Molybdenum, prior to the global financial crisis, was one of the base metal sector’s best performing commodities with prices jumping from less than US$3 per pound in 2000 to as high as $45 per pound in 2005.
In the first half of 2008, moly prices were averaging about $33 per pound, but after the crisis hit in October of 2008 prices fell to nearly $10 per pound.
Once prices began falling, it became no longer economically viable for companies to produce the silvery white metal and major companies cut back on production. Global supplies began to tighten, especially as resource-hungry China started stockpiling the metal, which resulted in prices nearly doubling for both molybdic oxide ad ferromolybdenum between July and August of 2009. Prices then dropped about 50 percent by October 2009 to around $12 per pound.
Since November of 2009, moly prices have been rising on demand out of China, Japan, Korea and the U.S., hitting $15 per pound in January 2010. By April 2010, prices were hovering just under $18 per pound.
Molybdenum Futures on the London Metals Exchange
In response to industry demand, the London Metals Exchange this year began offering trade in publicly-available molybdenum futures on February 22, 2010. Futures trade in $US per tonne Mo contained on the LME.
The LME says its moly futures contracts “will provide transparent and accurate pricing and the means to deal with market volatility,” which will allow those producers and consumers “to manage their price risk and cashflow better and to predict profits more effectively.”
The LME Moly Futures listing “can now act as a benchmark price for use across the global moly market, allowing players to know a ‘fair value’ for the product and reducing possible discrepancies between the different markets,” says Thomas Kavanagh for Proactive Investors. “All this brings about confidence when buying and selling molybdenum, and in the longer-term makes for a more stable, reliable and liquid market.”
Although demand for molybdenum in the production of stainless steel fell over the past two years since the global economic downturn, demand is now rebounding in 2010, although slowly, along with the rest of the commodity sector worldwide. Global production of crude stainless steel is expected to increase by around 8 percent in 2010, with demand growth averaging 4 percent annually going forward.
Supply levels have been impacted as many producers slowed or halted operations in response to declining prices and the lack of financial funding over the past few tumultuous years. In 2009, global moly output from mining operations is estimated to have dropped by 12 percent.
Price Drivers for 2010 and Beyond
Growth in Chinese Demand
As is the case for many industrial use commodities, China is in the driver seat when it comes to influencing demand and prices. Molybdenum is a crucial component of China’s industrial sector and economic growth given its importance in high quality steel manufacturing. China was once amongst the top moly producers in 2008, exporting about 25 million pounds; however, in 2009 the Asian nation became a net importer of the metal.
The energy market is beginning to take a larger role in the moly market going forward. Some examples exist in the coal, nuclear, oil and gas sectors including renewables. Its renewable energy uses include geothermal (drill bits), solar (electrical connectors) and wind power (propellers) generation.
Coal-fired power plants will need to operate at higher temperatures to reduce carbon dioxide emissions and this will require molybdenum-alloyed steel. Its anti-corrosive properties aid in the production of oil from the tar sands and in offshore drilling to help prevent leaks, and crude oil refineries use it as a catalyst in refining to remove sulfur.
Moly’s environmental protection uses extend to nuclear power reactors as well. Global growth in the nuclear industry is dependent on easing the public’s fears about the potential dangers posed by nuclear power. The metal’s radioactive-resistant properties and relative strength amongst its industrial counterparts make it the perfect metal for such applications. Nuclear power plants also require molybdenum alloys to replace aging reactor condenser tubes. Each new reactor is expected to use at least 400,000 pounds of the metal, according to MoneyWeek senior writer Eoin Gleeson.
The availability of quality drinking water will be one of this century’s most important issues and is already playing out in the Middle East, which has begun to run out of fresh water and nations are looking to sea water or treated waste water. This will require the construction of more and more desalination plants, which require corrosive-resistant molybdenum tubing.
Copper-Nickel Tubing Alternative
The search for corrosive-resistant alternatives to copper-nickel tubing is another factor in driving moly demand. Corrosive water can destroy copper-nickel tubing and this is becoming a problem, especially in the US where new water conservation legislation in several states has led to power plants using treated sewage water as cooling water, which can have high levels of corrosive hydrogen sulfide, ammonia and chloride. Super-ferritic stainless steel tubing containing molybdenum is quickly replacing copper-nickel tubing, especially as water availability becomes more of an issue.
Most analysts are confident molybdenum is poised to make a comeback in 2010. In January 2010, JP Morgan analysts forecast the metal rising to around $21 per pound by the end of this year, and possibly rising as high as $24 per pound by the end of 2011.
In April 2010, BMO Capital Markets said it believes improved stainless steel and steel product demand this year will continue to support moly prices. BMO analysts forecast an average annual price of $16.82 per pound for 2010.
Along with this upward trend, nevertheless, investors should expect price volatility to continue. According to international metals and minerals research group, Roskill, moly prices will rise above $20 per pound in 2011 on strong demand. The research group also says a supply deficit in the market by 2014 is possible and may drive prices as high as $40 per pound.