Steel Market Growth and Molybdenum Prices

- January 4th, 2011

Growth for steel demand in China is expected to dip below 10 percent for the first time in recent years. Growth in the steel market, and consequently growth for moly is expected to improve, however, at a slower pace than in recent years. These factors may influence moly price in 2011.

By Michael Montgomery—Exclusive to Moly Investing News

The start of 2010 was incredibly beneficial for molybdenum. Prices rose on the back of steel demand to their highest levels since the economic collapse, helping moly miners’ spreadsheets. Steel demand for 2011 is still uncertain. Western economies are searching for a spark, and measures taken in China to stall inflation may further hurt demand for steel. Growth in the market is expected, albeit at a lower level than most may be hoping for.

Recent Chinese export quotas for moly have affected many markets, and those quotas remain unchanged. Reports of large inventories of the metal in China also cast a dark cloud over the market, as rumors circulate that the Asian giant may not be a net importer in 2011.

The sector viewed to bring the most growth to the steel market is the automobile market. Historically, the auto industry uses 20 percent of steel production domestically. In the US, December marked the one of the best months for auto sales since the downturn. GM’s sales rose 8 percent year over year, and if you subtract sales for discontinued brands like Saturn and Hummer, GM’s sales rose 16 percent. Overall the forecast for growth in 2011 is strong. “U.S. sales are expected to come in just over 11.5 million vehicles for the year when the final figures are reported… an 11% increase from a year ago,” reported Chris Isidore, for CNN Money.

In China, measures to stall inflation in the country may affect large scale construction projects and auto sales. Taxes on autos with larger motors have also been increased and some incentives have been removed, however, the underlying demand is still strong.

“China’s total vehicle sales surged to 16.4 million in the 11 months through November, according to the China Automobile Industry Association,” reported China Daily‘s Li Fangfang. “Whole year sales are expected to hit 18 million units in 2010 making the nation the world largest auto market for a second year.”

This is an increase of 30 percent from the previous year. Most industry experts expect vehicle sales to slow in 2011, but still have a growth rate of 10 to 15 percent. Steel demand overall, including construction steel, is expected to slow from record double digit gains over the past few years in China. Some expect growth to be below 10 percent. “In Beijing, we’ve already noticed a slowdown in the velocity of construction and the work sites are just not as active,” said brokerage CLSA’s Beijing-based analyst Scott Laprise.

Prices for moly will be affected by this slowdown in steel consumption in China, as the largest use for the material is in steel alloys. The high price for the metal in 2010 topped out at $18 per pound, but receded to around the $15 dollar mark. Analysts are unsure if prices will make any substantial gains in 2011, regardless many moly miners were able to post profits at this price level in 2010.

Moly Mining News

General Moly (TSX:GMO; AMEX:GMO) announced that it is moving forward on the Liberty project, located in central Nevada. “A pre-feasibility study released in April of 2008 indicated annual moly production of 19 million pounds and annual copper production of 18 million pounds per year,” stated the press release. Potential production at the mine is still a few years off, with a projected date of 2015. If production starts in the future on Liberty and Mt. Hope, the company would have two world class mines in Nevada producing copper and molybdenum.

Avanti Mining (TSXV:AVT) announced that it has found a South Korean partner for the Kitsault mine in British Columbia. The partner, SeAH Holdings Corp. is South Korea’s largest specialty steel producer. The deal “would have SeAh take a 10.7% stake in Avanti for $11 million… Avanti also said the next step of the alliance… that would allow SeAH to acquire up to a 30% partnership in the project,” reported  Joel McKay for Business in Vancouver.

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