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Molybdenum

CPM Group Molybdenum Reception at the 2010 PDAC

Molybdenum Market
Outlook

CPM Group

CPM Group _____________________________________________________________ Not for reproduction without written consent of CPM Group. We are not soliciting any action based on it.com Website: www. At times the principals and associates of CPM Group may have long or short positions in some of the markets mentioned in this report. Company sponsorship of this event does not constitute an endorsement of the molybdenum market analysis provided by CPM Group in this booklet. Telephone: 212-785-8320 Fax: 212-785-8325 E-mail: moly@cpmgroup.cpmgroup.com Copyrighted 2010 . but do not guarantee its accuracy or completeness. Information contained here should not be relied on as specific investment or market timing advice.S.A. Opinions expressed here represent those of CPM Group at the time of publication. NY 10004 U. The information contained here has been obtained from sources believed reliable. We believe this information to be reliable. This material is for the private use of clients.CPM Group Molybdenum Reception at the PDAC March 2010 CPM Group 30 Broad Street 37th Floor New York. .

New Loans Driving Restocking in China Chinese Exports and Fixed Assets Investments Chinese New Loan Growth Y-o-Y Change. Prices fell from $31. improvements in industrial activity and credit provision.1% from the first six months of the year. People’s Bank of China. The contractions in many sectors of the real economy are decelerating. which began roughly 18 months ago.17 during the second half of 2009.70 in April 2009. 1 .demand outlook. which was up the more than 30% year-on-year in December. Prices did not stay low for long. Molybdenum prices averaged $13. led to a severe deterioration in the molybdenum market’s supply .80 in October 2008 to $7. By the end of 2009 molybdenum prices had more than doubled from their lows in April despite this cyclical weakness. Export data through Jan. Aside from the roughly $500 billion allocated for infrastructure projects by the government. 2009 Percent Billion RMB 40 2000 1800 30 1600 20 1400 1200 10 1000 0 800 -10 600 400 -20 200 -30 0 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jan-01 Jul-02 Jan-04 Jul-05 Jan-07 Jul-08 Jan-10 Chinese Export Trade Chinese Fixed Assets Investment (Urban Cumulative) Source: Bloomberg. data through January 2010 FAI through Dec. The increased availability of credit fostered this expansion with new loans nearly doubling year-on-year in 2009. The resilience in the Chinese market due to unprecedented stimulus expenditures by the Chinese government and the inherent strength of the growing and well financed Chinese economy helped support the molybdenum market in 2009. The country has maintained positive fixed asset investment in its urban regions. NBS Outside China. Molybde- num prices quickly headed lower in late September 2008 as the world economic environ- ment turned decidedly worse. new loan growth in China also surged. The global downturn. have begun to bolster the molybdenum market. up 45. which grew more prominent in the fourth quarter of last year. 2010.Molybdenum The recessionary phase of the business cycle appears to be moving toward an end in nearly all major consuming regions. Monthly.

Source: OECD.3% 8. U. 10 other IL thru.S. Dollars Monthly. CPM Group 2 .10 2008 Index < 50 = Growth in the Manufacturing Sector Index 60 60 Brazil China 2.5% 30 30 22. . IL thru.6% 7.8% India 2. 2009 Year-on-year % Change Year-on-year % Change Year-on-year % Change Year-on-year % Change 15 15 30 30 25 25 10 10 20 20 5 5 15 15 0 0 10 10 5 5 -5 -5 Germany Japan 0 0 -10 -10 Euro Area United States -5 -5 Total OECD OECD IP -15 -15 -10 OECD + 6 Non-OECD Total OECD -10 Leading Indicators are shifted 3 months forward China United States -20 -20 -15 -15 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2001 2002 2003 2004 2005 2006 2007 2008 2009 Note: Composite Leading Indicators. Jan. CPM Group Manufacturing Sectors Expand Regional Purchasing Managers' Indices Percentage of World GDP in Current U. Bloomberg. through December 2009 OECD IP Nov. Positive Macro Economic Signals OECD Leading Indicators & Industrial Production Select Leading Indicators Monthly. Monthly.3% Russia 55 55 2.5% > 50 = Contraction in the Manufacturing Sector 25 25 2005 2006 2007 2008 2009 2010 Source: IMF. Jan.0% 50 50 Rest of World Japan 45 45 31. PMI data is seasonal adjusted thru.09. & Jap.1% 40 40 Japan PMI Eurozone PMI 35 35 US PMI China PMI United States Euro Area 23.S.

