Moly Prices: $ Up, Down, Sideways ?
Ken ReserWell here we are in 2007 and from a retrospective viewpoint it's surely been an exciting two years for all those cashing in on high Molybdenum prices. There must be a few gauging by the fact that since I wrote my first editorial on Moly in early /05, I have acquired a few thousand subscribers to this free editorial service. Some of them must have made out okay as they're still following this metal of mystery & reading my commentaries w/o any hate mail. Whether through the production and sale of the metal itself or the incredible share value increases of the likes of Blue Pearl Mining, (bought production thru Thompson Creek acquisition) as well as some decent gains that were taken on a few other Jr miners such as Adanac Molybdenum Corp. (also hard on the path towards Moly production), Roca Mines (now a small scale producer) or missed opportunities on some of the Jr players thereof, some very serious money has been made in Molybdenum investments. The mining pundits have during this heady time for the most part repeatedly called it wrong when it came down to anticipating the staying power of Molybdenum prices and the sustained increase of world demand that isn't going away anytime soon. From early 2005 onward I read the first of many analysts calling for a return to the single digit price range for the silvery metal and we still have many thinking the same thing today. It does seem however that those who are involved in the production of Moly, as well as many of the end users are not buying it. (the story that is) No the end users are buying Moly and although we saw a drop in sales demand thru the last 2-3 months because many of these end users were well stocked and although this is the time of refitting and refurbishment for many steel mills, the price still fell very little from $28.00 area to $25.00 range and has since held.
Now we are in the 1st Q /07 and the Moly metal is holding firm @ $25.55 currently and appears to be ready to retrace some past gains in price. Just today I read an article based on some comments by a Chilean mining official stating he sees about a 2% increase in world production, but at the same time he says Chilean Moly production will be off over the /05/06 levels. Actually "way" off is more correct. (From 48,000 T in /05 to 38,000 T in /07) We all know (or should) that this is the case in almost all 'Primary' & by product Moly mines, especially open pit, due to the high grading of the richer zones to maximize Copper a/o Moly production and I don't understand why this commentator (and many others) would not realize all the mines have high graded as well as some like Codelco, (and others) along with their substantially increased pit feed, also ran the massive low grade stock piles that had accumulated over the years of low prices. Now today those stockpiles are gone and major pullback stripping programs are underway on the high graded pits. As an example the aforementioned article also speaks to his view of the uses & demands for Moly, but in a very narrow range of vision as do most news articles on Moly. (link) http://metalsplace.com/metalsnews/?a=9585
To myself, many, if not most Molybdenum and other base metals commentators see only parts of the greater picture although I have read estimates from a couple of respected research groups that call for 4 to 7% yearly increases in Moly demand thru 2009/10 and beyond. Most of the articles I've read, as do the Chilean Gov't Mining fellow's comments, fail to grasp the impact of this ongoing worldwide energy boom cycle we're in and an increasing set of new factors attributing to more and more Moly being sought, bought and used. Yes, Stainless Steel is one of the largest uses, but then while they talk of the odd pipeline or drill tubing use, for the most part they never mention the dozens of massive double hulled oil super tankers under construction or currently being commissioned to replace the old single hulled tankers that must be decommissioned by 2010 and at the same time create increased carrying capacity (greater #'s of tankers) around the globe. They never mention that there are about 81,000 miles of large diameter pipelines being built and on the drawing board around the globe.
