* SRB moly tender is first in about two decades
* Traders see more Chinese buying before year-end
* Cobalt market tight as supplies fall short of demand
By Polly Yam and Harpreet Bhal
HONG KONG/LONDON, July 24 China has bought almost 3,000 tonnes of molybdenum oxide, used to strengthen steel, for the first time in 20 years, helping to support struggling domestic producers squeezed by tight credit conditions, industry sources in Europe and Asia said.
It has also bought some 100-200 tonnes of cobalt, used in electronics and batteries for electric vehicles, in a separate closed-door tender, four sources said, although less than the 1,000 tonnes it had tendered for.
China's State Reserves Bureau (SRB) bought the 2,700 tonnes of the minor metal used to make ferro-molybdenum, an ingredient in special steel for the petrochemicals and oil sectors, two sources who had direct knowledge of the closed-door tender said.
The SRB is expected to buy another 2,300 tonnes of molybdenum before the end of 2014, and is also likely to still be looking to buy the 1,000 tonnes of cobalt initially sought, a move traders said could squeeze cobalt prices higher.
High grade cobalt prices COB-CATH-LON are at $14.95-$16/lb, their highest since May 2012 as the market had tightened in recent weeks due to high demand and low producer supplies.
"They were unable to find the quantity they needed. They will have to come back into the market another time to buy up to 1,000 tonnes," a cobalt trader said.
Traders said the molybdenum oxide purchase was unlikely to significantly lift international prices, with plentiful supplies and low demand. Molybdenum oxide prices are trading steady at $13.30-13.50/lb MLY-OXIDE-LON.
One of the sources said the molybdenum oxide purchases will help domestic producers who have been hurt by low demand and tight credit conditions in the last two years.
"China is still a self-contained market. In light of the production in China and the stocks over there, 5,000 tonnes being bought within the domestic Chinese market is not a lot. It will quite easily be absorbed," a molybdenum trader said.
Global molybdenum mine production totalled 270,000 tonnes last year, according to the U.S. Geological Survey (USGS), with top producer China accounting for 110,000 tonnes of output.
The SRB has in the past bought other metals such as aluminium and zinc domestically as a means of supporting local producers. The buying came after the state body in 2012 added more metals, including some minor metals and rare earths, in its programme of stockpiling strategic materials.
In December, China bought nearly a quarter of the global production of germanium, a material used in fibre optics and semiconductors, according to traders.
China does not publish details of its metals stockpiles. Officials at the purchasing department of State Reserves Bureau in Beijing were not available to comment.
BRISK BATTERY DEMAND
The stockpiler paid around 1,400-1,450 yuan per one percent of metal contained in the 2,700 tonnes of molybdenum oxide, and around $15.70/lb for cobalt.
Traders said cobalt market was seeing brisk demand from the battery industry and low producer supplies, resulting in prices moving-up following the SRB's purchase.
"Cobalt demand is pretty healthy. The producers have nothing to sell at the moment and this is causing tightness in the market," another trader said.
Cobalt is an ingredient in lithium-ion rechargeable batteries, used widely in the electronics sector and in electric vehicles. Mine production for cobalt was 120,000 tonnes last year, USGS said.
Traders said the SRB was unable to secure the 1,000 tonnes tendered for as sellers had only wanted to sell up to 200 tonnes due to a low bid price by the stockpiler. (Editing by Susan Thomas and David Evans)