Molybdenum In The Limelight

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As a metal, molybdenum has had a funny life. For decades the price bumped along around $ 2-4/lb, largely produced as a by-product of copper production with a few pure play molybdenum mines operating as swing production if the price rose sufficiently to make them viable. Molybdenum grades are so thin, typically between 0.01 and 0.05% Mo in copper mines and 0.12 to 0.20% Mo in primary molybdenum mines, that production as a by-product from copper mining is generally far more viable. Then on the back of rising demand, the price has relentlessly risen since 2003 from $5/lb to $33/lb today. Indeed the metal spiked even higher during 2005 as China closed smaller mines but a return to previous output levels the following year and a general shift from 316 stainless to lower nickel/molybdenum grades has helped prices to ease a little since. However many observers are expecting the price to stay high and even rise further. 93% of mined molybdenum comes from three regions, South America, North America and China and though  new mines can take years to bring on stream, supply is constrained more by limited roasting facilities, the process required to take ground ore to Molybdenite concentrate. New roasting facilities are expensive and environmentally sensitive so they take a long time to come on stream. But with the price over $30/lb it’s no surprise that many plants are being planned. Rio Tinto has a $270m autoclave planned for their Bingham Canyon operation near Salt Lake City and Peru, Canada and Argentina all have new facilities coming on stream.

Will this be a classic over investment reaction to the high price followed by a massive increase in supply and price crash, as we have seen with zinc these last 12 months? The producers say no of course, as does the industry association. But interesting nor does the market, most believe the demand for Molybdenum will keep pace with the new supply such that prices will remain around $30/lb or more for some years to come. In particular, the increasingly corrosive grades of crude oil being used will demand more corrosion resistant alloys, as will higher operating temperatures and pressures required in new plants. More exploration for oil and gas spurred by the dramatic price rises for those commodities will require more corrosion resistant stainless and duplex alloys. Chemical processing and increasing environmental re-processing requirements are driving demand for these alloys both in the Middle East, Asia and the old CIS countries playing industrial catch up. Lastly there are 48 nuclear reactors approved for construction by 2013 and it is estimated there will be 100 by 2010. Each reactor uses up to 1m feet of the highest quality stainless tubing.

Unfortunately for consumers there is no futures market on which they can hedge their future demand for molybdenum. The volumes traded have so far not been considered large enough. But interestingly the LME has appointed someone to look at molybdenum, in addition to cobalt and probably Ferro Chrome. In more ways than one it looks like molybdenum is finally back in the limelight.

–Stuart Burns

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