Molybdenum Market Poised for Recovery
Roskill has announced the release of its recent report on molybdenum, with forecasts to 2025. Falling molybdenum prices have been the norm since the first half of 2014, with ferromolybdenum plummeting from $35.39/lb in June 2014 to $4.70/lb in November 2015. Molybdenum is not immune to the weak sentiment surrounding many commodity markets in early 2016, but demand has been further impacted by two further factors combining to reduce molybdenum consumption by 3.5% in 2015: a slowdown in China and weak demand for tubular goods for the oil industry.
From 2005 to 2015, China's contribution to molybdenum demand increased from 8% to 29% as construction and manufacturing output surged in the investment-driven economy. In the oil and gas sector, which accounted for 14% of molybdenum consumption in 2015, the number of active exploration and production drilling rigs fell by 46% globally between August 2014 and December 2015, while in the U.S. and Canada it was down 60%.
New and expanded molybdenum by-product capacity at copper operations in the early 2010s, and their ramp-up, led to oversupply by 2015, despite efforts by a number of primary molybdenum producers in the Americas to cut production. The commissioning of KGHM’s Sierra Gorda mine in Chile and China Railway Resources’ Yichun Luming mine in China contributed an additional 18.7 ktpy Mo to mine production during 2015, reducing the effectiveness of the cut-backs and closures implemented by other producers. By-product molybdenum;s share of output hit 61% in 2015, its highest contribution to total mine supply in the last 20 years.
Reduced output from Freeport McMoRan and other molybdenum producers in response to low prices will further reduce availability of molybdenum concentrates and create increasing supply-side pressure on molybdenum prices in 2016. Smaller Chinese primary molybdenum operations, many of which have been operating at a loss during the second half of 2015, may also be forced to shut down if molybdenum prices remain low, further reducing supply availability. These actions are expected to facilitate a more sustained recovery in prices later in 2016, as copper by-product output adjusts to demand changes.
The Chinese economy is transitioning from heavy industry- and construction-driven growth, to one where growth is supported by domestic demand and consumer spending. The latter is still positive to molybdenum consumption going forward, given molybdenum’s diverse uses and higher per-capita consumption in developed, service-based economies. Demand for molybdenum is forecast to rise by 4.6% from the prior year through 2025. However, rising availability of molybdenum-bearing scrap will dampen demand growth for primary molybdenum to 3.1% from the prior year.
Despite the current low price of oil, the oil and gas industry is forecast to remain the largest consumer of molybdenum products going forward. Investment in capacity and subsequent oversupply on weaker demand, following high prices since the mid-2000s, has led to reductions in capital spending in the current climate. As the oil market equilibrates, prices recover and investment returns, molybdenum demand could see a sharp upturn. In the meantime, stronger growth is expected to come from stainless steels and full alloy steels, both of which are consumed in a number of uses for which growth forecasts remain positive, including automotive, process and other transportation industries, as well as consumer products.
Molybdenum prices showed the first signs of stabilizing and of a potential recovery in December 2015, countering the usual seasonal reduction. Molybdenum prices are unlikely to fall significantly in the first half of 2016 as molybdenum demand returns to growth and the availability of supply from primary molybdenum mines falls further. However, prices are unlikely to return to levels seen in early 2014 during 2016, partly as stockpiles built up in 2015 may be released into the market as prices stabilize or show signs of a rise, delaying any consistent price increases. Rising demand for molybdenum-bearing steel and chemicals is instead forecast to support a recovery in molybdenum prices from 2017, to around $13-15/lb ferromolybdenum.
In the medium-term, prices will be capped by the availability of molybdenum from existing and new copper by-product and primary molybdenum operations. Nevertheless, the current period of lower prices has reduced confidence in molybdenum project development, especially for primary molybdenum operations, which could impact supply availability from the early 2020s with prices rising strongly. Any significant change in copper demand affecting by-product supply, or the copper project pipeline, could exacerbate the supply situation for molybdenum more quickly.
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