Strong steel demand to boost molybdenum prices

LONDON, Oct 25 (Reuters) - Strong demand of more than 4 percent a year and stagnant supplies will boost prices of molybdenum, prized for its ability to harden stainless steel.

Molybdenum MLY-OXIDE-LON hit a 16-month low of $21 a pound in February 2006, but has since recovered to around $32 a pound, only $7 away from the record high around $39 set in June 2005, when a processing bottleneck hit supplies.

Three-quarters of global annual molybdenum production is used to manufacture stainless steel, demand for which is expected to grow by around 6 percent a year for some years.

"Demand (for molybdenum) is forecast to increase by 4 to 5 percent a year," Larry Reaugh, executive chairman at Toronto-listed Adanac Molybdenum Corporation AUA.TO said at an event organised by Mining Communications.

That forecast compares with averages around 3 percent in previous years. Much of the demand for stainless steel is seen coming from emerging market countries such as China, which is spending large amounts on building infrastructure.

Molybdenum is used the oil industry for steel pipes and as a catalyst in petroleum refining. Molybdenum sulphide is also a good lubricant, especially at high temperatures where normal oils decompose.

Last year total global molybdenum production and demand at more than 420 million pounds was roughly balanced, according to the International Molybdenum Association.

Molybdenum is mined for itself and is also a by-product of copper production.

“Seventy percent of output in the Western world is a by-product of copper, (which) is stagnating,” said Anthony Warwick-Ching at consultants CRU Group.

“Primary mines are close to capacity. Supply has to be pretty tight for a while ahead.”

As molybdenum prices started to rise in 2004 many miners switched from producing copper.

“That phase is ending now,” Warwick-Ching said. “They’ve taken out all the easily available material.

Speakers at the event also highlighted China’s growing role in the world market for molybdenum.

China last year accounted for about 30 percent of world supplies from about 10 percent a few years ago.

But that number could be drastically lower this year as the country is on a drive to shut down polluting mines.

"China has shut down over 300 moly mines," said Ian McDonald, executive chairman at Toronto-listed Thompson Creek Metals Company TCM.TO. "Exports from China have been declining this year ... Over the next few years we're set to have a good time."