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Codelco to Supply Molybdenum Oxide to China at 0.5% Minus Platts Benchmark for 2019

Chile's state-run Corporacion Nacional del Cobre (Codelco) has offered to supply molybdenum oxide to Chinese buyers in 2019 at the Platts benchmark price minus 0.5%, up from the benchmark minus 1% for 2018, market sources said.

The company's senior marketing officials for molybdenum products held meetings with representatives from three or more Chinese companies in Shanghai on Monday, sources said.

The officials planned to visit South Korea later this week and then Japan, buyer sources said. Two other Chilean molybdenum oxide producers have started talks for 2019 with Chinese buyers as well as those in Japan and South Korea.

One producer offered the Platts benchmark minus 1%-2%, a rollover from 2018, and the other offered at flat to the Platts benchmark, compared with the benchmark minus 1% for this year, Japanese and South Korean buyer sources said.

Sources said both the buy and sell sides forecast supply to tighten in 2019 as global demand was expected to rise slightly while an increase in supply was unlikely given the lack of news of output capacity increases.

One source close to a Chilean producer said cost pressure was increasing as all Chilean miners were seeing a rise in labor cost and power rates, while the quality of mined ore was deteriorating.

Each market participant was seeing different degrees of tightness. However, some buyers in China may need to increase term volumes if environmental restrictions force more mines and molybdenum oxide processing plants to close, which may tighten the market, one Chinese buyer said.

The 2019 contractual price level for molybdenum concentrate, the molybdenum oxide feedstock, rose as a result of Chinese demand outgrowing supply.

One Asian producer recently agreed to the Platts benchmark minus 15% for around 100 mt/month of South American concentrate with 42%-45% molybdenum and 2%-3% copper content. The 2018 discount level for concentrate of a similar grade was 18% or more, another producer said.

Codelco's offer at the Platts benchmark minus 0.5% suggested the market was tightening but not to the degree that supply would outstrip demands. Several market participants had been expecting Codelco to offer at a premium to the Platts benchmark.

Sources estimated Codelco's sales to Chinese companies to be less than 1,000 mt/month. That volume included cargoes shipped to Busan and Rotterdam, and not just to China. That was marginal as Japan, Codelco's largest customer in Asia, buys 2,000 mt/month or more.

China has its own molybdenum production of around 80,000-100,000 mt/year in total, which is larger than that of Chile. However Chile has a cost of production at $4-$5/lb, with China's at $7-$9/lb, the Chilean producer source said. Chilean producers' main focus is copper with molybdenum being a by-product, whereas Chinese mines contain mainly molybdenum.

China has also been importing from the US, but the government has started to levy a 5% import duty on North American molybdenum oxide and molybdenum concentrate amid the trade war. As a result, Chinese demand for US molybdenum products has fallen, a trader said.

Chile and China have a free trade agreement that came into effect in 2005, and Codelco is Chile's top exporter to China. For Chile, molybdenum products are its second-largest export item in terms of value, sources said.

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