Molybdenum Outlook 2007Part One

We have wondered about the price rallies of several metals we have been following, hoping to comprehend some of the emotions at the rear of the excitement. Getting skeptical, some of this starts to audio like mob hysteria. On the sunny aspect of the fence, one particular could phone this exuberance. Cui bono is our question. Who positive aspects?

For the utilities hoping to receive nuclear fuel for their reactors, a rising uranium value and lessened accessible SWU ability to meet their needs exacerbate the worry about regardless of whether not the nuclear renaissance can be realistically sustained. For molybdenum, soaring stainless steel and tremendous alloy need assists preserve the silvery metal nicely abovethe true creation costs to mine it. Plans for creating more pipelines with stronger anti-corrosive attributes adds a alluring power twist, spicing up what Raymond James mining analyst Bart Jaworski calls a boring tale.

With uranium, there is pleasure due to the fact a extremely small range of new in the vicinity of-phrase producers not too long ago signed contracts to sell future U3O8 creation with escalating flooring price tag defense, or basically marketed production at/near the document uranium price tag. Obviously, they gain, and so have their shareholders. For uranium companies hoping to make in the next five to 6 decades, greater prices are very likely to appeal to deep-pocket joint venture companions to deliver their mines into manufacturing, or to additional their growth routines. Or just to increase far more cash for their treasury by selling shares at a value they might never ever have imagined probable two many years in the past. To the physical uranium speculator, ithas supplied a double-, triple-, or larger-digit 'paper return' on an expense.

The level of increasing metals prices was to motivate new creation in the respective sector. In the situation of molybdenum, the metal's value is rather considerably dictated by a fairly tiny quantity of western hemisphere copper producers, these kinds of as Phelps Dodge (PD), BHP Billiton (BHP), Teck Cominco (TCK) and Chilean-state-owned Codelco. And of class, the eastern hemisphere wild card: China. Molybdenum can be a copper mine's byproduct, which is generally produced for minor or no price. Apart from a quite little amount of new close to-phrase main molybdenum producers, exactly where is the exhilaration in this sector?

It really is not in the value. In a prior interview with Michael Magyar, USGS molybdenum professional, he informed us, "The value is now trending anywhere. It really is just drifting all around $25/pound." One more sector professional agreed the value is very likely to stagnate at this new stage for a although.

Even with the ranting of some, molybdenum oxide is unlikely to shortly return to the Might to July 2005 highs circa $40/pound. The price anomaly was just that - an market caught off guard too quickly and generating also little. And which within a six-month time period caught up with itself. Similar to these jobs we have been investigating in the uranium sector, these hoping and praying for another supersonic price rise in molybdenum are those backing the much more marginal mining assignments. Soon after all, if you do not have economic grades, a parabolic cost rise is just the right shade of lipstick for the pig some companies hope to pawn off on the unwary.

Very last month, Seeking Alpha published an write-up we submitted, "In the Scenario of Uranium Stocks, More compact Might Be Much better." The issue impacting the greater uranium firms, this sort of as Cameco Corp (CCJ) and Era (Australia) are the legacy contracts whereupon utilities keep on to get uranium for a lot less than $30/pound, and in some cases for a lot less than $20/pound. Following Period just lately announced document fourth quarter U3O8 creation, the Australian media highlighted the Down Beneath miner had mostly missed out on the document price tag of uranium due to the fact of these prolonged-term contracts.

With molybdenum, the scaled-down jobs may possibly be better with regards to the possibilities investors should pick from. In early November in a two-element collection, we interviewed William G. Cook, the North American representative for Derek Raphael & Organization - at present the world's greatest molybdenum trader. He suggested us, "I do not feel we will see any of the moly mega deposits created in the foreseeable foreseeable future."

Cook warned of the significant cash expenses, reclamation liabilities and functioning charges for the behemoth projects. As a substitute, he pointed to the smaller sized, greater grade main molybdenum deposits. It is where he sees the future of moly production as a complement to byproduct and Chinese manufacturing. His emphasis was on "increased" grade deposits. As with other industry specialists we interviewed, it is individuals decrease grade deposits which raise the experts' eyebrows.

Where Does the Price Hysteria Come From?

Molybdenum firmly depends upon stainless steel creation. According to the recently printed U.S. Geological Survey, Mineral Commodities Summaries, producers of iron, steel and superalloys consumed 74 % of the molybdenum mined in 2006. Movements in stainless metal demand can effect the moly price.

Prior to the holidays, the highly revered MEPS consulting company forecast increased movement in stainless metal costs. Growing nickel rates on the London Metal Trade (LME) throughout December have been cited for the probably larger transaction values for stainless steel into the 2nd quarter of this year.

As of this week, the nickel division of the world's fourth largest copper miner, Swiss-primarily based mining giant Xstrata (XSRAF), faces a mining strike in Sudbury, Ontario if the organization won't arrive to phrases with a union of one,000 employees, which voted on Tuesday to strike by the finish of the month. In a comparable sort of strike nearly two decades in the past, copper production dropped by nine.6 percent in a quarter at a Falconbridge processing plant (Xstrata acquired Falconbridge given that then).

On Thursday, nickel touched a document $36,050/tonne because of people strike worries. About two-thirds of the world's nickel mining is utilized to make stainless steel. Some analysts forecast stainless metal manufacturing to increase by 7.five percent this calendar year. Issue in the buying and selling markets is the 87 % drop in obtainable nickel stocks in LME warehouses from a yr back. A bit far more than 1 day's worldwide usage is now warehoused by the LME. Evidently, a brief squeeze is roilingthe nickel market. And that impact could spread as a price tag panic perception moves into other alloys essential by the stainless metal production markets.