and logistical con- straints that were limiting producers’ abilities to boost output in response to higher prices prior to 2008. Through Jan. export quotas & a US$/Lb. Industrialization and urbanization trends in key emerging markets continue. anti- corrosive. In addition. 2010 China imposes tighter US$/Lb.Over the next few years molybdenum remains exposed to bullish structural trends as many of the underlying themes that drove prices sharply higher in 2004 are still present. The events of the past 18 months have compounded the economic. With only 426 million pounds mined last year. and demand from emerging applications continues to provide new markets for mo- lybdenum-bearing products. both of which will limit molybdenum supplies available from new copper producers. strong. 5 Forced inventory selling 5 & weak steel production 0 0 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Source: Platts Metals Week. Some market participants restocked ahead of the LME’s launch of a new molybde- num contract. 20 & insufficient roasting capacity De-stocking in 20 Followed by the steel market weak demand 15 & high grading 15 and a seasonal A surge in copper mine production by-product slump in steel 10 producers 10 production. large-scale infrastructure projects still need to be built around the world. expressing concern that contract’s existence might boost in- vestment activity which could easily sway the molybdenum market. and light weight materials are required throughout the energy supply chain. molybdenum prices were back above $17 by the middle of February 2010. On the demand side. the recession did not destroy the structural drivers that began during the first half of the past decade. Event-Driven Molybdenum Prices Platts Mean Molybdenum Prices Monthly. decline in by-product 45 output 45 Mine closures in the 40 Huludao area in 40 China 35 35 Fiscal stimulus 30 Temporary mine closure. some of the largest new copper mines coming online over the next few years do not have recoverable molybde- num and/or are employing the leach-solvent extraction-electrowinning (SX/EW) process. Production costs are likely to face con- tinued upward pressure after their downward stint in 2009. political. molybdenum mine production was less than one-sixth that of the nickel market. funding for development projects is limited. CPM Group 3 . 30 fuels restocking & China increased demand from becomes a net 25 Chinese steel producers & 25 importer of delay in Chinese exports Sharp increase in steel demand molybdenum. Aware of these fundamentals and the potential for tight market conditions during the cycli- cal expansion phase. Not only are lending and investment sources cautious about future commodity prices. on 22 February.

Supply Falls Short of Expectations Global Molybdenum Mine Production Annual data. Project financing re- mains an uphill battle for virtually all of the potential new primary producers and copper producers with molybdenum as a by-product. projected through 2010 Million lbs. Such shifts in behavior by producers going forward could result in a tightly balanced market. both in the near term as well as in the longer run. Production from both new primary and by-product producers is still necessary to meet the growth in demand. which has prevented an excessive buildup of stocks that previously led to extended periods of weak molybdenum prices. 660 660 Expected 600 Pre-Recession 600 Production Projected 540 540 Actual 480 480 420 420 360 360 Primary 300 300 240 240 180 180 120 By-product 120 60 60 0 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 *Forecasts include supply disruption allowance and a portion of the possible and probable development projects. Last year’s supply cuts by both primary producers and a few by-product producers were rela- tively swift compared to those seen in the past. Million lbs. as well as for other base metals producers. 4 . limited incremental output is available from exist- ing by-product producers. Historically primary producers have acted as swing producers by bringing their operations on and offline in response to changes in demand and prices. Source: CPM Group ‘Molybdenum Market Outlook’ Primary producers for account nearly half of the world’s output in 2009.What are the supports for molybdenum's price recovery? Supply Fundamentals Ongoing constraints in the credit markets and the 2008 . This is up from a 30% market share in 1985. The current underinvestment in new molybdenum capacity will curb growth in supply for at least the next three years. Going forward.2009 price correction in both the molybdenum and copper markets has caused molybdenum’s forward supply curve to take on a new profile.

