International Stainless Steel Federation has forecast even faster 5.5 percent annual growth up to at least 2010. Increased production of stainless steel would require a higher level of molybdenum consumption. A June 8th news item in MEPS Steel News forecast firm prices for molybdenum through the summer months. The news service reported, "We are bullish about stainless steel prices in the period to September, at least." But the service warned, "We have reservations about the prospect of this market continuing at the current level in the medium term. Production is starting to rise to meet current orders - a large proportion of which are speculation against rising raw material costs." They felt stainless steel prices, and possibly molybdenum, might drift lower by the end of 2006. But, they also cautioned, "This prediction assumes a decrease in the price of nickel. This is by no means a certainty in these unpredictable times in the metal market."
How does Smirnova feel about molybdenum's role in any perceived correction in steel or base metal prices? She doesn't see the amount of molybdenum used as a major factor, "While 75 percent of moly consumption is in various steels, the metal generally represents a small proportion of the steel, depending on the end use. It can be as low as 0.2 percent or as high as 8 percent in those steels that need extra strength and corrosion resistance. The average would be closer to the lower end of the range" Smirnova pointed, out, "In many applications the cost of moly is not significant." She cited the comparison between nickel and moly consumption as one example, "At current prices nickel would represent ten times the cost of moly in a steel using 10 percent Ni and 0.5 percent Mo."
But what if pricey copper takes a dive? "I don't think moly prices would necessarily tumble if copper prices were to go south," Smirnova told us. While some 60 percent of the molybdenum mined is a byproduct of some of the world's large copper mines, Smirnova pointed out, "The markets are quite different and the two metals have different end uses." She also observed, "On the supply side, there are fewer producers of moly than there are of copper."
And how to do those companies see demand? "Moly producers we speak with indicate that they have no problems securing buyers for the metal," Smirnova responded. "There is obviously demand, and it will provide a floor to the price." For those worrying about whether the economy will tank next year, Smirnova offered this bit of comfort, "Moly is also more insulated from certain economic downturns (than copper). If the U.S. housing market has a meltdown – signs of which we already see, moly will find support in the energy and mining sectors, unless spending is reduced in those areas." Michael Magyar writes in the USGS minerals yearbook, "The variety of uses for molybdenum materials, few of which afford acceptable substitution, has resulted in a doubling of consumption in the Western World."
Will manufacturers replace molybdenum with another metal or pay the higher cost, should moly sustain at these price levels or rise higher? Smirnova doesn't think the energy sector is likely to substitute moly with another metal, "Of course, moly substitution is possible in some applications, but its properties make it invaluable in energy-related sectors." She pointed out, "Quality outweighs cost here and I don't think anyone wants to see the Mackenzie Valley pipeline corrode and leak. The same would apply to any other oil and gas project." Smirnova reminded us demand for molybdenum is unlikely to fade as long as oil and gas companies advance their projects, "This bodes well for the energy sector supporting moly demand going forward."
We talked with Michael Magyar, the USGS molybdenum commodity specialist about pricing of the metal. He explained, "The molybdenum market usually needs about 10 to 12 weeks of inventory for its comfort level." That comes to about 60 to 80 million pounds. "The amount of molly floating around right now, in the hands of producers and traders, might be about 10 million pounds." About two weeks of production.
