TORONTO (ResourceInvestor.com) -- World molybdenum demand is expected to grow 5.8% this year, a base metals analyst told a commodities outlook forum at the annual PDAC convention in Toronto.
The most recent climb in molybdenum prices can be attributed to increasing demand from the energy sector, which accounts for 78% of demand for the metal, said Catherine Virga of CPM Group in New York.
"The trend in molybdenum prices and oil prices are highly correlated," Virga said.
Other factors include growing global steel production, where demand is relatively price inelastic, combined with a tightening of export quotas by the "wild card" of China, as well as a decline in output from copper miners who produce moly as a byproduct, Virga told a crowd of several hundred delegates gathered for the outlook session.
The rise follows a drop in price caused by de-stocking in the steel market and high-grading byproduct producers several years ago. Virga said the current rally in molybdenum prices is driven by several factors.
"Present molybdenum prices are sustainable," Virga said. "It's highly unlikely molybdenum prices will return to the $2 to $4 range seen in the 1990s."
In the past, previous rallies in molybdenum were triggered by temporary shocks in supply or demand, she said. For example, when crude oil production dropped during the energy crisis of the 1970s, molybdenum prices spiked.
Similarly, demand dropped in the 1980s for several factors, including overproduction by the steel industry.
Today, less molybdenum is being produced as a byproduct of copper, and it is increasingly coming from primary producers, she said. There are tighter regulations on Chinese producers.
In addition, the cost structure is rising: Virga predicts cash operating costs will have risen 200% from 2000 to 2011.
Meanwhile, there is a widening scope of end-uses for the metal, which has anti-corrosive properties, as well as an ability to withstand high heat. The metal is increasingly used in the energy sector, she said, as well as industrial development, construction, transportation and defence.
Another benefit is that other metals cannot be easily substituted for molybdenum. Finally, there are diminishing inventories for the metal, she said.
Most of the world's molybdenum originates as a byproduct of copper mining in the United States, Canada, Peru and Chile. However, molybdenum is increasingly derived as a primary product of deposits in China, the U.S. and Canada. There will be increasing regional diversification in production, and the major players will see their share of the current market shrink, down to about 82% in 2009, from 91% in 2003.
Virga projects that about half of world molybdenum production will originate from primary producers by 2011, pushing total world production to roughly 550 million pounds, from current levels of well over 400 million pounds.
According to Virga, the international political climate has resulted in the "locking up" of energy resources, which has spurred energy exploration and development in other countries.
In addition, emerging markets are placing increased pressure on global energy demand, with higher per capita energy consumption.
"Adding molybdenum to steel enhances corrosion resistance and strengthens steel to allow for thinner walls," said Virga.
"Increasing molybdenum content to 0.5% (from 0.2%) can reduce the total tonnage of steel used in construction of the pipeline allowing producers to cut costs: reducing the amount of welding, lowering weight and transportation costs."
