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|Molybdenum: Review Of 2011/Outlook For 2012|
|= 2011 market turned around to oversupply as China held off buying =|
As explained by the price drop during the second half, 2011 was a year of oversupply as a whole. In 2010, the increase in world demand by 15 – 16% together with the imports in big volume by China led the market to a short supply situation. However, as 2011 started, China all of a sudden held off imports from the western world. This was a totally unexpected move for the molybdenum miners in the western world, as China had been expected to simply continue to be a big importer, based on the forested growing demand for molybdenum that the country would consume molybdenum by about one-third of the world consumption.|
The quarterly averaged molybdenum prices during 2011 were, <> January – March: US$17/lb, <> April – June: US$16/lb, <> July – September: US$16/lb, and <> October – December: US$13/lb. The drops in the third and fourth quarters were sharper compared to the fisrt half. Early November, the price dipped below US$13/lb to US$12.70/lb as the lowest since October 2009.
The main causes of the oversupply were production increases in the western world mines as well as the sharp drop of imports by China. Nine mining companies producing molybdenum in the western world produced during the first nine months of 2011 14.2% more (= 26 million pounds more) than what they had produced in the same period of 2010, while China's import of molybdenum during the same nine months of 2011 was 14.2 million pounds, down by 10.5 million pounds or by 42.4% from the same period of 2010. The increase in supply of 26 million pounds and the drop in demand of 10.5 million pounds made a total of 36.5 million pounds. Given the increase in world demand for molybdenum during the period, estimated about 5 – 6 %, the surplus could well have been 10 – 15 million pounds.
China imported 72.3 million pounds in 2009, which turned it into a big net importer. Although its imports in 2010 dropped to 35.0 million pounds, almost a half of 2009, import surplus situation continued. However, China's imports suddenly and sharply slowed down in 2011. The molybdenum (in concentrates) imported by the country during the first nine months of 2011 was only 14.2 million pounds, which was, on an annual basis, equivalent to, by estimate, about 20.0 million pounds, largely down by 43.0% from 2010.
Whether China will continue to hold off importing and to basically supply its need itself also in 2012 or not is definitely a point of concern to the market. One relieving factor for the market is that the all the expansion plans are to start-up in 2013 and beyond, so forecasted surplus in 2012 based on the situation currently foreseeable will be more or less in the same range as it was in 2011. Another, much bigger, concern is how much of impact will be given over to the market by the sharp increase in supplying capacity, i.e. expansion of the operating mines and startup of new mines, of which projects are as follows:
(i) Climax mine, Colorado, U.S.A. by Freeport McMoRan: An open pit mine to start-up in 2013 with an annual capacity of 30 million pounds of molybdenum in concentrates. With this new capacity the company's overall capacity of molybdenum production will be 130 million pounds per year.
(ii) Bingham Canyon mine, Utah, U.S.A. by Rio Tinto: Production is to increase by 30 million pounds in the fourth quarter of 2013, with a plan of further expansion by 30 million pounds by early 2015.
(iii) Sierra Gorda mine, Chile by Quadra FNX: A new mine to start-up production in 2014 with an annual capacity of 54 million pounds during the first three years, and 20 million pounds thereafter.
The problem with the statistics of molybdenum production and consumption in China is the figures are not fully reliable and correct. Therefore, there has been a difficulty in making forecasts of demand and supply of molybdenum. China's consumption is estimated 170 – 180 million pounds per year, about 36% of world's consumption that was 500 – 510 million pounds in 2011 based on the current estimates.
The same difficulty is there in putting China's production figures in the forecast. The big volume of the imports by China in 2009, 72 million pounds from the western world was partly more from speculative purposes rather than from actual demand, under the then depressed level of price. This was explained by the fact that more than 40 million pounds were carried in the inventory over to 2010, which made the imports in 2010 sharply drop to less than a half of 2009 in order to first consume the carried-over surplus in the inventory. As to another sharp drop in imports in 2011, a well-informed market source points out that the increase in domestic production reduced the need for the imported material.
Production cost of molybdenum in China is said to be US$12 – 13/lb, comparatively higher than in the western world. Therefore, now that the price is lingering close to the cost line, it is a big concern of the market what Chinese producers will do, if the market price drops below the line, whether China will recommence imports in a large scale, or somehow manage to go without sharply increasing imports. As a matter of fact the price dipped to below US$13/lb in November 2011, which might have been only the first bottom, as the price did not seem to have regained strength through December nad stayed at US$13's.
Based on all the speculations as mentioned above, it is likely that the oversupply situation in the western world will continue, but on the other hand it is uncertain (probably unlikely) whether the mining companies, having big expansion plans for 2013 – 2015, will decide to cutback production at the currently operating mines. Freeport McMoRan announced its intention to continue to proceed with the climax project even after the price started sliding down in October 2011. With the European financial/monetary crisis unsettled yet, increase in demand for molybdenum in near future is questionable. Molybdenum market outlook for 2012 will not be rosy anyway.
|last modified : Mon 23 Jan, 2012 [11:23]|