Industrial Metals

The volatility of world markets over the last week has some commodites on a downward trend. Molybdenum, however, is bucking the trend with some impressive gains over the last week.

By Michael Montgomery—Exclusive to Moly Investing News

World markets have been thrown into upheaval this week sending some commodities on a downward trend, while gold has hit new highs as investors look for safe haven investments. Molybdenum, however, is bucking the trend, placing impressive gains over the last week. The price of moly on the LME has risen dramatically to $33,000 per tonne. Lending to moly’s gains is that the minor metal is traded on the LME, meaning the vast majority is sold on a contract basis. Contract sales mean the price moves in line with supply and demand fundamentals. Contrarily, metals like copper, which are openly traded on world markets, are more susceptible to volatility due to speculation from investors on global economic patterns. Forecasts for the steel industry are still strong, supporting moly going forward.

Outlook Remains Positive

While many metals have fallen with the current uncertainty in the market, moly has strengthened. This is a hopeful sign for some of the largest producers of the metal.

Kevin Loughrey, CEO of Thompson Creek Metals (NYSE:TC) feels that the market for molybdenum is different dynamics than during the crash of 2008. “To me, this moment in time feels a lot different than 2008 when we saw the similar carnage in the marketplace,” Loughrey said earlier in a conference call with investors. “Right now the moly market looks much stronger.”

The rising price of moly over the last week suggests that demand for the metals is strong from steel producers who are looking to restock ahead of a ramp up in production. It has been forecast that the growth for molybdenum is set to grow around 9 percent next year due to increases in steel production.

Steel Market Forecast

It is no secret that the demand for steel is being driven by the rapidly urbanizing BRIC countries. The growth in demand for steel in China alone has been phenomenal over the past few years. In July, Chinese steel output grew by 15.5 percent year over year. This robust production was down 1 percent from China’s steel production in June, which averaged 2 million tonnes per day. Going forward, analysts are mixed on the Chinese steel sector.

“The data underscored signs of weakening demand, coming after steelmakers had run their mills near full capacity in recent months, pushing daily output to a record high in June even as steel product prices fell… the country is awash in oversupply,” reported Chuin-Wei Yap for Dow Jones Newswires.

The Chinese economy grew 9.7 percent and 9.5 percent, respectively, in the first and second quarters of the year. Moreover, the latest 5 year plan from the Chinese government calls for steel consuming infrastructure projects. The plan is will add demand for commodities including iron ore, coal and copper. As part of the social housing program, China plans to construct 36 million units. The plan also calls for the construction of nuclear power plants, railways and other projects that use high grade steel alloys with high concentrations of molybdenum.

“As they move to more sophisticated processes and end products, and better capabilities in the steel mills, we’re seeing intensity of use increase in moly, which might more than make up for some reduction in the rate of growth,” stated Loughrey.

In India the picture for the steel sector is much the same. The move towards an urbanized India is putting pressure on steel producers. Tata Steel, India’s largest steel producer expects steel demand to grow 9 percent in 2012.

The growth of the steel consumption coming from the BRIC countries will continue to add demand for molybdenum, helping support the price. The current uncertainty in the market is something to take into account, especially if the situation worsens moving the world economy into downturn on par with 2008. However, steel demand remained high in the BRIC countries during that period.

Jackie Przybylowski, an analyst with Scotia Capital stated in the short term the firm “anticipated some volatility in demand.” This volatility is something to be conscious of during times of uncertain economic forecasts. However, some of the largest mining firms such as Vale and Rio Tinto are currently investing billions of dollars to increase iron ore capacity. Their investments could be a sign that the steel sector, including molybdenum demand, will be strong in the long run.

 

Disclosure: I, Michael Montgomery, do not hold any positions in any of the companies mentioned.

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