Re: "Molybdenum market: fasten your seatbelt!"
Panayiotis Kotseras - 19 February 2015
The $5.5 billion molybdenum market has a long-term CAGR of 3.4%, abundant resources and low-risk supply. However, the analysis of this market is complicated by the significant production of molybdenum produced as a by-product of mining copper. Indeed, global molybdenum supply is currently being reshaped by ancillary production, with by-product operations forecast to contribute 57% of total molybdenum production by 2015-up from 50% in just 5 years.
Understanding what factors drive the primary and by-product supply streams and how they will change in the future is vital when determining the long-term outlook for molybdenum and who will be the winners and losers. To answer these and other questions CRU presents a new report-Molybdenum Market Outlook 2015.
By-product supply is currently driving a 37% increase in molybdenum production from Chile, Peru, and Mexico, and an 11% fall in production from the US and Canada. China, which consumes an impressive 37% of global production, will not be immune. Already a number of small- and medium-scale Chinese mine operations that have been under severe financial pressure have cut back production. That the larger-scale Chinese operations and those able to withstand the financial pressures are not able to meet demand in China is evidenced by the increase in imports of unroasted molybdenum which have risen by 50% to 6m lb contained metal in just one year. Indeed, despite a deceleration in Chinese economic growth, domestic molybdenum consumption benefits from expanding late-cycle sectors.
So what happens next?
In the short-to-medium-term the amount of molybdenum coming on-stream from committed copper brownfield and greenfield operations will only act to amplify the current trends. These projects are close to completion. So CRU expects 42% of the global molybdenum supply to come from Chile, Peru and Mexico by 2018. This growing low-cost material will drive out high-cost operations especially in China which will seek to partly meet domestic supply by imports.
This robust expansion will come to an end by the close of the decade as low copper prices and limited finance disrupt the flow of new copper mining capacity. As CRU's Copper Long Term Market Outlook notes, a lack of investment today will have serious implications for future supply. And as we highlight in our most recent Copper Cost Service Report, the economics of some projects expected to come on-stream in the next 15 years now look more uncertain.
As described in CRU's Molybdenum Market Outlook, logic dictates the expanding molybdenum demand in the long term will drive the price higher until the primary operations become economical again in the US, Canada and China. But of course this relies on high-cost Chinese mines shutting down in response to low-cost competition in the first place. It seems that CRU's seasoned China observers will be much in demand in the coming years.