Molybdenum News Center

Supply Overhang Likely to Cap Molybdenum Prices in Near Term

Molybdenum prices rebounded in 2014 after three consecutive years of annual price declines, but looming surpluses over the near- and medium-term horizon are likely to weigh on annual prices through 2016, according to US-based consultancy CPM Group.

Growth in global molybdenum demand is estimated at 3.1% in 2014, up from 2.9% in 2013, CPM said late Monday at the release of its latest Molybdenum Market Outlook publication.

"The increase in demand growth is helped by ongoing recovery in the specialty steel usage as well as positive growth in its application in the non-metallurgical sector," CPM said.

Demand growth "is expected to remain moderate for the first half of the forecast period," CPM said. The study provides projections for the next 10 years.

A "temperate" longer term growth outlook for industrial production in several key emerging markets, coupled with uneven and fragile economic recovery of developed economies since the 2009 recession, "will largely remain in the background, keeping a cap on growth of molybdenum's many end uses," it added.

Demand growth is expected to be slightly back-loaded in the forecast period, as long-term requirements and investments in energy infrastructure and growth in transportation industry, as well as increases in the intensity of molybdenum use in emerging markets, could drive stronger growth of molybdenum end-use in the steel industry, CPM said.

In addition, non-metallurgical molybdenum consumption, which includes molybdenum use in catalysts, is projected to record more robust growth during the projection period.

BYPRODUCT SUPPLY

Over the next 10 years, molybdenum supply growth "will continue to hinge on supplies from copper mines that produce molybdenum as a byproduct," CPM suggested.

The market share of byproduct producers averaged 50.9% between 2010 and 2013, and molybdenum byproduct output is projected to increase at a compound annual growth rate of 5.6% and contribute more than 70% of new supplies expected to be brought online during the projection period, the company said.

"Positive fundamentals in the copper market combined with historically elevated molybdenum prices between 2008 and 2012 have encouraged many byproduct producers to expand their copper and molybdenum operations, which could continue to contribute to medium-term molybdenum supply growth," CPM said.

But, it added. "over the past two years cost-cutting measures by large diversified mining companies have started to delay development for many longer -dated copper projects." As a result, molybdenum supplies from byproduct producers are expected to slow during the second half of the 10-year projection period.

CHINA

China remains the world's largest primary molybdenum producer, but its contribution to global production is expected to decline to roughly 28% between 2019 and 2023 from a historical average of 32% between 2000 and 2013, "largely due to structurally elevated cost of production and potential changes in policies in its molybdenum market," CPM said.

Production from Chinese swing producers -- small and medium-sized mines -- has declined over the past few years due to adverse market conditions and higher production cost. CPM projects supplies from these producers declined on average 12% in 2013 and 2014, after adjustments to prior years' official statistics.

The Platts daily dealer molybdenum oxide assessment began 2014 at $9.65-9.75/lb and rallied to $14.90-15.20/lb by early June, before falling back to below $9/lb in December. The annual average was $11.38/lb, up from $10.31 in 2012.

As of Monday, the assessment stood at $9.40-9.45/lb.

In the near term, uncertainties may arise from pending changes to China's export and resource tax policies, CPM said, noting that the government has maintained current molybdenum export duties for 2015 until further announcement in May 2015.

"In the meantime, the government may move ahead with proposed changes in resource taxes as early as the start of 2015. Prices may face short-term headwinds if the market grows concerned about possible outflow of Chinese stockpiles following the potential removal of current export duties," CPM said.

But, it added, "if policy changes increase domestic production costs in China, molybdenum prices may receive some fundamental support."


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