ROK is ready to takeoffChina Set to Control Moly Production
By Michael Montgomery—Exclusive to Moly Investing News
The molybdenum market may be affected by a decision by theChinese to classify moly as ‘national mining resource,’ limiting themining and export of the metal in the same fashion as rare earth elements.In 2007, China instituted export quotas for molybdenum, however, thisnew classification would exert more control over the mining of thematerial. The China Securities Journal quoted an unidentified source assaying the Asian nation would “limit molybdenum mining from next year byclassifying it as a national mining resource,” reported Xiao Yu, for Bloomberg.
The effect of the reduction of quotas and mining of rare earths inChina has made increased share prices of many rare earth miningcompanies for simple supply and demand fundamentals. After the releaseof the article stating the impending changes, share prices for Thompson Creek Metals (TSE:TCM)(NYSE:TC), and China Molybdenum Co. (HKG:3993)rose 16 percent and 5 percent, respectively. Investors should becautious to these advances, the benefits of these regulations, and themarket reaction to them is a double edged sword.
They do help in reducing the amount of supply. However, the frenzythat it created in the rare earth market boosted share prices, only tosee the prices fall after China eased trade embargos and dispelledrumors of ever tightening export quotas. The situation was covered in anarticle on Rare Earth Investing News.Investorsshould take this news as a positive, but not be baited into fanaticalbuying for short term gains. If the changes to the market are not asextreme as the ones in the rare earth market, any gains made in theinterim may be lost. The changes are also tempered by the fundamentaldifference between the two markets.
China has an absolute monopoly in the rare earth market, controlling97 percent of the world supply. Aside from a few minor producers outsideof China such as Lynas Corp, (ASX:LYC) and Molycorp (NYSE:MCP),there is no new rare earth supply coming online in the next few years.Any shifts in the supply and demand fundamentals in the rare earthmarket, such as a major reduction in export quotas, severely affectsprice of the materials and all products that contain them. The world hasvirtually no option but to either buy from China, or move theirproduction facilities for high tech products there.
When it comes to molybdenum, China does hold serious power over themarket; they have 22 percent of the world’s inventories, and are thelargest producer of the metal. According to the USGS, in 2009, the topproducers of molybdenum are the China, U.S., and Chile. Any supplychanges from China will not have the drastic effects on world molybdenumprices as seen in the rare earth market.
The most serious effects of the impending regulation changes inChina, if mining is limited, is the effect on China once again becoming anet importer of the material, as they were in 2009. The effect that hadon the molybdenum market was to stabilize the price of the metal afterfalling from over $30/lb in 2008, down to $8/lb. The price of molyshould be helped by this new classification due to the need for steelused for the rapid urbanization of the country.
China’s stimulus package focused heavily on infrastructure projectsincluding pipelines, bridges and power plants, and even Nuclear power,which uses high amounts of moly-steel in the construction. The moly needfor the planned construction of nuclear power plants in China wasreported on in April.With all the moly needed for these large scale infrastructure projectsin China, as well as increased steel demand worldwide bodes well for thelong run forecasts for the metal