March 14th, 2008 Molybdenum and YouMolybdenum and YouBy Nick...

March 14th, 2008
Molybdenum and You

Molybdenum and You
By Nick Jones

Molybdenum is not just a metal that is nearly impossible to pronounce, it is also a metal that is nearly impossible to do without…especially if the world wishes to continue using light bulbs, computers, air conditioners and automobiles. Molybdenum is a critical component of almost every facet and form of energy production…which means that demand for this unique metal is growing rapidly.

Molybdenum is pronounced “m uh- lib- d uh-n uh m,” which is why most folks just call it “moly.” This metal has several interesting characteristics that make its usage integral to several forms of energy creation.

Moly has the sixth highest melting point of any element. It is highly resistant to corrosion and doesn’t expand, contract, harden, or soften under extreme temperature changes. In fact, of all the commercially used metals, moly has the lowest heating expansion. For example, moly is used in making stainless steel; hence the corrosion resistance and life-span of your shiny ratchet set.

Moly can be found in anything from airplanes and cars to construction beams and filaments. But most importantly from an investment perspective, this metal plays a key role in energy production. And not just in conventional energy production from fossil fuels. The wind, solar, hydroelectric and nuclear industries also rely heavily upon Molybdenum. As such, moly just might be the “It” metal of the global energy enterprise – the one-stop way to invest in the growing demand for ALL energy sources.

Let’s start with crude oil. Moly is used to make the high-strength metal alloys found in almost every modern drill. Hardy and reliable drill-bits can limit technical mishaps, reducing costs. The oil exploration industry does not only use moly-alloy bits to drill its exploratory holes in an oil and natural gas field, but also to drill the production and injection wells that some non-conventional oil-recovery processes require.

Once crude oil starts bubbling to the surface, moly helps transport it to end markets. The Alaskan Pipeline, for example, consists of a half-inch metal alloy that could handle up to 25,000 PSI and temperatures of negative 70 degrees Fahrenheit. You could find up to 7% moly in that 800 miles of pipeline. Without moly, you definitely wouldn’t be getting an above 99% reliability rate, which delivers the U.S. with approximately 775,000 barrels of oil per day.

Looking further downstream in the oil business, refiners rely on molybdenum as a critical hydro-processing catalyst. In English, moly is used to remove sulfur and nitrogen from “sour” crude oil to convert it into light, sweet crude. This process has become increasingly vital to refiners worldwide, since supplies of light-sweet crude are rapidly depleting. Sour crudes are taking their place.

You can also find moly in the coal field. If it’s a longwall mining operation, it can be found in the shearers used to extract the coal and the conveyers used to transport it. In an open-pit, truck-and-shovel operation, moly is again used in both the extraction and transportation processes. The most modern clean-coal technologies at coal-fired power plants also utilize large amounts of molybdenum.

Inside the power plants, themselves, moly is there again. All power plants, except wind and water, directly use heat to turn a turbine. In the highly abusive environment of a turbine, strength, corrosion resistance, and heat insensitivity make moly the ideal industrial metal for power plant turbines.

In a geothermal power plant, moly can be found in the back-pressure turbine or the condenser and pumps that reinject the fluids back into the earth. In wind energy, moly is used in the actual structure of the windmill and can be found in everything from the bearings to the generator. In hydroelectricity, again, moly can be used in the turbines and generators.

Molybdenum’s contributions to the world of nuclear energy are by far the most significant. Without molybdenum, the nuclear world would be set back at least 20 years. Newly developed high-performance stainless steel (HPSS) contains up to 7.5% moly. This alloy can more than TRIPLE the life of aging fleet condenser tubes. Fleet condensers, which are rather large, are used in the heat transfer process.

Brass, copper, and nickel made up the alloys previously used in fleet condenser tubes. Although these alloys were efficient in conducting heat, their life span was only eight years. HPSS conductors were brought into play about 30 years ago. As of right now, the oldest HPSS conductor has remained in service for over 26 years and is still going strong.

Older copper alloy fleet condenser tubes had corrosion issues, which affected the power plant in a couple of ways. It allowed for the buildup of corrosive materials, reducing the efficiency of the power plant. Also, the corrosion rendered weak spots in the fleet condenser tube, which could then result in holes. HPSS conductors eliminated these serious deficiencies.

There are 48 nuclear reactors to be built by 2013, and approximately 100 are to be built by 2020. The International Molybdenum Association (IMOA) says that an average reactor contains about 520,000 feet of stainless steel alloy.

Some larger reactors contain over 1 million feet of stainless steel alloy. Breaking these numbers down into moly demand is an inexact science. But suffice to say that constructing and retro-fitting nuclear reactors would require tens of thousands of metric tons of moly. And these figures do not include the moly required to store spent fuel. The versatile metal is a key component of the canisters that store nuclear waste. The waste containers for the proposed Yucca Mountain waste repository in Nevada would require about 15,000 metric tons of moly.

You get the idea.

This metal that is so hard to pronounce would also be hard to replace in numerous industrial applications. Moly’s varied and vital role in the modern global economy does not guarantee its price will rise. But, moly’s supply- and-demand picture strongly suggests that price of this essential metal will continue to move higher.



Although the current mined production of moly appears sufficient to meet demand, a significant shortfall will likely develop over the next few years. The moly supply is constrained by both mining capacity and “roasting” capacity.

A roaster is similar to a refinery in that it processes the moly into a fine powder, pellets, or any other form of refined moly used in the industrial world. Total world moly roaster capacity can currently produce about 320 million pounds per year – a quantity that barely meets global demand. But there isn’t much spare capacity left…and almost no one is expanding capacity here in the United States or abroad. So even if roasting capacity
did increase somewhat, additional supplies of mined molybdenum are no guarantee.

China currently accounts for about 20% of global production. But since China is, itself, one of the largest moly consumers, China will probably begin to hoard the moly that it currently produces. So Chinese exports seem certain to decline over time and the rest of the world will have to source its moly from elsewhere.

Meanwhile, demand for moly is growing briskly. The rapidly industrializing economies of China and the CIS are looking at a demand increase of around 10% annually, which should lift total global demand to nearly 5%.

The supply-and-demand picture presents us with a double-barreled investment opportunity: Roaster shortages are unable to keep up with growing demand or mine production is unable to keep up with growing demand. I see both of these scenarios as very likely, but only one is necessary to send the price of molybdenum to new highs.

[Joel’s Note: So, the question then becomes, how can you invest in this hard- to-pronounce metal…short of hording a massive stockpile in your garden shed? Our own Chris Mayer has been studying the industrial metals industry with just this in mind and plans to issue a report to subscribers of his Mayer’s Special Situations newsletter shortly. To ensure you are on the mailing list, give this report a quick scan and follow the instructions at the very end.

We’ll have a wrap of the week’s columns on Saturday but, until then, that’s all from us.

Until next time…

Cheers,

Joel Bowman
Rude Awakening