Tight Supply may spike Moly to $50►This article was posted by rai19 on the ROK board.
No end in sight for moly rally
Metals commentary
News Monday, March 24, 2008
The Northern Miner
https://www.northernminer.com/
Diminishing inventories, surging steel consumption and the widening scope of end-uses for molybdenum will sustain the current rally in prices for the base metal, according to the CPM Group, a New York-based commodities research consultancy.
Speaking at the PDAC convention in Toronto earlier this month, CPM Group's senior analyst for base metals, Catherine Virga, predicted demand for molybdenum will rise 5.8% this year – easily sustaining present prices.
Virga forecast molybdenum prices will climb to US$34 per lb. this year, up from last year's US$30.23 per lb., and could move significantly higher.
"On a short-term basis, prices could potentially spike towards $50 per lb later this year or in 2009," Virga told The Northern Miner in a subsequent e-mail exchange.
"Given the scope of the supply deficits the past few years, there is substantial upside to molybdenum prices in the event of a supply shock or further delays in bringing new projects online."
The price of the metal – which is predominantly used to enhance corrosion resistance and strengthen steel -- is determined between producers and traders. Molybdenum is not exchange-traded.
New supply is expected to trickle onto the market in 2009 but a shortfall is anticipated through 2010, she predicted.
Tighter regulation of Chinese producers has been one factor in declining inventories and higher prices.
"Steel producers in China are lobbying their government to keep more moly supply at home," Virga explained.
In February 2005, the Chinese government closed molybdenum mines in the Huludao area due to both tax fraud and safety concerns following several fatal coal mine accidents, according to Virga. The shutdown resulted in a nearly 40% loss in total Chinese molybdenum production. (Total molybdenum oxide production fell roughly 25%).
In November 2006, the Chinese government imposed exports duties on molybdenum oxide and ferromolybdenum. In June of 2007 the levies were raised to 15% for molybdenum oxide and 10% for ferromolybdenum.
Around the same time, Virga added, the government tightened its control over molybdenum products and imposed more stringent export quotas. These quotas continued to be tightened. In late October of last year, China's Trade Ministry announced further cutbacks in the 2008 quota. At the beginning of this year, the Chinese government doubled the export tax on ferromolybdenum, bringing it to 20%.
A number of other dynamics in the supply and demand scenario are also at play in buoying the outlook for the metal, however. Virga pointed out that the market is expected to become less dependent on by-product producers in the coming years.
Historically, molybdenum was produced as a by-product of copper production. But more primary producers will come on stream by 2011, Virga predicted.
That will likely mean a declining contribution from historically dominant companies such as Anglo American, Antofagasta, Codelco, Grupo Mexico, Rio Tinto, and Southern Copper, she forecast.
The majority of the world's molybdenum supply comes from copper/molybdenum deposits in the United States, Chile, Peru and Canada.
Primary molybdenum deposits, found in China, the U.S. and Canada, make up the largest portion of the remaining total global production.
The expanding energy sector will widen the scope of end-uses for the metal. Currently about 38% of demand stems from the energy sector, which uses molybdenum in transmission pipelines and drill stems; catalysts (hydroprocessing and hydrodesulfurization of crude oil, gasoline, jet fuel and low-sulfur diesel); nuclear power; chemical processes (smoke suppressants in PVC cabling) and petrochemical industries.
The metal is used in everything from offshore oil and gas pipelines, bio-fuel tanks, flue gas desulphurization in coal and oil burning plants, and in desalination plants.
Molybdenum is also used in the production of specialty lubricants (high-performance base oils, greases, synthetic fluids, bond coatings, friction products), pigments (paints, inks, plastic and rubber products, ceramics), plastics manufacturing, high-performance alloys (automotive parts, lamp filaments, glass manufacturing, heat shields and optical coatings) and super-alloys (superchargers, aircraft turbine engines, gas turbines, chemical and petroleum pants).
It can also be used in cast iron (diesel engine motor blocks, cylinder heads, mining, milling, crushing), and the tool industry (manufacturing of tools and the cutting or shaping parts of power machinery).
Transportation sectors such as aerospace, automotive, shipbuilding and rail also employ molybdenum extensively.
In the aerospace industry, for example, superalloys make up 50% of the weight of advanced aircraft engines. And super-alloy consumption will increase demand for molybdenum as the global airline passenger rate is forecast to grow at an average rate of 5.6% in 2009, Virga said.
Molybdenum cash operating costs for high-cost producers, those operations above the 90th percentile on the cost curve, may undergo a three-fold increase to $11.20 per lb by 2011, Virga said.