But where does one particular discover the compound with regards to molybdenum pricing? The industry has tightened up in January because of China's new export licensing program. That may just be a momentary blip in the trader's foods chain.

In a July 2005 post published for Colorado Central Journal, creator and previous molybdenum miner Steve Voynick wrote, "... there is always concern about the financial validity of cost spikes, individuals sudden, brief-expression jumps that stand apart from long-term cost rises." In his write-up, Voynick argued for the re-opening of the major moly mine Climax, but he warned about price stability for this metal, "Historically, moly-market price tag spikes have shown little stability. Not like prolonged-phrase price tendencies, they are not primarily based so considerably on true offerand demand as they are on fears of a moly shortage that spur speculative purchasing."

In the course of the final moly price tag boom, major molybdenum mines developed seventy five percent of the world's offer. Because of the rise of copper costs, the greater part of moly manufacturing comes as a byproduct of the world's foremost copper mines. Major producers are now the swing producers, filling the supply gaps when there is enhanced need for molybdenum.

We would picture firms planning to bring molybdenum mines on-line by the conclude of this 10 years carefully review the cost pattern of copper as properly as molybdenum. Australia's Olympic Dam faces a equivalent dilemma with their huge uranium forecasts. Need to the value of copper not maintain over a specific stage, the low-grade uranium may well not be economically mined. In this circumstance, BHP could likely invest $five billion in building costs to grow the company's uranium creation.

Component of the fidgetingwe have heard from the rising moly companies about the metal's cost is not about how much greater molybdenum's price will rise. Their twitches are accompanied by the nervousness over how economic their assignments will continue to be really should moly dive as it has in the past. Previous moly value rallies have been sharp spikes followed by mercurial descents. Breathtaking on an historical chart, but not the slap-on-the-knee type of laugh if one particular was mining in the course of that era. Employment ended up missing, mines closed and property gobbled up by these a lot less dependent upon the moly value.

Why need to molybdenum's value sustain this time, and why should this chart afterwards search diverse from the one of the earlier a few decades? Indeed, certainly, indeed, of program we are in a commodity tremendous cycle. But even during a secular bull market place there are catastrophic plunges washing out the weaker administration groups, the much less-properly-financed and individuals with a lot more dubious tasks.

Need to Molybdenum Maintain at Latest Levels?

Present developments in the molybdenum and electricity markets may possibly provide robust wish for several of the main producers proposing or preparing projects by way of 2010. Element of the breakdown for the duration of the molybdenum production cycle could arrive from roasting capacity. We covered people issues in a earlier article. Each and every 12 months, about $37 billion well worth of normal gasoline goes up in smoke or pumped underground to push far more crude to the floor, mostly simply because of the lack of gasoline pipelines. In accordance to Hart Electricity Publishing's Pipeline and Gasoline Technological innovation information middle, "Operators are construcing, arranging or learning the feasibility of constructing some 72,924 miles of crude oil, normal fuel and refined items pipelines during the planet to meet increasing energy desire." Nearly 77 % of globally pipeline building is to transport organic gas - more than 55,000 miles planned or underway. Under construction or getting planned are nearly 14,000 miles of crude oil pipelines.

Intrinsic to the foreseeable future and a lot more long lasting success of these pipeline assignments is the rising pattern toward the replacement of Stainless Metal Type 316 with a larger moly content material stainless metal products named 6Mo Grade, or six-percent Molybdenum Stainless Steels. Due to the fact of the improved development of offshore and sour fuel pipelines, great resistance to chloride-induced corrosion is essential. Stainless steels are generally iron-chromium alloys the brunt of the protective film comes from enough chromium. Form 316 Stainless Steel consists of sixteen % chromium and ten percent nickel and two % molybdenum.

Sort 316 has damaged down when exposed to saline water, seawater or brackish water. Sour gasoline can have high halide amounts (extra benzyl halide and alkyl halide) which can accelerate the corrosion of ferrous metals. The 6Mo grade is fifty % stronger than the 300-series and has extremely substantial resistance to tension corrosion cracking, pitting and crevice corrosion. The greater moly grade is usually found in desalination devices, flue gas desulphurization scrubbers, chemical processing tools and oil/fuel creation gear.

Here's the important point with this chemistry lesson. Because of the high nickel value, which is now approaching treasured metals position, the austenitic framework of the stainless steel alloy can even now be taken care of, but with lesser nickel and more molybdenum. In other words, simply because of the restricted nickel inventories, manfacturers have started hunting for substitutes for this metal. In numerous vitality-connected scenarios, moly could find its way as a 'substitution metal' for nickel in stainless steel production.

Molybdenum strengthens the nickel matrix and extends support temperatures. Inthe excessive situation, the nickel-based mostly Alloy C-276® is made up of fifteen to 17 % molybdenum and is used for the development of seawater-centered flue-fuel desulphurization crops. The higher moly content material offsets the hugely corrosive mix of seawater and sulfur-laden flue gases. As the key vitality companies delve into the crummier fossil fuels, the sulfur subject material rises, therefore eventually demanding a higher percentage of the molybdenum part.

From this aspect, there could be merit the molybdenum price tag can offer some pleasure through the conclude of the 10 years and probably some promise for some, if not all, of the junior molybdenum exploration and development organizations. Coupled with the roasting capability issue, as we discussed in the formerly referenced article, this molybdenum cycle delivers more wish of longevity than the two past spikes.

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