China's Appetite for Molybdenum
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This "energy metal" is used in oil and gas pipelines, drill rigs, and nuclear power plants. Most of the large molybdenum producers are leading copper miners. How can you play the rally in molybdenum?
More than 60 percent of molybdenum mined comes about as a byproduct of copper production. Many commodity investors see the rally in molybdenum prices as an afterthought, because copper has soared. In fact, molybdenum may have strong reasons to remain firm, or continue rising through the rest of this year and into 2007. On July 14th, an official at China’s largest molybdenum producer, Jinduicheng Molybdenum Mining JDC), told Platts news service in Hong Kong that China’s demand would rise “at least 20 percent this year.”
Maria Smirnova was not surprised by this, writing in an email to us, “Chinese industrial production grew at around 18 percent in the first half of 2006, so a 20 percent growth in moly demand is in line with this number.” She added, “In my opinion China alone should not cause the price to spike because it represents only 11 percent of world consumption. So a 20 percent growth in China would add two percent or nine million pounds to the world demand.” Smirnova believes we could see new production of that magnitude come onstream to satisfy the increased Chinese demand.
Some believed moly demand would increase after China announced that the country’s GDP grew by nearly 11 percent in the first half of 2006, about eight percent faster than a year ago. While investors wonder whether China can continue growing at this pace, many Chinese officials aren’t willing to let it slow down. Said Fan Jianping, China’s deputy director of the Economic Prediction Department, told Xinhua news service on July 22nd, “It is not necessary for China to slam on the brakes with all strength because the economy is not overheating to such an extent.” He emphasized officials weren’t worrying about the economic expansion, saying “There is no need to launch a comprehensive adjustment now.”
Demand for molybdenum is rising in China, according to JDC. One reason is the use of moly in the production of steel pipelines. Our coalbed methane research with regards to China, when writing about Pacific Asia China Energy, highlighted why the country would continue requiring pipelines – they plan to increase their dependence upon natural gas to eight percent of the country’s energy mix. More steel pipelines would mean more molybdenum. And JDC has no plans to mine more molybdenum this year than it did the year before. In 2005, China’s top moly miner produced 24 million pounds, about six percent of the world’s total production.
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China's Appetite for Molybdenum
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