After low prices enticed China to become a net importer of molybdenum, surpluses built up may cause price stagnation in 2011. Steel demand is slated to grow in 2011, just at a slower rate than seen in the past few years.
By Michael Montgomery—Exclusive to Moly Investing NewsMolybdenum forecasts for 2011 are mixed. Steel demand is cooling off in Asia, which helped support the price of molybdenum for the past few years. After the crash of prices following the highs of 2008, China became a net importer of moly in 2009, buoying prices. The lows for moly were around $8 per pound. As China became an importer and steel demand started to pick up, the price rose to a high of around $17 per pound in 2010. Since hitting the high, a correction has taken prices to around $14. The result of the massive imports to China has been a buildup inventories, and a decrease in buying, stagnating prices. It seems that Chinese firms made a good choice to buy up inventory when prices were low in 2009 making the country a net importer. The massive buying of overproduction from mining operations has created stockpiles in China. “Added to excess production of 53Mlb from 2009, the molybdenum market will see a surplus of 100Mlb in 2011", according to Pablo Bascur, managing partner of Chile-based consulting firm MolyExp. Global consumption of molybdenum is under 500 Mlb, so a 100 Mlb surplus is a substantial factor in the market. If this estimate is correct, stagnant prices in 2011 may be the reality. The only factor that could increase the price in a significant way is for western economies to rebound dramatically in 2011. The outlook for major increases in steel demand in the US and Europe is not overwhelmingly positive. One good sign for steel production in the US comes from the The American Iron and Steel Institute. “US crude steel output in the first two weeks of 2011 was 11.2% higher than during the same period a year ago,” reported Noel Deking, for Platts. These numbers only represent the two week period since the start of the year extrapolation for the entire year based on these numbers would be fool hearted. This doesn't mean that individual mining firms can't turn a profit in 2011, many made profits in 2010. There is still growing steel demand in China, as well as the India, and seemingly in North America and Europe, albeit in smaller percentages. The price volatility seen since before the run up to $35 per pound price in 2008, and the subsequent crash, is unlikely to continue in 2011. Price stagnation is a more likely reality.