U.S. infrastructure proposals are spreading a bit of seasonal Christmas cheer to a depressed domestic mining and metals industry.
Author: Dorothy Kosich
Posted: Wednesday , 10 Dec 2008
RENO, NV -
Gold and commodity prices are benefitting from President-elect Barack Obama's proposed $136 billion infrastructure economic stimulus program, expected to generate up to 2.5 million U.S. jobs by 2011.
In a base metals industry report Tuesday, Canada's Haywood Securities say they believe the infrastructure program will also increase demand for molybdenum.
Caterpillar, engineering groups, and Brazilian steelmakers emerged as big winners on the NYSE Monday while industries as diverse as mining and internet companies are expected to economically benefit from the program.
Gold prices also rallied Monday along with other precious metals prices and commodities. Gold futures recorded modest gains on Tuesday, rising $ 4.90 to end at $774.20 an ounce on the NYMEX.
Federal lawmakers are scrambling to create their own infrastructure packages, including Rep. James Oberstar, D-Minnesota, chairman of the House Transportation and Infrastructure Committee, who has just proposed a $45 billion plan called Rebuild America. It calls for $18.25 billion for highways and bridges, $9 billion for environmental infrastructure, $6.5 billion for public transit, $2 billion for railways, $5 billion for the Army Corps of Engineers, and $1 billion for aviation.
Projects that could award contracts in 90 to 120 days would be given priority in Oberstar's proposal.
The nation's governors have also proposed $136 billion in infrastructure projects and has established a coalition for infrastructure investment. The U.S. Conference of Mayors Monday proposed 11,391 infrastructure projects, which would cost $73 billion. House of Representatives Ways and Means Committee Chair Charlie Rangel, Oberstar and several mayors participated in a press conference Monday to announce "ready-to-go" infrastructure projects that could be started and completed within two years.
Moly Demand
In their report issued Tuesday, Haywood analysts Stefan Ioannou and Danny Ochoa noted that more than 115,000 kilometres of new oil pipeline is planned over the next seven years. The oil and gas pipeline industry is an important consumer of steel.
While moly demand is expected to remain weak through the first half of next year, "the metal's longer-term outlook remains strong," they advised.
As moly demand grows at a rate of 4% to 6% each year, it requires the equivalent of one new molybdenum mine to come into production each year "over the foreseeable future." However, the analysts noted that only three advanced stage +20 million pound per annum development projects are currently under consideration: Freeport-McMoRan's Climax project in Colorado, General Moly's Mt. Hope project in Nevada, and Moly Mines' Spinifex Ridge project in Western Australia. Most new significant development projects are currently being delayed, the analysts said, including Thompson Creek's Davidson project and a mill expansion at its Endako project.
Haywood noted that both Thompson Creek delays "are a result of the low moly price environment and the company's capital preservation initiative."
Meanwhile, Chile, the world's second largest moly producer, is experiencing substantial reduction in moly production, which was down 26% during the first 10 months of this year.
The analysts also advised that "Chinese exporters have abandoned the moly market over the past three weeks given weak prices."
"Although large consumers in Europe remain out of the moly market, the Chinese have re-commenced buying albeit in thin volumes. The moly (oxide) price has responded positively, up to US$11/lb currently from a recent low of about US$9.80/lb," they added.