The mainstream writers don't ever mention the massive new demand for Moly in refinery catalysts to meet increased refining demand for gas & diesel fuels or other petrol & chemical products. New refineries are being built in far off places, even if not here in NA. No, nothing either on Coal to liquid fuel plants being built in Asia, (both processes need large amounts of Moly based desulfurization Catalysts constantly) nor the massive Chinese shipping and military fleets being constructed and the amounts of steel/Moly alloys used. Anyone mention the test plant the US Gov't built to test and successfully create a high grade Jet Fuel from Coal not so long ago? No mention of China putting approx 400,000 new vehicles on the road in March last year, in country, in one month alone. What's a few hundred million Asians trading bicycle's for cars got to do w/ anything? Molybdenum that's what, and Copper as well. Next factor the worldwide increase in fuels & energy consumption and what that alone will do to Oil prices. Higher crude prices and we see more exploration, that's always a fact. More production, more exploration, more refineries, more pipelines and more drill steel etc, more Moly. Did anyone ever mention Plasma Televisions in the same breath as Moly to you? Well a manufactured Moly powder product is present in the screens, and how many millions of wide screens will be made in years ahead? We're beginning to see people grasp the fact that major nuclear reactor construction lies ahead in many parts of the world with China in the lead w/ 20 odd new ones in the works. If memory serves me from my past editorials research, I believe the reactor vessel alloy uses about 16% Moly, and all the piping would be in the 3-6% range. Having researched and written a few editorials in the last two years regarding Molybdenum, I continue to be amazed at new uses and Moly related discoveries being made. I don't profess to be any kind of an expert, but I do keep coming back to the fact that very few analysts have a very realistic or comprehensive view on Molybdenum going forward and most just let it slip under their radar screen period. Was it not one of the biggest percentage gainers of any of the base metals over the last two years, even while now trading at $25.00 range being down from the high of +/- $39.00? And is it not currently still holding strong from $24.00 to $26.00, all the while being ignored by almost all metals analysts? One gentleman comes to mind whom I feel has shown a very good grasp of the Moly situation and whose research and writing on the topic of Molybdenum, is James Finch of the Resource Investor. His work has been excellent to my mind to say the least, but also paid little heed by all mainstream mining analysts it seems.
I don't believe I need go into much more detail on Moly uses here as I've outlined most of those I could find thru extensive research in my other past editorials, but when any metals mining market investor finds a metal that is in great demand and that demand appears to be on the long term road to substantive increases in demand, then I think they should be able to access other points of view. My views won't jive with some, but nor do some hold faith in the projections of the likes of Jim Rogers, among others, and I think he and a few of his peers have it right. Metals and Energy are "FINITE", and the world's demand will only increase as time passes. New mines are and have been for years, very few and far between, and as such therein lie some of the best opportunities for metals investing in public mining companies, especially those w/ near term large scale production of Molybdenum. Look back to past highs years ago on Moly and you will see it was directly related timewise to high Oil prices. The Oil crisis back then didn't last for long and was probably orchestrated but while it did last Moly was king. Personally speaking (as always) I'm a believer that Energy, Molybdenum, Uranium, Gold, Silver and other usual high demand metals are going to see much higher price levels over the years to come and I plan to benefit with continued study and research as I always do before placing my bets.
Yesterday I read one article of how the Moly price was weakening and the price per pound would lose 19% y/o/y in 2007. Yet today in the most respected & widely read "Ryan's Notes" commentary I read this comment:
Moly Prices Still Firming Jan. 16/07
The moly market continued to firm, and many sellers believe that prices could rise further. "This is actually demand driven," said one trader, "and I don't see any change on the supply side." Another trader predicted, "This is what we are going to see for the entire year. Prices are going to be volatile, but I don't see any significant drops. The producers are well sold under contracts, and many of the mills would like to increase their contract purchases." A major US mill reportedly bought two trucks of oxide last Friday at slightly below $25.00 per lb. At the same time, oxide sales were booked in Europe at $25.75 this week, and briquette sales were done at $25.85-25.95. Some traders said they had sold at $26.00. European mills bought FeMo at $62.30-62.50 per kg, and traders raised their prices to $63. Some traders may have been over- eager to hike prices, but they believe that there is more spot buying to be done and that replacement costs justify higher prices. A US mill in the market for two trucks of FeMo is believed to have paid in the high $27s per lb for one truck of FeMo. Producers reportedly have little FeMo to offer in the spot market. Meanwhile, there has been no further clarification about the Chinese quotas on exports of moly and FeMo scheduled to take effect on Mar. 1. Chinese suppliers have raised their FeMo prices to $62 per kg.
