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Listing Molybdenum On LME Causes To Change Business Scheme
= Contracts To Purchase Molybdenum For 2009 Become Touchstone, May Be Converged Upon LME Price
London Metal Exchange (LME) of England has decided to list molybdenum oxide and is scheduled to be actually listed it from July of 2009 as a trial case. Substantial dealings of molybdenum oxide at LME will commence from October of 2009. The item to be listed on LME is molybdenum oxide, containing 59.5% of Mo with allowance of 2.5% of up-and-down and 0.5% of Cu, and the unit to deal is 2 tons. The terms for dealing are for cash on delivery, for three-month futures and for fifteen-month futures.

Such major molybdenum producers as Codelco, Freeport- McMoRan, and so on are positively intending to acknowledge its meaning. Major producers have already well experienced deeply in dealing of copper cathode at LME and, accordingly, do not have a sense of incompatibility. LME started its operating from 1881 and has had a long history of dealings in futures for nearly 130 years. Therefore, LME has formed a center of metal trading in the world for its efficiency. On the occasion to list molybdenum oxide on LME, molybdenum trading has a large possibility to have more high transparency.

However, the world demand for molybdenum is a small scale of 180,000 tons per annum, corresponding to 1/8 of that (1,380,000 tons / year) to be demanded for nickel. So far as the demand scales of commodities listed on LME are smaller, these LME commodities become objective materials for speculators and its prices more incline to be artificially moved. LME nickel price in May of 2007 rose to the highest of US$54,200 per ton in its history but the world supply of nickel in 2007 had a surplus of 120,000 tons (corresponding to 8 - 9% of the world consumption) and the aspect of oversupply already commenced from February of 2007. However, with regardless of this oversupply, nickel price steeply rose.

The reason, why LME nickel price recorded the highest in 2007 as mentioned above, was due to a huge amount of speculative funds, which came to several ten times more than actual nickel demand and was invested in LME nickel. The world demand for molybdenum is smaller that of nickel and, accordingly, a factor to move more easily molybdenum price on an artificial way has existed The commodities listed on LME are able to become securities and included in the items for derivatives.

Therefore, the original purposes to list commodities on LME are (1) to enable producers to transact forward sales and to stabilize their operations, (2) to make the indices for supply and demand and market movements, (3) to exhibit functions for making possible to purchase commodities whenever urgency comes up, and so on, but speculative factors to exceed conveniences for producers and consumers are thought to become more clear.

The background, which major molybdenum producers have positively evaluated to list molybdenum on LME, is certainly an effectuality of the function for hedging forward sales. However, as it has been cleared through actual transaction of copper, there is a merit to be able to ensure an advantage when products are sold directly to consumers with reference to LME prices, because the decoration of transparency is added. When commodities are sold to LME, LME stocks increase and its prices fall. Therefore, the management, which restricts sales to LME for hedging and utilizes direct sales to maintain its prices, is anticipated.

In order to trade molybdenum, dealer oxide price published on Thursday of every week in a metal magazine of the USA has been far so referred in many cases. The contracts concluded between producers - traders and consumers have stipulated for dealer oxide price to be referred to fix molybdenum price. In view of the fact, which there is no measure to ensure a transparency like LME dealings, dealer oxide price has been so far evaluated as a fairness and has fully exhibited its function.

However, there is a view in the market that, when molybdenum oxide starts to be traded at LME from October of 2009, an aspect will completely change. LME indicates to move molybdenum price on a momentary pace but, on the other hand, dealer oxide price is reported on unit of one week as so far seen. It is questioned how to cope with a speedy change of market prices in both sides of supply and demand. Also, there is a big probability to be forced to choose between the two of dealer oxide price and LME price as the condition to be stipulated for fixing molybdenum price.

The routes to transact molybdenum are classified roughly by three types as follows; (A) Molybdenum producers contract directly with consumers on sales., (B) Converters purchase molybdenum sulfide as by-product from copper producers and convert it on toll consignment base or roast it at their own facilities for sales of finished products (molybdenum oxide or ferro-molybdenum) on account of their risks., and (C) Traders simply import molybdenum oxide (or ferro-molybdenum) from China or other sources and sell these imported products to consumers.

Owing to the current facts that the world supply of molybdenum has become tight and Chinese Government has enforced severe regulations for exports of molybdenum products, the simplified molybdenum business by traders as per the type (C) is going to disappear and a scale of this import business is shrinking to an extreme extent. However, the matter to list molybdenum on LME will come up with an opportunity to enable these traders to reinstate molybdenum business and it will be possible for traders to purchase molybdenum from LME, whenever they take a chance on movements of molybdenum prices.

Also, converters as per the type (B) so far negotiate with copper producers on purchase price of molybdenum ore (molybdenum sulfide) as by-product on the background of an advantage, having held facilities for roasting (or contract for roasting on toll consignment), but some of the parties concerned have a view that this business measure is anticipated to change. It is marked to see how extent does an existence of transparency for LME molybdenum price influence on the market in the course of individual negotiation.

At all events, the spirit of LME trading has been based on the manners to be fair, just and free competition and LME has emphasized to penetrate this doctrine, reflecting the global movements of supply and demand. In order to avoid the artificially risen price of LME nickel with regardless of the actual supply situation as arisen in last year, it is necessary for LME molybdenum to well prepare the function for monitoring (in case of LME nickel, the regulations for backwardation have been enforced from June of 2007 and LME nickel prices had fallen to a large extent). In case of molybdenum, some of molybdenum mines had artificially risen prices of molybdenum in 1979 and, consequently, this aspect allowed to use other metals as substitutive materials for molybdenum, having caused to leave from molybdenum for 25 years. Therefore, a depression of molybdenum prices continued for a long period.

It is necessary for the parties concerned to memorize clearly that, on the occasion to list molybdenum on LME, if molybdenum becomes the objective commodity for speculation, this aspect will certainly cause to let consumers leave from molybdenum.
last modified : Thu 16 Oct, 2008 [11:44]
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