Gallium Market Update - January 2017

The end of 2016 saw gallium prices rise for the first time in five years. Welcome news for refiners who have been selling the metal at decade-low levels.

Yet, there are few reasons to believe gallium prices will continue rising through the first quarter of 2017.

The large expansion of gallium refining capacity that came online between 2013 and 2015 led prices to decline by 50 percent over the same period.

While optimistic forecasts for gallium consumption by the LED and integrated circuit industries encouraged refiners to expand output, to date, demand growth has remained modest.

Persistent over-supply and falling prices led Chinese refiners – who account for roughly 80 percent of global primary gallium production – to halt production in the second half of 2016. This, combined with consumers accustomed to ordering material as needed, led to a shortage in the spot gallium market by November.

With refiners bringing more production back online after the Chinese New Year, the gallium shortage may be short-lived.

One factor that may have a further dampening affect on the gallium market is the auction of 51 metric tonnes (MT) of the metal that has arisen due to a failed investment in China. While the metal recently went for public tender in Tianjin, it is difficult to see this amount of the metal selling as one lot for anything close to market prices.

As in the case of the still unresolved Fanya Metal Exchange inventory, if this metal does find its way to market as a result of the auction, it will be a huge drag on gallium prices.

That said, over the past few months there has been strong demand for all commodities in China, as companies and individuals fearful of further weakening of the renminbi look to turn cash into physical assets. This has already driven Chinese domestic prices for metals like tellurium, germanium and bismuth above non-Chinese market prices.

And if the demand in China for non-renminbi denominated assets is so high that it means Carlos Tevez is worth US$ 750,000 per week, well then, it is not unbelievable 51MT of gallium could be sold for a surprising sum as well.