Molybdenum Prices Trending Downward

By Michael Montgomery—Exclusive to Moly Investing News

Molybdenum prices are continuing to fall on weaker demand for the metal. On the LME the price for cash buyers fell to $31,000 per tonne or $14.06 per pound, the lowest price since July, 2010.  While the consumption of moly over the past year has reached record levels totaling 474 million lb, production of the metal has also risen, creating a moly surplus according to market analysts. The weak prices are also being pushed down by seasonal factors as the summer slowdown in steel production continues to affect demand. However, new data suggests that steel production in China is still strong, a supporting factor for the price of moly going forward.

Molybdenum oxide prices in Europe continue to be weak. Aggressive selling of moly ahead of the seasonal slump in steel production is partially to blame. “We’re in the last few weeks before the dead summer season, so if you have a tonnage to sell you’ll throw it into the market,” stated a moly trader in an article from Platts. The summer slowdown is a common feature in the market most years.

However, the lack of consumption is being further exacerbated by weak consumer demand for stainless steel, which has prompted some stainless steel producers to cut capacity at their plants. Recently Acerinox, the world’s largest producer of stainless steel, cut capacity in their European plant to 70 percent and plans a further reduction to 65 percent. This equates to less purchasing of moly, nickel, and chromium from stainless producers. The overall bearish macroeconomic cues have held down a basket of base metals.

Supporting Factors for Moly

In June, crude steel production in China reached record highs. Daily output of steel reached a record of 2 million metric tonnes, up 11.9 percent from the previous year. The demand is mainly boosted by construction projects in the developing countries, as automotive demand has slowed slightly on the year.

“[S]ome parts of China’s economy are doing better than others. Fixed-asset investment in non-rural areas, a closely watched indicator of construction activity, rose 25.6 percent in the January-June period from a year earlier,” reported Chuin-Wei Yap, for Dow Jones Newswires.

Forecasts for overall global steel demand are a supporting factor for molybdenum’s price going forward. “Global apparent steel demand is expected to rise 6.5 percent to 7 percent this year, buoyed by robust growth in developing countries and more subdued growth in developed countries,” stated Lakshmi Mittal, chief executive of steel titan ArcelorMittal. He added that due to rising demand, orders for steel should pick up by the end of the third quarter. The forecasted rise in demand during the third quarter will help offset the seasonal factors discussed earlier.

The $14 per pound prices on the LME may represent a bottom for the metal on the year.  As production returns after the summer slowdown steel producers will once again start buying moly which should lend support for higher prices going forward.