Metals Report Moly’s fundamentals improving

Now don’t get me wrong.

I’m not about to say that molybdenum is going to be a stellar performer for the rest of this decade. It’s not.

But it could be starting on a slow but steady road to recovery.

Considering the sorry state of molybdenum markets today, it’s hard to see how the commodity’s outlook could do anything but improve. With prices at a 30-year low and many mines shut down, it could hardly get worse.

However, if industrial activity can maintain at least the modest growth anticipated for the rest of the 1980s, the fortunes of molybdenum should improve accordingly.

About 75% of molybdenum demand is for specialty steels. It is a highly versatile ferroalloy, increasing hardness and toughness while adding little weight. It also improves the corrosion resistance of stainless steels and maintains its properties at high temperatures.

The current availability of molybdenum and its relatively low price also give it a competitive edge: subsitutes will find it very difficult to m atch.

Still, the problems facing molybdenum are many. It shares with silver some very substantial roadblocks to price recovery. Like silver, there’s a large inventory overhang and, like silver, most molybdenum is produced as a byproduct making further control of output difficult.

A prime example is Noranda’s Golden Giant mine at Hemlo, Ont. Noranda built a molybdenum circuit into the mill at the Golden Giant mine because the gold deposit contains about 0.16% molybdenum. But with prices so depressed, the circuit has never been turned on.

As for market overhang, worldwide inventories are estimated to be about equivalent to nine months consumption, the highest level ever. Regardless of how market fundamentals improve, it’s going to take a long while to work off that stockpile.

But there are signs that market fundamentals for molybdenum are improving, albeit slowly.

The huge inventory is slowly being whittled down — the U.S. Bureau of Mines says producer stocks fell by about 1.5 million pounds during the first 10 months of 1986 — and should improve further to about six months supply, a more realistic level.

And, also on the supply side, full production capacity is not likely to be realized in the foreseeable future. Most of the metal produced today comes as a byproduct or coproduct, but primary producers make up about one-third of total capacity. However, the primary producers are generally the higher cost producers. Therefore, it would take considerable price increases before that unused capacity came back on stream, an indication that supply and demand could stay in balance for the near and medium term.

An exception to that is Placer Development’s Endako mine in central British Columbia. While Canadian molybdenum production was running at a startling 30% of capacity at the beginning of 1986 when all primary producers were shut down, Placer re-opened the Endako mine in August after a 4-year shutdown.

Endako is expected to produce just under six million pounds per year, about one-third of its capacity. Part of the output will be used as feed for Placer’s high purity products operations and the remainder will go to the Japanese market.

Endako’s reopening is largely responsible for a 65% increase in Canada’s molybdenum production in 1986 compared to 1985. Preliminary figures from the department of energy, mines and resources show Canadian molybdenum production up to 28.5 million pounds worth about $114 million, a 52% increase in value.

Anthony Sweeney, vice-president of planning and market services for Amax, the world’s largest molybdenum producer, says demand exceeded supply in 1986 by about seven million pounds. He forecasts a similar supply shortfall in 1987.

That may not be enough to push prices through the roof, but it could be a sign that molybdenum has seen its worst days pass.