shown in the balance from 2010 until 2015. For a clear overview of the GFMS S&D balance please have a look at all line items below.

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GOLDSEEK

 

Russia Becomes a Grain Superpower as Wheat Exports Explode

By 

Almost 25 years after watching the Dawn of Communism collective farm where he grew up land in the dustbin of history, Andrey Burdin is helping turn Russia into something the communists never could: a grain-export powerhouse.

Over the last few years, Burdin has tripled the size of his farm on the steppe near the Black Sea, winning prizes from the local government for how much wheat he’s produced from the rich soil here and pumping profits back into new tractors and sprayers.

His harvest this season will be a third bigger than what it was just five years ago, helping fuel an explosion in grain exports that has allowed Russia to displace longtime global leaders like the U.S. and European Union.

Long known for its oil and gas, Russia is now moving to retake leadership in the world wheat trade it last held when the Czars ruled. In the process, it’s reshaping the market for one of the world’s most important traded food products.

“People have started to think about the future,” said Burdin, 42 years old, new tractors lined up outside the window of his office. “Before, everyone just lived day to day.”

Farm Renaissance

He plans to buy a Deere & Co. sprayer for 20 million rubles ($311,000) to add to his fleet in time for planting next spring, he said.

From the Black Sea coast and the Volga River heartland to the sun-scorched steppes of Siberia, Russia’s farm belt is enjoying a renaissance, with grain at the leading edge. Turbocharged by the 45 percent drop in the ruble against the dollar over the last few years and bumper crops, local producers are crowding into export markets long dominated by big western players.

Last season, Russian topped the U.S. in wheat exports for the first time in decades and is expected to extend those gains to displace the EU from the top spot this year, according to the U.S. Department of Agriculture. Investors from local farmers to billionaire tycoons are pumping money into the business.

Russian wheat has crowded out U.S. supplies in Egypt, the world’s biggest buyer, and is gaining footholds in some other countries, such as Nigeria, Bangladesh and Indonesia. That’s four decades after the Soviet Union turned to U.S. shipments of wheat and corn to offset shortfalls in its own harvests. Over the last decade, Russia has been the biggest single source of growth in wheat exports, vital to meeting surging global demand.

“Russia will be among the top exporters for a long time, especially given the potential advances in productivity there,” said Tom Basnett, general manager at Market Check, a Sydney-based commodity consultant. “Other producers need to fight harder to maintain their traditional markets.”

The boom in Russia is attracting some of the world’s biggest trading houses, with Olam International Ltd., Cargill Inc. and Glencore Plc investing into everything from silos to export terminals.

Rich soil, government support and proximity to Black Sea ports for shipping means Russian costs can be as little as half those of major competitors supplying key import markets in the Middle East, according to researchers at Kansas State University.

Rivals Shift

Many growers in the U.S. and Europe have turned to higher-quality wheat to compete with the Russian supplies, which are mostly softer varieties that fetch lower prices. Some have also cut wheat plantings, which in the U.S. are expected to be the lowest next year since 1919, according to The Scoular Co., a Kansas grain supplier.

Limited storage capacity means most of the Russian crop is sold shortly after it’s harvested, further depressing prices. Moscow has also imposed export tariffs and even a ban in the last several years in an effort to keep domestic prices down, scaring foreign buyers. The 2010 ban sent prices skyrocketing in key markets like Egypt, fueling unrest that contributed to a revolution.

But exports have been growing since Russia first returned in volume to the global wheat market in 2002. Over the first seven months of this year, farm and food exports were 5.5 percent of Russia’s total, still far behind top-ranked oil and gas but the highest share in at least 15 years and more than big earners like weapons, according to official data.

“With our nature and climate, it’s our destiny to be an exporter,” said Arkady Zlochevsky, president of the Russian Grain Union, an industry group.

The price of Russian wheat for export from Black Sea ports dropped to the lowest in at least six years in July and was last at $169 a metric ton as of Sept. 30, according to the Institute for Agricultural Market Studies. Wheat for December delivery added 0.4 percent in Chicago on Friday.

Farmers trace the roots of the rebound to the Kremlin’s move a decade ago to allow land to be bought and sold freely. That set off a wave of investment in new equipment, fertilizers and expansion of farms into lands long left fallow. Government subsidies and the ruble devaluation, along with good weather, have added to harvests in recent years.

Burdin was granted five hectares of land for his own use in the early 1990s, when his collective farm collapsed in the wake of the demise of the Soviet Union. After working as a hired hand, he struck out on his own in 2005. He traded his old Lada for a used Russian tractor. He said he barely earned enough for food. “It was hard when we started out.”

Now he drives a late-model Ford pickup. His fleet includes a half-dozen imported tractors and four combines, along with a German machine to spread the fertilizer that’s helped him to victory in local wheat-yields contests. He owns 200 hectares (500 acres) of land and rents another 1,500.


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