IMOA. 4% 8% Other.5 million pounds in 2009. 7% China. 5 . CPM Group estimates that output from transitional economies fell 16% year-on-year. 4% Other. This estimate differs from official Chinese statistics. roughly 7% of production. 7% Rio JDC (e). with Chinese operations refusing to sell metal at prices below these levels. CCS . 6% 6% (e). After recording rather tremendous growth be- tween 2006 and 2008. Many high-cost molybde- num miners made significant cuts in production or shuttered their operations in late 2008 and early 2009 as molybdenum prices fell below their costs of production. 12% Mexico. High production costs proved to be a key support for domestic prices in China throughout 2009. The top five molybdenum producing companies accounted for nearly 47% of world production in 2009. was cut at existing mines in industrialized economies. 10% Chile. In addition to the cuts seen at high-cost operations. Canada. CPM Group esti- mates total Chinese supplies declined to 145. This significant stock overhang of low-cost material helped deter mine restarts.. some key market players slashed output last year to help calibrate supplies with demand. or 16 million pounds. primarily in China. 34% Grupo Mexico & Southern Copper. by country Molybdenum Production in 2009. 34% Codelco. 11% Peru. Chinese Output The dominant player on the country level is handily China. 6% Source: USGS. Key Market Players Molybdenum Market Share by Company 2009. 16% U. With lower molybdenum prices abroad. producing roughly 34% of global molybdenum mine supplies in 2009. 25% China Moly. CPM Group and Company Reports The majority of molybdenum concentrates are sourced from a handful of companies. RMD. by country Freeport McMoRan. This compares to under 38% in both the aluminum and copper markets. Antofagasta Tinto. CNIA. 4% Teck Cominco.S. which are be- lieved to be over reporting output. In 2009. Chinese output dropped sharply last year. a year-on-year de- cline of nearly 19%. WBMS. Thompson 4% Creek Metals. imports of molybdenum into China soared.

Despite the rise in molybdenum prices.S. Longer term. 40 40 16 35 35 14 12 30 30 10 25 25 8 20 20 6 4 15 15 2 10 10 U. which is rumored to be enacted this year. However. Projects located in hostile environments require materials that optimize corrosion and abrasion resistance in addition to other value-added metallurgical characteristics. as the steel industry accounted for nearly 70% of total demand in 2009. may become an obstacle for Chinese producers. Stainless steels accounted for the largest share of total demand. Molybdenum Price (VAT-adjusted) 0 5 5 -2 Chinese Molybdenum Price 0 0 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Note: Not adjusted for transport costs. Demand for molybdenum is heavily influenced by steel production. Molybdenum Prices (VAT- Bi-weekly. molybdenum demand is expected to continue to rebound over the coming months. when prices averaged $15. Chinese output this year is likely to come in below 2008 levels. Bi-weekly. Source: Metals Bulletin. which would only be applicable on imports into China. which in the past has smoothed out seasonal demand flows. at 26%. growth may exceed levels seen in 2004. CPM Group. Through 26 February 2010 Adjusted) USD/Lb. Through 26 February 2010 45 45 USD/Lb. Another 16% of total demand is attributed to other metallur- 6 . Molybdenum Prices (Metal Content) Differential Between Chinese Ore & U. A mining quota.S. Fabrication demand is set to increase as consumers re- stock their raw material inventories. Not only are there significant costs associated with dewatering flooded mines.60. end-users outside China still appear either unwilling or unable to amass previous levels of inventories. The differential is computed with a VAT adjustment. However. the intensity of molybdenum use will continue to edge higher. Molybdenum-bearing alloys provide these enhancements. Last year both the metallurgical and non-metallurgical sectors sought to closely match purchases of molybdenum both in time and volume with their actual orders for molybdenum-bearing products. Arbitrage Opportunities Open a Window for Chinese Imports Chinese Ore & U. USD/Lb. Demand Fundamentals In line with the shift in the business cycle.S. Molybdenum consumption patterns therefore may be relatively volatile over the medium term. high inventories of low-cost material and potential mining policy changes are expected to keep growth in Chinese output fairly constrained this year.

