Investment plays on China's Fanya exchange pull bismuth higher

Tue Jan 28, 2014 11:40am EST

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* Stocks in Fanya exchange total almost one year supply

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By Polly Yam and Harpreet Bhal

HONG KONG/LONDON, Jan 28 (Reuters) - Investors using an exchange in southwest China have built up stocks totalling almost one year's global output of bismuth, driving prices of the cosmetics and pharmaceuticals material to a 1-1/2 year high.

The clients of the specialist Kunming Fanya Metal Exchange focus on minor metals also including germanium - used in fibre optics and semi conductors - or indium, betting that demand and prices will balloon with world economic recovery.

Traders say the exchange's stocks of bismuth now stand at 6,072.30 tonnes, close to total global output in 2012 of 7,400 tonnes.

The same exchange, which began trading only in 2011, has built up twice the annual global supply of indium, used in making liquid crystal displays.

"You can't buy bismuth for less than $9 (a lb) now in China. The Fanya exchange keep buying up bismuth. A similar thing happened with indium. The accumulation is having an effect on prices," an Asia-based bismuth trader said.

China is the world's largest producer of bismuth, the uses of which range from being an ingredient in mineral makeup powders to treating stomach upsets. It is also seen as an environmentally friendlier alternative to lead.

CONCENTRATION OF STOCKS

The Fanya exchange oversees stockpiles that are suited to longer term investment and says it offers perfect conditions for common investors to become involved in rare metals. It says on its website that it has 70,000 members.

This allows it to command higher prices than the spot market in China and internationally.

In the international market, minor metals are traded over the counter and sold for cash in exchange for immediate delivery.

Bismuth in the spot market stands at $9.00-$9.65 a lb, or roughly $19,800-$21,300 a tonne, against 162,200-165,000 yuan ($26,800-$27,300) a tonne quoted on the Fanya exchange.BIS-LON

Other strategic metals are also prone to the Fanya effect.

Fanya has accumulated large volumes of ammonium paratungstate (APT), totalling 6,680 tonnes, in its warehouses.

Traders said that as a result APT, used in tungsten powders that are in turn needed to manufacture wires, welding electronics and mining tools, is also vulnerable to a leap in price should demand improve significantly.

Prices of APT in the spot market are trading at $375-390 per metric ton unit (MTU), or equivalent to $37.50-$39 a kg. On the Fanya exchange, APT prices are 240.40 yuan-242 yuan ($39.75-$40.01) a kg.

Traders said the buildup of bismuth stocks in Fanya, being held as investments on expectations of higher prices, has restricted availability for industrial consumers, many of whom are buying hand-to-mouth.

Spot market bismuth prices have gained roughly 30 percent since August.

"The stocks in Fanya have helped the prices since the supply in the physical market has reduced," a trader at a large bismuth producer in China said, adding that the current level of stocks could easily be digested by physical demand if they were sold. ($1 = 6.0480 Chinese yuan) (Editing by Veronica Brown and Anthony Barker)

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