SHANGHAI — This year will likely be another of slow growth for China’s minor metals sector, but companies looking to the long term will benefit, market players told AMM sister publication Metal Bulletin.

Chinese minor metals companies face a cautious and uncertain market environment, pressured by high inventories and relatively weak demand, while smaller companies will be squeezed by rising labor costs and stricter environmental oversight, sources said.

"Tight liquidity and stormy outside markets will sink many companies this year," one market participant said. "A lot of companies are operating on cash flow at the moment rather than profits. Without a large war chest, that strategy will not last long."

Trade figures give little encouragement, with bismuth exports down 43 percent in the first 11 months of 2012. Meanwhile, long-term contract talks have exposed weakness in demand for the year ahead.

"As far as my order book for next year’s long-term contracts go, it appears our own production can already meet demand and we won’t need to buy from the spot market anymore," one Chinese bismuth producer said.

Even some recent positive signs, like rising selenium prices, might prove misleading, some participants said.

"I don’t think what is happening right now is going to be a forerunner (of the selenium market) of the year ahead," one selenium importer said. "It is not sustainable."

But some might see opportunities to grow market share despite the apparent slowdown. Bigger companies, for example, have been able to focus on technological and environmental investments to stay ahead of tightening standards.

The other advantage of scale is the ability to raise cash externally. "After going public, companies will suddenly have a big pile of money waiting to park itself," one market participant said. "It enables them to really consolidate the market."

A version of this article was first published by AMM sister publication Metal Bulletin.