Industrial Metals

Molybdenum Investing

After a slow recovery in prices in 2016, what is ahead for the metal in 2017?

Molybdenum was the worst-performing metal of 2015, but showed a strong recovery this year despite volatile prices driven by an oversupplied market with low demand.
This year, mine closures together with China’s new development plans started to rise demand for the metal, this has helped molybdenum’s market turnaround from its lowest point at the beginning of the year.
Here’s a review of what happened in 2016 in the molybdenum market and what is ahead in 2017.

A Year in Review

Last year, Molybdenum was the worst-performing metal according to Bloomberg, falling 49 percent during 2015. By the end of last year, predictions were that low demand and oversupply would continue in 2016.
Paul Christopher, head global market strategist for Wells Fargo, told Bloomberg at the time, “[w]e don’t have a positive outlook on metals, including molybdenum, because they’ve been overproduced. They will continue to do the worst, not just because China’s demand is slipping still, but also because there’s not been enough supply adjustment.”
Most molybdenum is used in steel production, which is driven largely by industrial activity in China. The Asian country is the biggest producer as reported by the International Molybdenum Association, with an output of 44.5 million pounds in the second quarter of 2016, 14 percent less than in the same period in 2015.
For the past years, several molybdenum mines closed in North America which together with China supply more than two-thirds of the world’s molybdenum.
Roskill reported that Freeport-McMoRan, the largest molybdenum producer in 2015, is targeting a cutback in production of 19 percent (7,900t Mo) largely from the Henderson and Climax primary molybdenum operations in the USA.
Chinese producers, including China Molybdenum and Jinduicheng Molybdenum, are also expected to reduce production by 15 percent and 7 percent respectively in 2016.
This reduced output from molybdenum producers could help prices to recover, as it adjusts to demand changes.
The metal is also in a strong position to gain as the energy sector expands, as significant amounts of molybdenum are used in oil and gas pipelines and in the high-performance steels needed for nuclear plants. Despite the current low price of oil, the oil and gas industry is forecast to remain the largest consumer of molybdenum products going forward.
Tim Outteridge, IMOA’s Secretary-General, said: “These figures reflect the impact of the oil price drop and its associated effects, with both production and use slowing from record highs in 2014. Despite a disappointing year, the long-term forecast for demand is still buoyant.
“Assuming some recovery in the oil price in the future, independent research commissioned by IMOA shows that the wide mix of demand drivers supports a forecast increase in molybdenum demand at an average growth of 3.6 percent per year to 2024.”
CRU reported earlier in the year that prices had bottomed-out as the market rebalanced, senior consultant Dr. Edward Spencer said:”Global demand decreased in 2015 as oil prices fell and as stainless steel and special alloy producers looked to clear inventories.”
China also remained the biggest user, at 42.4 million pounds in the second quarter of 2016, eight percent less than the same period in 2015.

Price Recovery to Continue?

Molybdenum is primarily produced as byproduct of copper mining with annual supply of less than 270,000 tonnes a year. As a result, prices are volatile, but 2015 was particularly tough for the metal. An oversupplied market with low demand saw prices fall 49 percent during the period.
But the molybdenum market showed a strong recovery in 2016, with US ferromolybdenum prices increasing from a low of US$6.14/lb in January to a peak of US$9.39/lb in June. Despite this jump, poor demand from downstream industries led to US ferromolybdenum prices decreasing in the second half of the year.
The strong recovery in pricing has been led by better than anticipated stainless steel production in China, with the international Stainless Steel Forum reporting a 4.1 percent y-on-y increase in global output and a 7.9 percent increase in Chinese output in the first half of 2016.
Rising demand for molybdenum-bearing steel and chemicals is instead forecast to support a recovery in molybdenum prices from 2017, to around US$13-15/lb ferromolybdenum, Roskill reported.

Investor Takeaway

It is hard to predict what will happen to the molybdenum market, as next year will be determined by China’s growth and how the steel industry continues to rise its demand for the metal. Investors should keep an eye on how oil impacts this industry, as new regulations could rise prices and help leave the worst days for trading molybdenum far behind.
Don’t forget to follow us @INN_Resource for real-time news updates!
Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.


S&P 5003818.83-2.72


Heating Oil3.96-0.16
Natural Gas6.42-0.15