This almost daily, continual never ending conflict of opinions on where metals prices are headed is one of my main annoyances. The ones above are just one small example. Nobody seems to get it right in the mainstream metals pundit sector or they just outright ignore Moly altogether. Moly will go down if it doesn't go up right? Nobody moves, nobody gets hurt, right? Take the conservative stand or none at all is a safe mantra for most metals analysts & writers. Well I myself just don't buy it at all. I know one Jr company who is still well over a year away from actual production and I know of the two years now of requests for talks regarding undertaking off-take sales or similar requests to be considered for sales of future production from this same company. One upper management employee of the metals powder division, of a major large Moly miner that also creates various Mo Powders told me personally months ago, that his division could not get enough "Primary" Moly for their needs. Major refinery Catalyst and Molybdenum powders producers are drastically ramping up production from /05/06 this coming year. How many so called experts are taking into account the 15% export tax China has coming on Moly and other base metals (some @ 10%). Who mentions the "export quotas" China is placing on Moly? In past years China gave tax breaks on exported Moly. Now they seem to be heading into a hoarding mode on this versatile metal. One Asian mining guru called it a "war metal". Wars or hopefully not, my friends, Molybdenum is a big deal and a big part of the worlds future and much of that future relates to energy and creating greener energy by Catalytic desulfurization of Fossil fuels.
I may be considered an exception by some with differing views over my own on metals with respect as to where we're headed regarding demand or future prices and with Moly in particular, but I formed them over two years ago after months of study and these same views are stronger than ever today. Personally I see Molybdenum, Energy, Technology and the awesome demand for Steel Alloys all joined on the edges like a small puzzle and they need each other or at the very least they all need Molybdenum! This 2 year personal focus on Molybdenum & base metals would have seemed strange to even myself or especially those who've known me beyond 3 years ago, as being one who only ever invested in Gold/Silver or Diamond plays for 20 years, but for me this is the real deal this "Molymania" as John Kaiser so well coined the phrase.
So what's it to be, 'Up, Down, Sideways'? Where is the price of Moly headed? Will I express an opinion, take a leap of faith and risk or at the very least venture said opinion of where Moly is headed? No fear, I have placed my bets and will voice my opinion. UP, that's where I see Moly prices headed, with some sideways for sure and some minor pullbacks along the way, but all in all I expect even higher prices in the foreseeable future until multiple new mines of size & lifespan come onstream. From my long term study and research I fully expect that the world has more than a few wake up calls coming with regard to non-renewable resources and population saturations coming to bear on those resources as well as other as yet unrealized changes our world will experience in years ahead. Another hard to ignore indicator for what we should expect for the price of Molybdenum going forward comes in the form of this recent Dec. 27/06 revealing news article excerpt on Iron Ore itself:
CVRD, Posco Agree on 9.5% Iron Ore Price Hike
Last Update: 9:13 AM ET Dec 27, 2006
SAO PAULO (MarketWatch) -- Brazilian mining giant Companhia Vale do Rio Doce (RIO), or CVRD, has closed iron ore price contracts for 2007, agreeing to a 9.5% increase over 2006 prices with major Asian clients, CVRD said in a statement Wednesday.
CVRD reached a deal over iron prices with South Korean steelmaking giant Pohang Steel Corporation (PKX), or Posco.
In addition, CVRD said in a separate statement that it also reached agreement on the same iron ore price hike with five Japanese clients, Nippon Steel Corp. (5401.TO), JFE Steel Corp. (5411.TO), Sumitomo Metals, Kobe Steel LTD and Nisshin Steel Co. Ltd.
With the accord, CVRD said it has concluded iron ore price negotiations for 2007 with all Japanese steel mills.
The iron ore hike was expected by analysts, after CVRD announced late week a similar price hike with Chinese steelmaker Shanghai Baoshan Iron & Steel Co. (600019.SH), or Baosteel.
The 9.5% increase came in at the top end of market expectations. Most analysts had forecast a rise of between 5% and 10% in 2007 price talks. Iron ore prices climbed 19% in 2006, after a staggering 72% gain in 2005…
This is a time of the Bull in the metals & energy arena and although the Bull has paused somewhat of late, he's just getting his wind for another charge around the ring in my opinion. Not many investors can nor will ride all the twists and turns of this Commodities Bull until the buzzer sounds.
I'm always reminded of the adage "If it can't be grown, it has to be mined" Molybdenum seems to have the staying power, do we as investors?
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