0%. the rapid industrialization of emerging economies. Meanwhile. Between 2001 and 2007 molybdenum demand grew at a compounded annual growth rate of 7. This sustained uptick was supported by new molybdenum applications. and other chemical applica- tions. demand may not recover to pre-crisis levels before 2011. Mo- lybdenum is used in virtually every step of the exploration. 2009e Other 6% Stainless Europe Chemical 26% Other 24% 15% 17% Mo Metal & Alloys 7% Japan 12% Cast iron HSLA 3% 10% China USA 33% 14% Other Steels 33% Source: CPM Group ‘Molybdenum Market Outlook’ gical applications such as molybdenum alloys. and produc- tion process. and harder than most of its po- tential counterparts on the periodic table. which has boosted raw material demand. and a growing stainless steel industry. a strong global economy. 2009e Molybdenum Consumption by Region. the structural demand drivers remain favorable for molybdenum: These include:  Relative energy supply scarcity requiring a build out in energy infrastructure. and cast iron. Molybdenum Demand Molybdenum End-Uses. pigments. The remaining share is consumed in catalysts. supply expanded at a slower pace than demand. high performance alloys. development. After the 2009 lull. However. Molybdenum is more resistant to high temperatures. lighter. In addition to the expansionary economic environment. 7 . The metal’s unique properties continue to be criti- cal in meeting the expanding demands of today’s infrastructure projects.  The ongoing industrialization of emerging markets.5% molybdenum demand growth this year. lubricants. an improving demand environment and fab- ricator restocking could result in 12. These countries tend to be dependent on robust fixed asset investments to maintain economic performance. which resulted in higher molybdenum prices.

S. While Chinese exports of finished steel have picked up.5 million pounds compared to net exports of 46.70 in April. Last year Chinese demand for overseas metal pushed molybdenum prices to $18. China Chinese buying has been a key support for the molybdenum market over the past year. China also shifted from being a net importer of some finished steels in early in 2009. Apparent demand for molybdenum surged in 2009 as inventories were built throughout the supply chain and state-sponsored stocking was encouraged. with U.8 million pounds during 2008. These import levels represent over 20% global production in 2009 excluding Chinese supply. Last year China’s net imports totaled 59. These supplies could be re-exported over the coming months. which could effectively exert downward pressure on prices. however. This year the price differential between China and the United States is widening. Supply cuts at high–cost Chinese molybdenum mines coupled with robust stimulus spending and changes in monetary policy turned the country into a net importer as of January 2009. molybdenum prices earning a premium over Chinese prices (VAT-adjusted). The reality of overstocking cou- pled with restarted domestic production will likely result in lower Chinese import levels and possibly some re-exporting. Inventories of molybdenum- bearing steels also have risen sharply.00 in August from their low of $7. ab- sorbing the rest of the world’s excess metal. Real demand.  Molybdenum’s advantages as an alloy in a world where new projects are increas- ingly being built in corrosive environments such as on the deep-sea and other de- manding environments. was significantly less than apparent demand figures would suggest. slower inventory builds throughout the supply chain contributed to softer prices in the fourth quarter of 2009. However. 8 . steel inventories are high.

does not account for inventory changes Source: CPM Group. Million lbs. Customs General China Puzzle: Stock Overhang or Robust Demand? Chinese Molybdenum Market Million lbs.000 Net Imports 3.000 -2. Customs General 9 . 2010.000 1. does not account for inventory changes Source: CPM Group. 2009 Steel data through Jan. 30 12 Chinese Finished Steel Market Chinse Trade (RHS) Production Million Mt Million Mt Apparent Demand 25 8 70 10 Net Exports 60 8 20 4 Net Exports 50 6 15 0 40 4 30 2 10 -4 20 0 Chinese Trade (RHS) Net 5 -8 10 Chinese Steel Production Imports -2 Apparent Demand Net Imports . -12 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Jan-07 Oct-07 Jul-08 Apr-09 Note: Mo data through Dec. National Statistics.000 Net Exports -4. Antaike. CISA. -4 .Major Shifts in Chinese Molybdenum Trade Metric Tonnes 4.000 -5.000 2.000 0 -1.000 J-07 M-07 S-07 J-08 M-08 S-08 J-09 M-09 S-09 Other Mo products Mo waste & scrap Mo wire Mo bar & section Unwrought Mo Mo powder FeMo Other molybdate AMT Mo oxide/hydroxide Raw Mo concentrate Roasted Mo concentrate Note: data through December 2009.000 -3.

