London, 04 March 2009 - The global molybdenum market is expected to register a surplus of 10 million pounds this year, although this could be wiped out if Chinese production growth is less than expected, Douglas Horn, analyst at consultants CPM Group said on Wednesday.
In a broad annual market of 460 million pounds, this is a manageable surplus, which suggests an average price of between $10.50/11.00 for molybdenum oxide (MO3) this year, rising to $16 next year and over $20 in 2011, he said at at a conference organised by the LME and Metal-Pages.
MO3 is currently languishing around $8.50/9.00 a pound, close to its lowest since June 2004, having collapsed from early-September 2008 levels of some $32 a pound.
China accounted for 38 percent of world production in 2008, but its output growth has been slowing, due to many high cost and low-grade mines having to cut back. This trend will continue, although production is still seen growing by six percent this year.
"But if production growth is flat in China, that surplus will disappear, which is encouraging," he said.
The near-75 percent price drop, which was a result of the steep cutbacks in steel production -- molybdenum's key end-use -- has already seen some 30 million pounds of capacity being cut back, and more are possible, Horn said.
"The sharp correction in both molybdenum and copper prices may continue to spur significant slashes in output at existing producers."
"Project financing will remain an uphill battle for practically all of the potential new primary producers and expected copper by-product producers. Extended delays in financing may result in the cancelation of equipment orders and defaults on obligations," he added.
Demand has also been hit by the recession, and steel production cuts will continue to depress molybdenum sales until demand picks up significantly.
"Stimulus packages in China, the US, and other countries will help mitigate the cyclical downturn but will not replace private sector demand," Horn said.