Santiago, Chile — Record prices for steel-additive molybdenum show no sign of falling any time soon — but the high prices are not the result of a fundamental shift in the market, says CEO of Molybdenos y Metales (Molymet), John Graell.
Prices for molybdenum oxide have jumped to US$34 per lb. from US$7 per lb. at the start of 2004, providing a bonanza for Molymet, the world’s leading producer of the metal, and copper miners that produce it as a byproduct, such as Canada’s
The price increase has seen molybdenum become Chile’s third-largest export, valued at US$1.38 billion in 2004, according to state copper commission Cochilco.
The price has defied all of Molymet’s attempts to forecast its movement and is at a level that is not sustainable, says Graell.
“We put a lot of effort into designing sophisticated forecasting models using the most advanced mathematics, but so far, no model has predicted what has happened,” he says. “Price levels are not in equilibrium and in the long term there is the risk of product substitution.”
China is a key molybdenum consumer, but it also provides 20% of global supply. Supply from China is tightening, says Graell, as the country changes its development strategy and moves towards environmental and work standards used in Australia, Europe and North America.
“This new strategy definitely means less production — at the end of the day the offer of molybdenum to the West from China will fall,” he says.
This supply pinch, and strong demand from the oil industry for special stainless steels that use molybdenum as an alloy to improve temperature and corrosion resistance, have pushed up prices and helped Molymet obtain a five-fold increase in profits in the first half of 2005 to US$53 million.
Graell would like to see less volatility in the molybdenum price and believes that the development of a futures contract that could be traded on the London Metal Exchange (LME) would help, although he says it isn’t likely to happen.
“The International Molybdenum Association suggested to the LME that it study the possibility of having a market for a molybdenum future contract on the exchange, but this is an industry with a very small volume and not sufficiently attractive for the bolsa to be interested. I think it would be very convenient for the industry to have a futures market, but the LME is not in a position to be interested because it is doing a lot with copper, zinc, cobalt and now plastics,” he says.
Molymet processed half of the 41,800 tonnes of molybdenum concentrate produced in Chile and all the concentrates produced in Peru in 2004, but the company is not the only winner. The cash credit that copper miners
Falconbridge expects to start its US$42-million molybdenum plant at the Collahuasi mine in Chile’s Region I at the end of 2005. It will eventually have a capacity to produce 12,000 tonnes per year.
Falco is also installing a molybdenum recovery circuit at its Altonorte copper smelter near Antofagasta in Region II, which will produce up to 11,600 tonnes per year.
“The forecast of molybdenum concentrate production in Chile is particularly active,” Graell says.
Yet, the copper miners’ efforts are not enough to keep pace with world demand and therefore, temper prices.
“The offer by Western producers is increasing slowly but there is not significant production from new projects. At the end of this year, Collahuasi will start production (from a new molybdenum plant) but this will probably not be able to counterbalance the lower production from China,” Graell says.
Molymet is focused on completing its US$106-million expansion to handle the increased concentrate production in Chile and Peru. The company is spending US$78 million in Chile and US$28 million in Belgium to increase its capacity by 40%. The Chilean component will be working by January 2007 with Belgium coming onstream in 2008. Once completed, Molymet’s worldwide capacity will be 68,000 tonnes per year molybdenum, of which 43,000 tonnes will be in Chile.
“Molymet is not a mining company; we are a processor. We make products to improve the performance of steel and we buy concentrates from third parties. Our role is to always have sufficient capacity so that the large copper miners have a place to process their molybdenum,” Graell says.
Like their counterparts in Chile and Peru, copper producers in the U.S. and Mexico are also keen to increase the production of molybdenum byproduct to benefit from soaring prices, which means that an expansion could be in the cards for Molymet’s Mexican operation.
“We don’t have any growth plans at the moment for Mexico,” says Graell. “But we have some ideas, as the copper miners have the same vision as Chile’s copper producers to produce more molybdenum.”
A key development goal for Molymet is to establish a partnership in China to both provide products for consumption by its steel industry and provide a market for Chinese molybdenum concentrates.
Comments Graell: “We have tried to associate ourselves with relatively modest industrial facilities, but so far, without success. We decided to open a small commercial office in Beijing (in 2004) and we are looking for alternatives on the industrial side, but there is nothing concrete yet.”
Molymet hopes to bring its experience, technology and vision to a company that wants to modernize and so obtain a production base in China.
“China’s new approach towards using more technology and better quality means that they want to associate themselves with companies that have more experience to become more modern,” Graell says.
— The author is a freelance writer based in Santiago, Chile.
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