on a global basis the second quarter typically displays the greatest growth in output of these steels. Out- put in Europe also exhibits strength over the first quarter. The shift toward value-added specialty steel production should continue as well. The former Soviet Union also has been increasing its in- tensity of use. However. and provide a strength-to-weight advan- tage. A similar length recovery was seen following the 1979 and 1991 recessions.the source of roughly 33% of the world’s molybdenum fabrication demand. calibrating supplies to market conditions and demand fundamentals. This year restocking by steel mills is forecast to be one of the key drivers for molybdenum demand. Cyclical downturns can have deep impacts on steel demand. molybdenum is employed because of its superior resistance to high chloride levels. While these historic examples suggest looming near term road blocks to a molybdenum price recovery. carbon. These government- backed projects will continue to flow through the market this year. However. While seasonal strength for fabricated products like crude and stainless steel differs regionally. much like the post-war re- construction phase and the revitalization of the Japanese economy. Stainless Steel Stainless steel. oil and gas. molybdenum is typically added to iron. In stainless steels. Molybdenum-bearing stainless steels are resistant to corrosion and heat. which will be critical in keeping the steel sector on the path toward recovery. the largest end-use segment. if the robust economic expansion in China begins to stall. 10 . transportation. Improved market sentiment stemming from the cyclical upturn combined with seasonal demand in the second and third quarter is forecast to lead to the first round of producer restocking and stronger prices. accounted for roughly 26% of global molybde- num demand in 2009. less than 3 years after the United States fell into the most severe and protracted global downturn since World War II. tungsten. Molybdenum also can be com- bined with other alloys. and heavy machinery. CPM Group is forecasting that the steel industry will return to pre-recession levels in 2011.Steel Industry The steel industry is at an inflection point. private sector capital expenditures could remain subdued over the coming quarters and fiscal stimu- lus measures are expected to be distributed by the end of this year. including niobium. The steel sector remains in a structural growth phase driven by the industrialization and urbanization of emerging markets. and vanadium. and/or nickel. In coastal and de-icing salt environments. Robust steel demand in emerging mar- kets is expected to be the main growth driver for molybdenum demand. in major OECD economies. chromium. Emerging markets will continue to demand large quantities of steel as they proceed with their respective industriali- zation and urbanization processes. The steel industry took seven years to recover after the 1929 recession. particularly in China -. the global steel market could slip into an L-shaped recovery. These properties make it indispensible for a range of industries including construction. Western world steel producers continued to buy molybdenum on the spot market during 2009. the unprecedented levels of fiscal and monetary stimulus has helped mitigate the contractions in key steel producing regions. This buying pat- tern is likely to continue this year.

2010 Year-on-Year Change 40% 30% 20% 10% 0% -10% -20% -30% 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Source: World Steel Molybdenum Demand Poised For Recovery Mo Demand Forecast by Steel Category YoY Change 2007 2008 2009e 2010p 20% 15% 10% 5% 0% -5% -10% -15% Full alloy Stainless Carbon Tool HSLA -20% Source: CPM Group ‘Molybdenum Market Outlook’ 11 . 1991 through Jan.Steel Production Stages Strong Recovery Monthly World Steel Production Jan.

