After a rocky year for metals, many investors are wondering what’s ahead for commodities. Learn more here about the molybdenum outlook.
Last year, molybdenum started to see a recovery in prices and many market watchers predicted that in 2018 the metal would continue to rebound.
Molybdenum lived up to those expectations, with prices trending upwards most of the year on strong demand from the stainless steel sector.
With 2019 just around the corner, investors interested in the industrial metal are now wondering about the molybdenum outlook for next year. Here the Investing News Network looks back at the main trends in the sector and what’s ahead for molybdenum.
Molybdenum trends 2018: The year in review
Molybdenum prices recovered over the course of 2017, following two successive years of decline.
“There have been further gains in 2018, with prices rising to an average of US$30.8/kg in March of this year, but since then, prices have started to trend lower, albeit slightly,” Roskill states in its latest molybdenum report.
The ferromolybdenum price averaged about US$29 per kilogram for 2018, as per the research firm.
Similarly, General Moly (NYSEAMERICAN:GMO) says molybdenum has been a consistent standout among metals during 2018.
“We believe that industrial metal prices are coming off their lows,” said Bruce D. Hansen, CEO of General Moly. “With the strong US economy and developed countries firmly in the late-stage business cycle supportive of metal demand, we believe we have the makings of an industrial metal recovery that is the rising tide to lift all ships and further boost moly.”
Hansen added that continued strong demand from stainless steel and the oil and gas industry, especially the rapidly expanding global liquid natural gas sector, underpinned the strongest year in four years for molybdenum prices.
Most molybdenum is used in the production of steel products, with part of this consumption linked to oil and gas sector activity, where molybdenum-bearing steels are used in drilling equipment and in oil refineries.
Last year, demand for the metal was 18 percent higher than a decade previously, thanks mainly to increased use in steel applications.
“However, there have been other significant changes in molybdenum demand over the same period, namely where this molybdenum is being consumed,” Roskill says.
According to the research firm, consumption in China has increased 15 percent between 2007 and 2017.
“The increase in China’s share of consumption in the past decade has been at the expense of other industrialized countries: demand in the USA [and Europe] has shrunk over the same period.”
In 2018, consumption from the oil and gas sector should continue to have grown, but more slowly than in 2017. “[That’s because] the number of oil and gas rigs operating worldwide has continued to grow so far in 2018, but at a slower pace than last year,” Roskill explains.
In terms of supply, analysts estimate around 60 percent of global molybdenum supply comes as a by-product of copper smelting, with most of the remainder coming from primary sources.
Molybdenum output rose by 14 percent in 2017, recovering from two consecutive years of decline.
“The rise in primary output in 2017 was mainly the result of higher production in China, where some large primary mines, such as JDC Moly, increased output in response to rising demand, while primary output also climbed in the USA,” says Roskill in its molybdenum report.
Molybdenum outlook 2019: Demand to remain strong
Looking ahead, Hansen said molybdenum is tough and resilient, as proven by its steady price during a sluggish third quarter for metals and commodities.
“Trade tensions will still cause unease, but over time, the actual trade agreements will be better than fears of the unknown as the parties will be motivated to share benefits rather than inflict pain. Copper is already showing signs of recovery. Other metals such as moly are going to have their due,” he added.
Speaking about the future of the market earlier this year, CRU Group Consultant George Heppel said that high prices are needed to encourage primary production from top producer China.
“The trend over the next five years is one of very low supply growth from by-product sources. In the early 2020s, we will need to see primary mines reopened to keep the market balanced.”
CRU forecasts molybdenum demand at 577 million pounds in 2018, of which 16 percent will come from oil and gas. That is below the historic pre-2014 average of 20 percent, but still a notable increase over recent years.
“The oil price crash back in 2014 removed about 15 million pounds of moly demand,” Heppel said. “Demand now looks healthy.”
Looking further ahead, demand growth is expected to continue, which should spur idle capacity to come back online and new mines to start producing.
“Until those new projects do come online, however, market deficits are likely in the short term, followed by several years of surpluses as the new supply becomes more than sufficient to meet rising demand,” Roskill forecasts.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.