Molybdenum Demand and the Rebuilding of Japan

By Michael Montgomery—Exclusive to Moly investing News

The molybdenum market, as with almost all other commodities markets, has been affected by the recent crisis in Japan and the ongoing violence in the Middle East. While these events, and the the impact on the markets have been covered ad nauseam since the earthquake,  most reports concern the negative affects on the price of many base metals. On the LME, the price for moly has fluctuated since the quake; currently the cash buyer price sits at $35,850 per tonne. However, with molybdenum the earthquake and subsequent tsunami in Japan may be beneficial to moly demand and consequentially positive for the price of the metal, as well as for manganese, and vanadium as these metals are mostly used in steel alloys. The added demand will come from the increase in steel production needed to rebuild infrastructure, retrofit dilated infrastructure, and replace thousands of cars lost to the raging waters.

This new demand is needed for the molybdenum market, which has a surplus in 2011 as high steel demand in China, and the rebound in price of moly since the economic collapse has seen a rapid increase in mine production. Most projections show steel production in China growing less than in the past few years, which experience annual growth at around 15 percent. Projections for 2011 range from 5-10 percent. The earthquake in Japan is adding new demand for high strength steel as the country looks to rebuild with stronger infrastructure.

The added demand is not only from rebuilding what the earthquake destroyed, but also building everything bigger, stronger and more tolerant to the massive forces of future quakes and tsunamis. South Korean steel maker POSCO has stated that it projects an extra steel demand of 1.5 million metric tons from Japan this year as the earthquake-hit country needs more steel products to reconstruct damaged infrastructure. High strength steel alloys on average contain 8 percent molybdenum, the added 1.5 million tonnes of steel equates to 264,480 pounds of added molybdenum demand.

The downside to the molybdenum equation due to the events last month revolves around the energy sector. High oil prices may lead to a drop in automobile sales, which would dampen steel production. The war in Libya, protests in Syria, Bahrain, Saudi Arabia and Iraq are fueling speculation in the oil market, and may only get worse unless some semblance of order returns to the region.

The nuclear meltdown may weigh on the future of planned nuclear power plants around the world. Each plant requires approximately 400,000 pounds of molybdenum for high heat steel applications. The role that molybdenum plays in nuclear power plants was covered on Moly Investing News in April, 2010. In China alone there are 25 plants under construction. Although there is growing opposition to the plants, they will likely be pushed through. The Chinese simply need the added electrical capacity, and there are few options in the short term to replace the generation capacity of 25 nuclear power plants.

In the United States there is one nuclear plant under construction and 30 more proposed plants, most of which will be viewed unfavorably in light of the Japanese meltdown. Existing power plants may upgrade the systems already in place, which might take up some of the slack.

All things considered, Japan will need massive amounts of steel to rebuild what the tsunami washed away. Infrastructure and new automobiles will pave the way for steel demand in the country. While the events in Japan are horrific and depressing, and may affect global markets for quite some time, the need for steel may use up a large portion of the surplus that is currently holding down the price of moly.