A Guide to Molybdenum Investing

A Guide to Molybdenum Investing

Ask anyone what nickel looks like and they’ll likely tell you that it’s a shiny, silvery metal. But ask the same question about molybdenum and you’ll likely be met with a blank stare.

That’s partly because molybdenum isn’t a metal that occurs on its own in nature. Instead, it is found in combination with other compounds. Its main use, as part of the steelmaking process, is also largely invisible. But don’t take that to mean that molybdenum is insignificant. Far from it: steel becomes much harder and highly resistant to heat and rust with the addition of just a small amount of the metal.

As an example, modern automobiles range in weight from 3,000 to 5,500 pounds, but usually contain less than a pound of molybdenum.

History and production

Molybdenum was first discovered in 1778, but it didn’t see significant industrial use until the turn of the 20th century, when it was incorporated in light bulb filaments. Demand also jumped during the two world wars, when molybdenum was used to harden weaponry and tank armor.

Molybdenum is often mined as a by-product of copper, but there are also mines that focus specifically on the metal. For example, Freeport subsidiary Climax Molybdenum operates two molybdenum-only mines in Colorado. The company says it has to crush 2,000 pounds of ore to recover just four to six pounds of molybdenum.

In addition, some molybdenum is recovered from old mine tailings. Amerigo Resources (TSX:ARGoperates one such facility at Codelco’s El Teniente, which is the world’s largest underground copper mine.

Characteristics of molybdenum

You’ll find molybdenum (or “moly” as it’s often called) in almost all types of steel, from stainless steel to cast iron to superalloys, which are commonly used in aircraft parts, turbines, and other high-stress/high-temperature environments.

Molybdenum is well suited to its role in steel production. It has an extremely high melting point of 2,623 degrees Celsius and maintains its size and shape well when exposed to high temperatures.

Thanks to these characteristics, there are very few substitutes for molybdenum as an alloying agent in steel. In fact, because of its availability and versatility, industries have been busy developing new materials that incorporate molybdenum.

Molybdenum production has been steadily rising

According to the International Molybdenum Association, about 80 percent of the molybdenum that is mined each year goes into steel. The balance is used in chemicals, particularly lubricants and paints. The metal is also finding more use in the oil and gas sectors, where refineries use it in catalysts to reduce the amount of sulfur in gasoline and diesel fuels.

In 2011, world production of molybdenum was around 250,000 tons, up roughly 3 percent from 2010 and about 13 percent higher than 2009, according to the US Geological Survey. Demand has also remained strong despite a number of economic headwinds – including the Eurozone debt crisis and concerns over a Chinese slowdown – though there are concerns that oversupply could weigh on molybdenum prices in the coming years.

Today, molybdenum production is roughly split between North America, China, and South America, which account for 33 percent, 31 percent and, 29 percent of the world’s yearly output, respectively.

Some of the world’s biggest molybdenum-producing companies include Freeport-McMoRan (NYSE:FCX), Chilean state-owned miner Codelco, Rio Tinto (NYSE:RIO,LSE:RIO,ASX:RIO), and Thompson Creek Metals Company (NYSE:TC,TSX:TCM).

Developing world, new energy projects will drive molybdenum demand

Molybdenum demand should continue to rise in the coming years as the BRIC countries (Brazil, Russia, India, and China) continue to urbanize. Moreover, as these nations adopt more advanced technologies they will require more superalloys and other high-performance steels. That too is a long-term plus for molybdenum.

In addition, the metal is in a strong position to gain as the energy sector expands. For example, significant amounts of molybdenum are used in oil and gas pipelines and in the high-performance steels needed for nuclear plants.

However, according to UK-based metals and minerals research firm Roskill, there is now enough global mine capacity to meet current levels of molybdenum demand. The organization goes on to state that new copper mining projects could produce an additional 140 kilotons per year of molybdenum, and molybdenum-only mines could push up global production by another 100 kilotons per year.

Still, that doesn’t necessarily mean molybdenum prices are set for a fall. Roskill notes, “[t]he counter balance to this potential oversupply is that the global market for molybdenum is expected to grow by some 60ktpy by 2016. It is also highly probable that many projects on the drawing board will be delayed or postponed.”

Roskill also points out that an expected return to growth in the US and Japan in 2013 should further push up molybdenum demand.

 

Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.

 

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