Not crazy about the last paragraph stating over supply conditions of moly production for the next couple years...but I guess that might be how long it takes for bard to prove up everything they have at the lone pine property?
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By: Rex Loesby, special to The Northern Miner 10/30/2009
Molybdenum producers and developers have been on a roller coaster ride for the past year.
Between 2004 and 2008, molybdenum oxide (moly) prices seemed to have found a home in the US$30 to US$35 per lb. range. And even as most other base metals went into free fall during the summer of 2008, moly prices held. However, as fears of world recession spread in late October 2008, the bottom dropped out: moly prices fell swiftly through US$20 all the way to less than US$8 per lb.
In mid-2009, moly prices rebounded north of US$18 per lb. as Chinese Exports fell dramatically and imports expanded. Then in late August,buying out of China dried up and prices began to weaken. As this is being written, prices have come down to the US$11-per-lb. range.
Outside of the past year's wider economic disaster, what has specifically affected moly? First, the reader needs to understand that the big problem when building up market intelligence in moly is the unreliability of production and sales information coming out of China.And since China accounts for at least 30% of world production,forecasting world supply and demand for moly will continue to be difficult and frustrating.
This uncertainty is illustrated by looking at two sources of moly production data for China during 2008: The U.S. Geological Survey's(USGS) Minerals Information Office reports 132 million lbs., while Ryan's Notes concludes it was 180 million lbs., or a difference of 36%.
Overall world moly production in 2008 is estimated at a record 467million lbs., a 5-million-lb. increase over 2007. But that production peak in 2008 reflects the price strength of the prior five years, as there was a very quick and large price fall in October 2008, all the way from over US$30 per lb. down to less than US$8 per lb.
Why that sudden price break?
About 80% of world moly production is consumed by the steel industry to make high-strength steel. Moly is bought primarily by steel mills in anticipation of, or as a result of, orders for specific projects.
In the previous period of high world economic growth, steel mill operators had been quite confident of a smooth stream of orders. So these mills kept relatively large inventories of moly and other commodities so they could be assured of their ability to meet demand and maintain market share.
However, as the U.S. credit crisis spread around the world and fears of a world recession grew, there was a new level of uncertainty surrounding future projects.
So steel mills just stopped ordering moly and even cancelled some existing orders. This meant steel mills would not be ordering moly until they had consumed their inventory and their order flow picked up.
This left many moly traders with unsold inventory, most of which was financed with bank credit lines. Panic selling set in among traders as their credit lines were called in by banks which were fighting their own battles for survival.
The sell-off in moly was quick and ugly.
Another factor may have intensified the sell-off. There is currently no futures market for moly, so prices are determined by current trade between consumers, producers and some traders. The published market price for moly is based largely on anecdotal reports of trades by a few trusted sources, not on any exchange traded index.
Thus, there is no buffering of pricing that might be expected if futures contracts were available for trading.
World moly production for this year is estimated at 424 million lbs., or 41 million lbs. (9%) less than 2008. Primary producers made substantial cutbacks, and did so more quickly than has been typical for mineral producers in the past.
This is because mines have become more automated and can react faster to market changes. Mine productivity has also increased dramatically over the past couple of decades, so production cutbacks can be accomplished without the loss of large numbers of key personnel.
The world's largest primary moly producer, Freeport McMoRan Copper & Gold's(FCX-N) Henderson mine in Colorado's Clear Creek Cty, produced 40million lbs. moly in 2008, but within days of the price collapse in late 2008, Freeport announced Henderson would be cut back to 60% of its capacity.
Freeport also quickly suspended the reopening of its Climax molymine, even though close to US$200 million of the US$500 million required to reopen the mine had already been spent or committed.
In the second quarter of 2009, demand in Europe and North America Began to pick up as steel mills finally worked through most of their stocks of moly and the order stream began to pick up. During the winter of 2008-09 most of these mills were operating at something under half of capacity, when before the crash, most were operating at above 85% of capacity.
This year's moly production in China is estimated to be reduced by30 million lbs., mostly from high-cost producers where some observers estimate the cost of production at about US$13 per lb. This may be an indication that long-term moly prices might stabilize at something above US$13 per lb.
The price rebound in 2009 has been attributed to mine closures in China and strong demand from Chinese buyers. In the first half of 2009,China was a net importer of 35 million lbs. as compared to net exports of 25 million lbs. in the first half of 2008.
The big question has been whether Chinese buyers have been building inventories or actually consuming the metal.
Anecdotal evidence suggests inventories were being built as Chinese Consumers were apparently taking advantage of what they perceived to below prices for moly. The recent price decline is partially attributed to the fear that these stocks will come back in to the market soon.
In 2010, increased production from copper mines that produce moly asa byproduct is forecast to increase world production to an estimated471 million lbs., or up 10% over 2009 and breaking the previous all-time record of 467 million lbs. in 2008.
The byproduct producers are naturally more sensitive to copper prices, which are currently strong. While they may be able to stockpile moly production if moly prices weaken substantially, the incentive isto go ahead and sell the moly, no matter the price.
The largest increases in byproduct production will come from three sources: Anglo American (AAL-L, AAUKY-Q), Xstrata (XTA-L, XSRAF-O) and a Mitsui-led Japanese consortium's Collahuasi copper mine in Chile (from 7 to 13 million lbs. byproduct moly); Mercator Minerals' (ML-T) Mineral Park copper-moly mine in northwestern Arizona (10 million lbs of new moly production); and Rio Tinto's (RTP-N, RIO-L) Bingham Canyon copper mine in Utah (from 23 to 30 million lbs. moly).
The demand for moly is not expected to keep pace with this estimated production increase. Unless primary producers reduce even more than they have already, oversupply conditions may dominate the market for the next couple of years.
