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  • Lord Copper

The Invisible Piano Player

Here, where I am staying at The Celebrity City Hotel in Chengdu, the sun never shines. Or rather it shines, but cannot be seen. The sun hasn’t so much got his hat on, more a face mask. Day dawns grey. Fifty shades of it. I am told the PM 2.5 is somewhere near 400-500 µg per CM3. That is to say 400-500 micrograms of material of a size of 2.5 microns (1 micron = 1000th of a millimetre) in a cubic metre of air at normal air pressure, sufficient to enter the lungs and blood stream. (PM 2.5 in London is usually 20-30 micrograms.) It does not matter much to me, I suppose. I can go home. 

Music for Minor Metals

Downstairs in The Salute Bar, as I meet some guests, I can hear the tinkling sounds of Rag-Time Jazz, slightly too loud in so far as it intrudes on our business discussion. But the playing is good, and I like the music, so I look round to see the piano player and perhaps meet his eye to suggest approval of his playing. When I look round, I see the keys moving at a lavish white grand piano – but there is no one.

I am here to attend an aerospace propulsion conference – that means gas turbine engines such as the Rolls-Royce ones that powered my British Airways Boeing 747-400 to Beijing. My company supplies the rare metal, rhenium, (total world production 45-50mtpy), which is needed as a minute constituent of 3% or 6% within the nickel base alloys used to grow the single crystal turbine blades for those gas turbines. The Chinese are irritated by the fact that to increase intra-Asia air travel, they must buy engines and air frames from the West; from GE, Rolls-Royce, Pratt & Whitney, Safran for the engines, and from Airbus or Boeing for the airframes.

With all its wealth, China wants its own home-grown engine and, under their 12th Five Year Plan, it is supposed to be ready by the end of 2015. Much money has been spent on the COMAC  C919 airframe and more is now being spent on the propulsion systems. The conference was interesting, with speaker after speaker presenting graphs in Chinese with simultaneous translations about the industry that I am involved with. However, it appeared that most of the Chinese data was old or taken from the West, and nothing original emerged from the Chinese side.

A Hundred Years of Mistakes

The Chinese state has achieved much, as we in the metal trade all know; it has sucked in copper, iron ore, nickel and every commodity needed to build up the country. If money were the only determinant,  it is clear that China would have its engine. But the most illuminating comment of the whole conference was made in an aside by Rolls-Royce Plc’s Head of Aerospace Research & Technology, Simon Weeks, when he modestly remarked, ‘You see, we’ve got a hundred years of mistakes behind us.’

The question for China is, ‘Can a monolithic state encourage enough mistakes in a short enough space of time to deliver a reliable aircraft engine?’ I mean, a civil engine that passengers will have confidence in, and not a military engine flown under compulsion as much as propulsion. ‘Can China meet the type of demands set by the FAA and other entities that ensure our daily safety in the air? ‘Can the Communist Party of China command the 5000 plus parts of a modern gas turbine engine or the countless substances that make up this feat of engineering ?’ It is not just a matter, to paraphrase Eric Morecambe, of hitting all the right notes, they need to be played in the right order.

What was true of the invisible piano player in the bar may not be so easy to achieve in engineering.

Evolutionary Progress

It is essentially a Darwinian question for the Chinese to consider. It may just not be possible to jump on and off the evolutionary bus when it suits. Engineering, like life on earth itself, is built upon stop-start progress, on paths that lead to dead ends, on re-tracing steps and starting again.  ‘Who in China’, we have to ask, ‘will be brave enough to make this happen?’

This now brings me neatly to the question that is haunting the world that I belong to – minor metals. A new feature of our small world has been the birth of an exchange in China called the Fanya Exchange. Like the aircraft engine, I have to ask whether China, in its rush to ape some of the financial systems we enjoy in the West, has yet passed through the evolutionary process that is needed for such an entity to work? We need not look much further than the Qingdao warehouse problem of multi-collateralised metal to see that systems relating to warehousing and finance, which underpin metals exchanges worldwide, leave something to be desired in China.  

In the case of Fanya, there is a further factor – which is, that one of the aims of the exchange, stated openly, is to support prices of metals in which China is a leading producer – such things as Indium, Bismuth, Rare Earths, Gallium, Antimony, Germanium, Vanadium, Tungsten and others.  The very creation of the exchange, therefore, is partly meant as a means to circumvent the strictures of the World Trade Organization, of which China is a member, without falling foul of the rules. The exchange is seen by its owners as a means to support minor metals prices without export quota restrictions. It seems the sales of minor metals to investors (or, as we say in the West, widows and orphans) is the answer.

Question Time for the MMTA

This is a life-defining moment for the MMTA, the world’s leading organization governing the trade in minor metals. Since 1973 it is a trade that has proliferated, not through anything special that we as minor metal people have done, but actually, as I have just been saying, through evolution; in fact through the proliferation of applications using metals that were once thought only a nuisance. For this reason, we now have in our number as members, companies such as Rolls-Royce Plc, Anglo-American, Rio Tinto and other large companies. It was not because we got clever; it was because these large entities recognised an exposure or interest in minor metals in their system. 

The Fanya Exchange on the other hand wishes to sell minor metals to investors and claims to be adding  500 customers a day. Another claim is that the exchange holds stock of more than 2500 mt of Indium metal. However, as primary Indium metal production is no more than 700 mt per year these figures give cause for concern.

The board of the MMTA has canvassed members with the following question for which replies are required by July 11th 2014:

Do you consider that MMTA Membership should be extended to accommodate Companies that make or facilitate retail sales of metal to private investors? 

My personal opinion is that I do not believe minor metals to be a suitable instrument for investment. But, whatever I think, my fear would be that, if members of the MMTA vote to admit or encourage those occupied with the sale of minor metals to investors then, as night follows day (or, in the case of Chengdu, as night follows night), regulators worldwide would have a right, and the duty also, to protect those investors. That, in turn, would change our minor metals trade from the traditional one in which we supply metals to end users into the financialised world that now dominates the base metals. Is that something that MMTA members want? And does not the spectre of Fanya who, we are told, has a mystery 34% anonymous owner, give cause for concern?

It is the invisible piano player all over again. 

This article was written by Anthony Lipmann, Chairman of the Minor Metals Trade Association 2003-2006. All views expressed are strictly his own.

And Just Another Brief Word on the Gold Fix……..

This is not directly connected to Anthony Lipmann’s article above, but nevertheless given that discussions of the Gold Fix are taking place, I couldn’t not comment on the sloppy reporting of the way the process works. Everybody may not like the Fix – that’s their perfect right – but surely it has to be for legitimate reasons? In recent days, I’ve heard on radio news services and read in reputable newspapers that it’s “secretive” and that it consists of “a bunch of banks getting together to decide what to call the gold price.” Sharps Pixley I know make a valiant effort in various of their comments to redress the balance, and I’ll say it again here. The Fix is open, which means pretty much anybody with an interest can hear it in real time, and any bids or offers are available to be executed; in other words, it’s discovering price based on real trades, not a fictitious number. I think we have to accept that the likelihood is that the Fix we know will be replaced by something else, but it would be better without ill-informed incorrect criticism. In reality, it’s one of the better-grounded benchmark prices around; but then, why let that truth spoil a good story about how furtive men (and they’re bankers too, to boot) in secret conclave “fix” the price? 




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