Molybdenum demand to benefit from infrastructure programs
In a base metals industry report Tuesday, analysts believe that US government infrastructure program initiatives will also increase demand for molybdenum.
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.
Molybdenum demand is expected to remain weak through the first half of next year, although the metal's longer-term outlook remains strong.
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 (NYSE:FCX) Climax project in Colorado, General Moly's (AMEX:GMO) Mt. Hope project in Nevada, and Moly Mines' (ASX/TSX:MOL) 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. The analysts 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.
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