Collapsing Fanya Metal Exchange in China raises concerns about minor metals – by Peter Koven (National Post – September 2, 2015)

The National Post is Canada’s second largest national paper.

The potential collapse of a Chinese commodity exchange could put more pressure on prices for rare earths and other minor metals in which investors have already suffered tremendous losses over the past several years.

Last week, furious investors kidnapped Shan Jiulang, head of the Fanya Metal Exchange, at a Shanghai hotel and turned him over to police, according to the Financial Times. It capped a debacle in which the Fanya exchange ran into liquidity problems and stopped paying out money on its investment products. Roughly US$6.4 billion of investor funds were frozen, according to estimates.

Now the risk is that Fanya will liquidate its vast holdings of minor metals, a move that could crush the highly illiquid markets for these products and harm Canadian companies in the space.

Of course, that assumes Fanya’s reported holdings are accurate. Investors treat everything this exchange says with skepticism after its rapid flameout.

“Creating a marketplace for illiquid commodities and not doing it properly just doesn’t help the market at all,” said Pierre Neatby, vice-president of sales and marketing at Toronto-based Avalon Rare Metals Inc.

The idea behind Fanya, which emerged out of nowhere over the past few years, was to emulate the success of the London Metals Exchange (LME) and create an exchange dedicated solely to the trading of rare earths and other minor metals. Production of some of these metals is dominated by China, where investors are highly interested in them.

But observers saw troubles with Fanya early on. It offered no hedging, so there was unlimited downside for traders.

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