Antofagasta uses LME moly prices in contracts

LONDON (Reuters) - Antofagasta (ANTO.L) is using prices on the London Metal Exchange (LME) molybdenum contracts as a reference for its 2011 contracts, the Chilean miner said at the Reuters Global Mining and Steel Summit on Wednesday.

"There is a new clause in all the contracts (that) if the two parties feel comfortable with the LME quotation, we will get together to change the price basis of the contract," chief executive Marcelo Awad said on Wednesday.

The LME launched its new futures contract for molybdenum, valued for its anti-corrosive properties in stainless steel, on February 22.

It has said the new minor metal contracts would offer all the benefits of an exchange-traded product, allowing participants access to a transparently derived price and the ability to manage price risk.

Traditionally, indicative pricing of minor metals has been left to vendors such as Thomson Reuters and Metals Week, where reporters collect prices from a few traders, producers and consumers and publish a consensus.

"If the LME price is transparent (and) representative of the moly market, we will most likely follow that price reference on our 2011 contracts," said Awad, whose London-listed group produces molybdenum as a byproduct of copper.

Antofagasta's molybdenum production in 2009 was unchanged at 7,800 tons as higher grades and metallurgical recoveries offset lower volumes of ore.

It is due to rise to 9,500 tons this year, compared with estimated global production of 440 million lbs last year.

"I think it will be a success because it will bring transparency to the way the price is produced, and it will allow the players to forward hedge," Awad said on the LME contracts. "It was needed by this market."

Three-month molybdenum futures were quoted between $36,000 and $42,000 a ton at 1102 GMT.

Last week spot molybdenum oxide, valued for its anti-corrosive properties in stainless steel, was around $17.75 a lb on the spot market in Europe.

Awad said he was concerned that primary molybdenum producers who hedge risk may ramp up production and put downward pressure on LME prices.

"One fear, and very important fear, is the primary producers," he said, adding that 50-60 percent of global molybdenum supply comes as a byproduct.

"If they have the opportunity to forward hedge the expected production, they may increase their production, and that would put some pressure on the downside to the moly price," he said.

"A possibility they didn't have before -- that may have an impact on the moly price in the future."

(Reporting by Michael Taylor; editing by Anthony Barker)