Moly price moving up: now $34/poundMad About Molybdenum (Reuters) Apr. 1/07
By Susan Taylor
OTTAWA (Reuters) - Investors are taking a shine to a rare, silvery-white metal called molybdenum, but the durability of a market rally may hinge on looming export controls from China.
A surge in prices could benefit producers and the Toronto Stock Exchange, home to the world's largest publicly traded, pure-play molybdenum producer, Blue Pearl Mining (BLE.TO: Quote, Profile , Research), and a host of explorers.
Stocks related to the base metal, valued for its anti-corrosive and strengthening properties, have been soaring for weeks, underpinned by sturdy prices and buzz about a new fund that will invest in molybdenum and the companies that produce it.
Now, anticipation is building for news on a quota system from China, which could soon release a list of the molybdenum producers it will allow to export. Fewer than 30 names are expected, a Chinese industry group said, and exports could fall by 10 percent.
"It comes down to the Chinese," said Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier. "They could make or break the market."
About 400 million pounds of molybdenum were produced last year, with tight supplies making the market sensitive to supply disruptions and contributing to price pressures.
China is a major supplier of the metal, used primarily as a hardening agent in the production of stainless steel. It contributed about 17 percent of the world supply in 2006 and topped the world in reserves, UBS said in a report.
Other key suppliers are the United States and South America, where molybdenum is a byproduct of copper mining.
The tough-to-pronounce metal moved into the mainstream amid a meteoric rise for shares in Toronto-based Blue Pearl.
Producers of the extremely hard metal make up only a small portion of the TSX materials sector, which is down about 1.4 percent over the past month. In contrast, Toronto-based Blue Pearl has climbed 37 percent.
Other producers and developers of what is being called a new mining "mega-star" have seen similar gains.
Moly Mines Ltd. (MOL.TO: Quote, Profile , Research), which has an Australian project that could contribute 20 million pounds annually in 2008-2009, has seen its stock surge more than 125 percent over the month.
Strapping stock jumps have also touched miners close to production. Roca Mines (ROK.V: Quote, Profile , Research) shares popped 100 percent this month and Adanac Molybdenum Corp. (AUA.V: Quote, Profile , Research) is up 74 percent.
Interest in molybdenum is also being piqued by resource guru Eric Sprott's planned Sprott Molybdenum Participation Corp. The fund, preparing for an IPO, will invest in miners and up to 50 percent of its capital directly in molybdenum.
Two weeks ago, tight supplies and uncertainty over China lifted molybdenum prices to 16-month highs of $79 a kilogram. Since then, it has slipped to about $75 per kilogram, 25 percent above the start of the year.
Investor interest has sparked an exploration revival among juniors and has senior miners revisiting old plans.
"You're seeing lots of companies coming out of the woodwork with historical molybdenum deposits that they're starting to promote," said Wellington West mining analyst Greg Huffman.
Still, he doesn't expect much new production over the next two years, though new deposits could be developed by 2010, or 2011, depending on prices.
Ten companies produce about 66 percent of global output, UBS said. Leaders Codelco of Chile and U.S.-based Phelps Dodge, recently acquired by Freeport-McMoRan, account for 33 percent. Other notable producers include Blue Pearl, Rio Tinto (RIO.AX: Quote, Profile , Research), Grupo Mexico (GMEXCOB.MX: Quote, Profile , Research), Jinduichenge and Antofagasta.
Trading firm Shangxiang Minmetals predicted in late 2006 that the world molybdenum market will move from deficit to balance in 2007 with supply estimated at 445 million to 450 million pounds and demand at 445 million pounds.
Some analysts see it differently. "Commodities are here to stay for a while. (I see) sustainability for quite some time," said Nakamoto.