650 500 Steel Demand Emerging Bearish View 1.2000 -10% 10 450 300 100 150 50 0 0 1900 1912 1924 1936 1948 1960 1972 1984 1996 2008 Source: CPM Group. World Steel. through 2009p Million mt Million lbs. USGS.1988 -15% 9 200 600 150 1991 .History Paints a Bleaker Picture for Steel Demand Global Steel Demand and Molybdenum Production Yearly. RMD. mt Ten thou.1937 -58% 7 250 750 1979 .200 Japan 350 Period in Steel trough Demand demand 1.500 Economies 450 Molybdenum Mine Post War & China % # of yrs to 1.350 400 Industrialization / Decline regain pre- Production (RHS) 1. data through 3Q 2009 Year-on-Year Change Ten thou. MEG. 1. mt 50% 850 300 Total Steel Inventories 40% Long Products Only (RHS) 30% 700 250 20% 10% 550 200 0% -10% 400 150 -20% Europe & Africa -30% The Americas 250 100 -40% Asia -50% -60% 100 50 Jan-07 Jan-08 Jan-09 Jan-10 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Source: ISSF. Industry sources Steel Stocking Trends Changes in Regional Stainless Steel Steel Inventories Held by Traders in China Production Weekly. data through 5 February 2010 Quarterly.050 300 900 1929 . Antaike 12 .

high inventory levels and a slow demand recovery in the OECD may be enough to cap upward price moves. Oil has traded in the $75 . Nymex. US$/Barrel 20% 40 160 Molybdenum (LHS) 15% 35 140 Crude Oil (RHS) 30 120 10% 25 100 5% 20 80 0% 15 60 -5% Chinese Oil Demand 10 40 -10% World Oil Demand (ex. transmission. Oil prices still seem likely to trend higher over the next five to 10 years as demand growth is matched with higher cost production. Through Jan. EIA. Inventory levels now appear strained and orders for raw materials are trending higher as a result. The implementation of stricter sulfur content regulations coupled with greater production levels of higher sulfur crude is supportive of increased molybdenum demand. in pipe- lines. however.8% in 2011. the stainless steel industry is slated to slow its capacity expansions after the last few years of large capital ex- penditures. distribu- tion. resulting in less accumulated inventories. the prospects for non-OECD oil demand are bullish. and in power plant construction in addition to refinery catalysts.000 barrels above the 2007 level.The stainless steel sector is due for a robust bounce back after coping with a relatively long period of destocking. Over the short term. which could limit price surges. and generation infrastructure is supportive of strong molybdenum de- mand fundamentals. By 2011. Going forward. with most of the increase after the second half of 2010 as demand growth re- sumes. Energy Sector Earning its status as the energy metal. China) 5 20 -15% Global Mo Demand 0 0 -20% 1995 1998 2001 2004 2007 2010 2002 2004 2006 2008 2010p Source: CPM Group. OPEC is expected to produce into the price rally.86 million barrels per day. global oil demand could amount to 86. which began in the second quarter of 2007. The build out of production. Platts 13 . The Energy Information Administration projects that global crude oil demand could in- crease by 1. However. The Energy Metal Price: Molybdenum and Crude Oil Molybdenum and Oil Demand Monthly. 2010 YoY % Change US$/Lb. In this recent economic slowdown.4% year-on-year in 2010 and by 1. Prices are ex- pected to rise.$80 recently after falling to $35 at the end of 2008. steel producers slashed production in response to the swift change in demand. molybdenum demand is closely related to both energy production and consumption. Molybdenum is used in offshore drilling platforms. nearly 725.

Similar to other base metal contract launches. While the LME contracts ultimately may become the key benchmarks for prices.5 billion — is larger than tin and cobalt but represents just a fraction of total copper.000 1. aluminum.400 Cobalt Molybdenum 1. gained traction only after the fall of the Soviet Union prompted aluminum dealing banks to turn to the LME. A similar shift occurred in nickel after a supply disruption. The LME contract provided dealers with the ability to buy excess inventory and hedge their resulting exposure. a supply shock or other unforeseen cathartic events may be needed for market participants to find the LME a useful instrument for dealing with unusual market conditions.400 1.000 Moly Copper 800 800 Lead Lead 600 600 Zinc Nickel Nickel 400 400 Zinc Aluminum 200 200 Copper 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 .200 Tin Aluminum 1. For example. As the chart below illustrates. which have the highest trading volume by contract of any LME exchange-traded metal. and nickel supplies. Theoretical arguments about whether the presence of exchange-traded contracts contribute LME Launches a Molybdenum Contract Indexed Molybdenum and LME Cash Base Metals Prices LME Metals Market Value of Global Refined Supply Monthly. widespread ac- ceptance of the LME price is unlikely to occur immediately. One of the biggest concerns of the metals industry thus far has been that investors will con- tribute to volatile price swings as thin trading volumes can wreak havoc on these small mar- kets. 20 40 60 80 100 120 US$ Billions Source: Platts. Aluminum contracts. producers and con- sumers will have access to a liquid forward curve to better manage molybdenum price risks.200 1. The new contracts bring various benefits and risks to the industry. 2005 . If trading volumes reach sufficient levels. LME 14 .LME Molybdenum Contract Launch The London Metal Exchange launched contracts for molybdenum on 22 February. through January 2010 Annual Average. Market commentary has focused on the large non-commercial positions in tin. the market value for molybdenum’s physical supplies — slightly more than $11. by-product producers may seize opportunities through a variety of hedging strategies while consumers will be able to better manage their input costs.2009 Index (1 Jan 2000 = 100) Index 1. An exchange-traded con- tract will facilitate price transparency in a market presently dependent on dealer-to- consumer published prices.

