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DJ Phelps Dodge: Demand For Molybdenum Should Remain Robust
[March 16, 2006]

DJ Phelps Dodge: Demand For Molybdenum Should Remain Robust

(Comtex Business Via Thomson Dialog NewsEdge)By Allen Sykora
Mar 16, 2006 (Dow Jones Commodities News via Comtex) --Officials with Phelps Dodge said Thursday that they look for molybdenum demand to remain strong in 2006 after prices hit record highs in 2005.

"Demand in the chemical segment should continue to be strong and steel demand is expected to approximate 2005 levels, led primarily by continued strong demand out of China," said Dave Thornton, president of Phelps Dodge's Climax Molybdenum. He outlined the price history of molybdenum during a presentation to the investment community.

The average monthly price over the last two decades was $5.57 a pound, he said.

"Over this 20-year period, prices exceeded this average only 16% of the time - 39 months out of 240 months," he said. "Of these 39 months, 31 of them occurred since June 2003."

The gain in the last two years has been so dramatic that if these two years were removed, then molybdenum was averaging only $3.51 per pound, he said. Over the last 20 years, the price moved from a low of $1.88 a pound in December 2002 to above $35 in 2005.

Thornton explained that the global consumption rate has increased over the past several years above the 15-year trendline of approximately 3%. China's demand has been growing faster than the rest of the world, due to its rising steel-production capacity.

Approximately 33% of global molybdenum use is by the steel industry, followed by the chemical industry with 20%.

The surge in molybdenum prices has meant some risk of substitution materials for certain applications, particularly the chemical segment, Thornton said.

"In metallurgical applications, substitution concerns are not as robust due primarily the ability of steel producers to pass through metal surcharges in their base prices," he said. Also, the price of alloys that could be used as substitutes has also risen.

There have been shifts in molybdenum production in the last quarter century, most notably more output from China and an increase in molybdenum as a by-product from other mining operations, Thornton said. In fact, in 2005, an estimated 66% of the world's molybdenum production was from by-product sources.

Thornton pointed out that the supply/demand balance was impacted last year by a lack of Western roasting capacity.

"With the recent upturn in Western molybdenum production rates during 2004 and 2005, we saw a concentrate conversion bottleneck occur as existing Western roasting capacity could not keep pace with the surge in Western concentrate production," he said.

The end result is that some excess concentrate was sent to China for processing, he explained. This was possible due to a production disruption in China, he added.

Additional Western roasting capacity did come on line in the middle to latter part of 2005 and more is planned for 2006 and 2007, Thornton said.

Additional global by-product production also is expected this year, along with increased Western roasting capacity, he said.

-By Allen Sykora, Dow Jones Newswires; 541-318-8765; [email protected]

(END) Dow Jones Newswires

03-16-06 1809ET

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