If investor interest in nickel is anything to go by, prospects for the metal’s little brother, molybdenum, should be looking up next year. Admittedly, part of the attraction for nickel is the tightening supply market, but that is being driven by an increased demand for stainless this year over last. The same dynamic will be driving the molybdenum market. As usual with metals (and just about every other commodity) Asia demand last year rose as the rest of the world declined. Five percent up in China compared to a 9 percent decline globally according to a commodities-now.com report, but as consumption has begun to pick up in the rest of the world this year it has pushed even higher in China. Even though China prefers the chrome and lower nickel bearing stainless grades rather than the higher nickel/molybdenum grades, Chinese molybdenum consumption is expected to outstrip growth in the rest of the world, with an annual average rate of 9%pa for the next five years, compared to accumulated growth of 2%pa in the developed markets of Europe, the USA and Japan.
Contrary to common assumption, stainless steel is not the largest application for molybdenum, according to the LME which draws data from the International Molybdenum Association. Construction steel accounts for 35 percent of molybdenum used compared to 25 percent for stainless. China’s continuing demand can therefore be seen in light of the massive infrastructure and housing investments that have been going on and are likely to continue in that country well into the middle of this decade.
Even among stainless applications, the drive to reduce carbon dioxide emissions from coal fired power stations will provide a boost in consumption for the higher grades of stainless where molybdenum is key. Such plants are required to run at higher temperatures needing more sophisticated alloys. The energy markets, whether for coal-fired power stations, nuclear or oil and gas will drive specific demand for molybdenum bearing steels. A Rosskill report reviewing historic and future price trends agrees, saying between August 2008 and March 2009, molybdenum prices, responding to the global economic downturn, fell from US$34/lb Mo to US$8/lb Mo. This followed a four-year period when supply limitations and growing demand, principally from low alloy and stainless steels, sustained an average price of US$30/lb Mo. Through 2010 and 2011, market volatility is likely to continue but thereafter consumer demand for molybdenum in steel for process and power plant, as well as in oil and gas projects, will keep the market tight. Rosskill goes on to say the availability of project finance will remain a problem for potential new producers outside China. The consequent under-investment in molybdenum projects in 2009 and 2010 will have consequences for supply as far ahead as 2015. Interestingly a statement by Dow Jones regarding Freeport-McMoRan’s intentions for their Climax resource echo those observations. Construction was suspended at Climax in October 2008 in response to market conditions but Freeport are still spending $60 million to keep the project in a viable state to ramp up if prices remain sufficiently robust. At an annual capacity of 30 million pounds, Climax is a major resource and Freeport’s approach should underline both that they see long term demand for molybdenum and that they are not about to flood the market with additional supply.
While one would expect producers predictions to err on the bullish side, comments in Proactiveinvestor suggest there is widespread optimism that high-end stainless and super alloys like Hastelloy and Inconel demand coupled with ongoing construction demand will see molybdenum usage increase in 2011 and beyond. Quoting Bloomberg, the post says China Molybdenum Co estimates that Chinese consumption will increase 13 percent this year due to rising steel demand, with global demand to rise 7.3 percent. In the absence of major idled capacity coming back on stream and very little new mine development even being started, prices have more upside than down going forward.