Codelco plans no hedging against LME moly

NEW YORK (Reuters) - Chile's Codelco, the world's No. 2 producer of molybdenum, has no plans to use the soon-to-be launched London Metal Exchange molybdenum futures contracts to hedge against price risk, a company official told Reuters on Monday.

Roberto Souper, Codelco's vice president of commercialization, said in an e-mail message that it was too early for the Chilean state-run miner, which is also the world's top copper producer, to decide whether to participate in the new contracts.

However, Souper, who is in charge of Codelco sales, said the contracts provided a good opportunity for both consumers and producers of the silvery metal used to strengthen steel as demand is seen on the rise.

"We have a positive view concerning (moly) futures contracts as it will give greater liquidity to the market and allow access to last resource markets," Souper said. "We do not seek hedging to lower price volatility risk in copper and neither we plan to do it in molybdenum."

He said Codelco sets monthly average prices with clients to battle price volatility.

Fears of a slow global recovery and China slashing imports to cool off its economy has dragged down base metals prices in 2010 after a stunning rally last year.

Souper said market players are interested in the new contracts and the company expects them to work efficiently.

"We have had a good experience with our clients in the current way we price our contracts using Metals Week. However, we also had a good experience with clients when it comes to copper prices in the LME," Souper added.

The LME trades nonferrous metals, including its flagship copper contract, as well as steel, through open outcry, an inter-office telephone market and its own electronic trading platform, Select. The pricing of minor metals has been left to vendors such as Thomson Reuters and Metal Bulletin.

The new molybdenum and cobalt contracts will start trading on the LME on February 22.

DEMAND UP, PRODUCTION STEADY

He said experts see world consumption of molybdenum increasing up to 10 percent in 2010, although the company believes prices are unlikely to reach record highs this year. Molybdenum oxide set record highs around $39 a lb in May 2005 on mounting worries about supply shortages.

The global financial crisis hurt demand for metals such as molybdenum, which plummeted to around $8 a lb in August 2009.

He said Codelco's molybdenum output would likely remain steady in 2010 compared with 2009 when it produced around 45 million pounds.

Still, Codelco is optimistic about its molybdenum sales to industrialized economies as well as China, which helped partly offset the drop in consumption in the United States, Europe and Japan last year, Souper said.

Lower prices last year prompted China to cut molybdenum output and increase imports, he said.

The state giant's main buyers of the anti-corrosive metal are steel producers in Europe and Japan, whose health is closely tied to the global economic recovery.

The market should monitor industrial activity in industrialized nations to predict demand in 2010, he said.