Moly producers predict prices of US$19 per pound, say demand to...

Moly producers predict prices of US$19 per pound, say demand to be led by China
By Kristine Owram (CP) – 3 hours ago

TORONTO — Explosive Chinese growth over the next 15 years will bring tightness back to the molybdenum market that's been hit hard by the global recession, say producers of the metal used to strengthen steel.

However, industry players say it's unlikely moly prices in the foreseeable future will return to highs of US$25 to $35 per pound that were common before the global economy sank last fall.

Norman Ting, managing director of metal-trader Wogen Pacific Ltd., predicted Chinese demand will send moly prices - which have already climbed from lows of approximately $8 per pound to above $12 per pound - to between $18 and $19 a pound on Chinese stimulus spending.

However, he cautioned that the rising price will push many profit-takers to sell their moly assets, leading to volatility in the near term.

"Overall I say there will be some volatility in the moly market but once the market makes an adjustment, a correction, I think that the demand will still make sure the price will continue to go up," Ting said Tuesday at a molybdenum conference hosted by Desjardins Securities.

Several high-cost moly producers shut down their operations when the price of the mineral plunged late last year. As the price begins to rise again, these producers will re-start production, creating a natural ceiling, said Mark Selby, vice-president of business planning and market research at Quadra Mining Ltd. (TSX:QUA), a base-metal miner with a moly project in Greenland.

The speed with which high-cost producers can re-enter the market is the "main issue" affecting price, agreed Mark Wilson, vice-president of sales and marketing at Thompson Creek Metals Co. Inc. (TSX:TCM), one of the largest publicly traded molybdenum producers in the world.

North American demand for the mineral used to produce alloyed steel and high-end stainless steel will likely remain weak in the short-term as economic uncertainty continues to hurt the construction, hydrocarbon and automotive industries that rely on moly-strengthened steel.

This is why Chinese demand is so important to the global moly market, said Derek Fisher, CEO of Moly Mines Ltd. (TSX:MOL), an Australian company whose main asset is the Spinifex Ridge molybdenum and copper mine in Western Australia.

Fisher said China's population is expected to grow by 300 million in the next 10 to 15 years, and one billion Chinese will live in cities by 2025. To fuel that growth, it's expected that 170 mass transit systems, 40 billion square metres of floor space and 50,000 skyscrapers - the equivalent of 10 New Yorks - will be built in China over the next 15 years.

"China will never source the metal for all that development internally. It's got to go elsewhere," he said.

"If I had the money I'd be going out there and buying up every undeveloped, sub-economic resource in the world I could lay my hands on. This is going to drive metal prices into the future in an extraordinary way."

Although China has 30 per cent of the world's molybdenum resources, it won't be able to keep up with demand internally, agreed Ting.

"Fundamentally I think China's lack of moly resources and the demand for stainless steel is still fairly healthy, so it will continue to grow for some time to come," he said.

The price of moly will be further bolstered by a lack of supply, said Scott Broughton, president and CEO of Roca Mines Inc. (TSXV:ROK), which owns the MAX moly mine in British Columbia.

"It's pretty obvious that the supply is dependent on a lot of mature and byproduct producers. There is a lack of supply on new mines," Broughton said, adding that he has seen first-hand the improvement in demand for moly.

"We've received a lot of calls and a lot of visitors at our door asking about offtake and wondering how much of the material they can acquire, and we haven't had that, frankly, for the better part of a year and a half or so," he said.

Molybdenum futures will be traded on the London Metals Exchange beginning in 2010, the first time the mineral has been traded on a public exchange.

Producers expressed concern that this will encourage speculation, making the price of moly even more volatile than it's been in the past.

"I just hope that the industry, both producers and consumers, put a significant amount of liquidity into this market, because without that liquidity - you think it was volatile before, just wait until it starts trading into a very thin market," said Quadra's Selby.

Molybdenum is used as an alloy and anti-corrosion agent in stainless steel and has other industrial uses. Like other specialty minerals, demand has been hurt by the slump in the steel sector caused by the worldwide recession, which has reduced demand from the auto, appliance, construction and capital goods industries.