Moly Prices Moving Up

Molybdenum prices have been moving steadily higher over the last month and are now approaching $10/lb, but any significant gains in the price will be curtailed by the threat of increased supply by producers, say analysts at New York-based Dahlman Rose & Co.

Molybdenum, which is used to strengthen steel, traded on the spot market above $30/lb during the first half of last year, but fell off sharply in October, bottoming at below $8/lb in April.

Strong demand from China and increased steel utilisation in the Western market is increasing demand for molybdenum, analysts Anthony Young and Anthony Rizzuto wrote in a research note on Friday.

Chinese steel production bottomed at approximately 425 000 metric tons in October, while production in China now stands at approximately 528 000 t, annualised for the month of April.

“This increase in steel production, coupled with the low price of molybdenum is forcing China to increase molybdenum imports,” the analysts said.

Further, US steel production is also creeping up, with steel utilisation at US mills up to 46.2%, compared with 41.2% in early April.


However, although demand appears to be firming, the supply capacity that was taken offline when prices fell creates an “overhang” on how high prices can rise in the near term, said Young and Rizzuto.

In China, the high production costs at many of the smaller mines in the country has forced operations to close, and they estimate that as much as 30% of Chinese production may be offline.

However, as prices edge higher, this production will likely resume.

Further, while miners Freeport-McMoRan Copper & Gold and Thompson Creek Metals have each cut around 10-million pounds of molybdenum production - equating to about 5% of global supply – this output could likely be returned to the market relatively quickly.

If prices go high enough, Freeport-McMoRan could also make the decision to develop its Climax project, which could add another 30-million pounds of supply within a year to 18 months.

This will create a cap on prices in the near term, as higher prices will result in increased supply of the metal.

“While we anticipate that molybdenum prices will trend somewhat higher over the long-term, as the world again becomes constrained with respect to supply, in our opinion it will be difficult for molybdenum prices to trend significantly higher over the near term, until a significant portion of the supply which is sidelined is brought into production and consumed,” the analysts said.

Source: Mining Weekly