some substitution could be triggered. This was the case when nickel prices spiked to $50. After the three-month soft launch of the LME’s minor metals contracts.3 weeks. Based on stockpiling seen in other base metals markets. measured in weeks of consumption. Market Balance Molybdenum demand is likely to rebound much more quickly than supply from new mine production can be brought on stream. Since molybdenum is considered a strategic metal. physical holdings of the metal are not reported by most governments. Most of these entities are not required to disclose their holdings. These non-sticky inventories are revealed in CPM Group’s 2009 market surplus. CPM Group projects that the molybdenum market surplus may be slashed by more than two-thirds this year before moving back into a deficit in 2011. drums are a more costly storage options than bags. Molybdenum oxide and ferromolybdenum from previous years of mining surplus are estimated to be held at government stockpiles.to price volatility or diminish it have raged for decades. There is no definitive answer as to whether hav- ing a commodity trade on an exchange increases or decreases that commodity’s price vola- tility. a significant portion of these supplies may be categorized as strategic stocks. inventory data was not readily available. and in the working inventories at mining companies. This year the market surplus is expected to increases inventories.000 in 2007 and the stainless steel industry sought lower nickel steel grades. even if they can hedge these input costs. investors. Ideally. which will help mitigate environmental factors such a moisture contaminating the molybdenum oxide. inventories will be stored in drums rather than bags. If prices deviate too far from underlying supply and demand dynamics. deliveries and with- drawals from LME registered warehouses will be reported on a daily basis. As mentioned previously. For molybdenum. The contract launch also has spurred debate over quality control and costs. ware- houses. roasters. 15 . there are few projects that fall under CPM Group’s probable and committed category for the next three years. but the remainder of these supplies could be slowly brought back on to the market or consumed. fabricators. Inventory Analysis Until the launch of the LME molybdenum contract. With the lack of project financing. there has been significant stockpiling in China throughout the supply chain. by 1. there is no clear winner in this debate: Price volatility of non-exchange traded commodities has been in line with that of commodities traded on exchanges. Statistically. not investment demand. However. consumers want their raw material prices to reflect real demand.

4% from 2009.50.2% in 2010. the growth in global molybdenum demand could rise to a 15- year high of 12. Seasonal restocking by stainless fabricators in Europe and buying by other steel mills ahead of the LME contract pulled prices above $17 in the middle of February.12 in 2009 as the sharp correction in prices in the first half of the year weighed heavily on the annual average price.cpmgroup. and the po- tential for increased investor interest on the LME should help underpin molybdenum prices at higher levels. Fairly low stock lev- els in the market. For additional information. CPM Group’s complete Molybdenum Market Study is available for purchase.com or contact Adam Crown. real prices declined to average $11. A de- tailed table of contents is available at www. 16 . while mine supply may increase 6. e-mail moly@cpmgroup.com. As fabri- cators continue to restock. The molybdenum market is projected to be in a narrow deficit in 2011. following six years of recent supply deficits (excluding 2009). Real prices in 2010 may average $17. With these gains already factored into the market. up 57.Outlook Under these supply and demand conditions.5%. Executive Vice President of CPM Group at (212) 785-8324. prices may appreciate moderately in the remainder of 2010.

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