TORONTO (miningweekly.com) – Miner Thompson Creek has seen a slight firming of demand and prices for its molybdenum in recent weeks, CEO Kevin Loughrey said on Friday. But he cautioned that, while this is encouraging, it is still too early to talk about a recovery.

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, dropping below $8/lb last month.

However, prices have regained some ground in recent weeks, to above $9/lb, thanks to ongoing Chinese buying and some returning demand from European buyers, which had been virtually absent from the market in the last few months, Loughrey said.

“The market is not yet what could be called strong, but we are seeing some signs of awakening.”

However, steel production levels are still low, with mills operating at below 50% capacity in most locations.

Nonetheless, the slight increase in demand, coupled with the fact that most customers have depleted their stocks of molybdenum in recent months, could mean that the market is starting to move out of a bottom.

"I do think we are seeing some signs, and obviously the price rising is the clearest sign that something is happening in the market place,” Loughrey said.

“But a few weeks or months of that doesn't make a recovery. And it takes a longer sustained period, it takes more strength and the price firming even more.”

Credit markets will also need to unfreeze, so that large infrastructure projects put on hold can start moving again, he said.

Analysts at New York-based Dahlman Rose agree that the near-term outlook for molybdenum remains cloudy.

"While we continue to believe that the economic conditions are firming, we remain concerned that it may be some time before molybdenum intensive portions of the economy meaningfully recover," Anthony Young and Anthony Rizzuto wrote in a report on Friday.

"Until we see a meaningful recovery in steel utilization and increased demand for oil country tubular goods, we will remain cautious on the outlook for molybdenum prices."

Young and Rizzuto have lowered their price forecast for molybdenum to $10/lb and $12/lb for 2009 and 2010 respectively, from $12/lb and $15/lb.

CHINA

In a dramatic change from just six months ago, about a quarter of Thompson Creek's sales in the first quarter were to Chinese buyers, Loughrey said.

Until the late last year, the firm had not made a single sale to the resource-hungry nation.

However, when the molybdenum price plunged, a big chunk of smaller, inefficient Chinese molybdenum mines were rendered unprofitable, and scores have since closed, turning the nation from a historical net exporter to a net importer of the metal.

Thompson Creek is seeing a “considerable volume” of requests from China, Loughrey said.

Further, he believes that Chinese customers are consuming most or all of the metal that they buy, rather than building up stockpiles.

All of the Chinese buying is on a spot basis, rather than long-term contracts which is the way Thompson Creek ordinarily sells most of its production.

But customers are reluctant to commit to longer term agreements because of the uncertainty surrounding the market, and so about 50% of sales are currently taking place on a spot basis, compared with 80% in 2008.

Thompson Creek produces molybdenum from its Thompson Creek mine, in Idaho, and the Endako mine, in British Columbia.

The company has curtailed production and suspended projects in response to weak demand and prices for the metal.

Shares in the company rose 8,3% on Friday, to C$9,17 apiece by 12:29 in Toronto.

MORE SERIOUS ON ACQUISITIONS

Loughrey has said on several occasions that the company would like to take advantage of low asset valuations to make a cheap acquisition, but indicated on Friday that the firm is now looking more closely at getting a deal done.

“Just as we think the market may be improving a little bit for the moly business, I think that hearkens that it might be time now to look more closely at some of these acquisitions, as things start to improve.”

Although there is no pressure to move too quickly, the company is talking internally about “several” potential transactions, and is hoping to close a deal before the end of the year, he said.

“We think there are assets out there that are for sale at relatively low prices.”

With regard to organic growth, Thompson Creek halted an expansion at Endako in December last year, a month after postponing the development of its C$109-million Davidson underground mine in Canada.

The company would need to be confident of price sustainability at at least $12/lb before it considers restarting the capital projects, Loughrey said.