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ANALYSIS-Super hot metal rhenium may reach "platinum prices"
LONDON, July 10 |
LONDON, July 10 (Reuters) - The price of aerospace metal rhenium, which has jumped almost 10-fold in five years, looks set to go even higher as supply fails to keep up with demand.
The silvery-white metal, used increasingly in aircraft engines and oil refineries because it can withstand very high temperatures, faces a major supply deficit as new production fails to fill a gap left by dwindling stockpiles.
High prices are attracting new investment but new supplies of the metal will take a long time to reach customers.
Traders say rhenium spot prices, which have rocketed to as much as $11,250 a kg against $1,110 in 2003, could go much, much higher as plane makers and refiners look for every last ounce.
"Theoretically, it can achieve platinum prices," said Andras Szep, general manager of metals trader Sekom. "Perhaps not $2,000 an ounce, but $1,000 an ounce is quite an imaginable price for rhenium."
Rhenium prices are now at around $351.50 an ounce, compared to $1,978 an ounce for platinum, so there's a long way to go.
But with demand far outstripping supply, another big jump looks possible. Global supply at around 50 tonnes a year roughly equals demand of just the top three users, industry sources say.
Until recently the deficit was met through draw-downs in stockpiles of the metal, chiefly from Kazakhstan. But these stockpiles are now largely depleted.
"For a long time, Kazakhstan had a very big stockpile of 10-15 tonnes," said one metals trader. "That stockpile for a few years has been filling the gap between production and consumption. But that is going to be wiped out."
The United States and Russia hold little or no rhenium. The U.S. Defense and Logistics Agency has confirmed it has no rhenium in its National Defense Stockpile, and Russian strategic stockpiles, while undisclosed, are believed to be extremely low.
Demand, meanwhile, is robust.
Boeing Co (BA.N) expects to supply 475 to 480 commercial planes this year and 500 to 505 in 2009, up from 441 planes in 2007. Its rival Airbus (EAD.PA), says it will deliver more than 470 aircraft this year, up from 453 in 2007.
Aircraft production is not only increasing but becoming more rhenium-intensive. Rhenium allows engines to run at higher temperatures, making them more fuel efficient, and as oil prices soar, modern engines use more and more of the metal.
While rhenium alloys used in aircraft engines once contained only 3-5 percent of the metal, new alloys have up to 6 percent.
Engine maker Rolls-Royce (RR.L) -- with General Electric (GE.N) one of the biggest users of rhenium, according to traders -- said earlier this year it was looking to reduce its consumption of the metal by using lower-rhenium alloy.
But many industry sources doubt this will be possible.
"I think most people in the market interpreted that as ... scare-mongering," said one London-based trader, adding that rhenium substitution "isn't a viable option".
With usage unlikely to drop in the near future, miners are responding to this potentially lucrative seam of new business. Both Rio Tinto (RIO.L) and Xstrata XTA.L say they are looking at ways to increase rhenium output.
Rhenium is a by-product of processing another heat-resistant metal molybdenum, often found in copper mines.
Rio said in June it was investing $270 million in a molybdenum processing facility at its Kennecott Utah Copper plant, which will recover up to 9,000 pounds of rhenium a year.
Xstrata is considering a project to produce rhenium, which is present in its 44 percent-owned Collahuasi mine in Chile and its Minera Alumbrera operation in Argentina.
"A large amount of rhenium in molybdenum is basically not recovered," said one trader. "To scale up a plant to recover rhenium when it was $3,000 a kg just wasn't worth it. Now it is $10-11,000, it is coming under people's radars."
Recycling is also moving up the agenda, with Johnson Matthey (JMAT.L) planning recovery of rhenium from alloy blades.
However, the process is still in its infancy, with would-be recyclers struggling against both technological constraints and a lack of raw material for recycling.
Additional primary supply is also unlikely to come online soon. Rio's new Kennecott facility is not scheduled to begin operating until late 2010, while Xstrata will not make a decision on its facilities until the second half of this year.
Upgrading mine facilities is expensive and companies must be sure prices will remain high before they make that investment.
That both Rio and Xstrata are considering such a process suggests such confidence is high.
(Reporting by Jan Harvey; editing by Christopher Johnson)
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