Molybdenum rises on renewed buying, supply disruption

Molybdenum and alloy prices in Europe have staged a rally in recent weeks as China has resumed buying and a conflict in the Nagorno-Karabakh region threatens spot supply from the former Soviet Union (FSU).

European prices for 65-70pc ferro-molybdenum have led the increase, rising by over 10pc to $22.30/kg duty unpaid in warehouse Rotterdam today, up by $20.25/kg from 5 October.

Many market participants anticipate alloy prices to rise to $25/kg by the end of the year, which is likely to drag prices for oxide higher. Converters are increasing their premium terms in spot contracts to achieve higher margins — around 2pc plus $0.70-0.90/kg — which could imply theoretical near-term prices of around $10/lb for oxide at Rotterdam duty unpaid.

Long positions have been capitalised on as ferro-molybdenum stocks have dwindled in Europe and China over the past month. This tightness in supply came just as Chinese buyers returned to the market with the intention of restocking and the move remains profitable as prices stayed $2.38/kg below the two-year average.

The market is also facing supply tightness for raw material, molybdenum oxide powder, amid growing concerns regarding the conflict between Azerbaijan and Armenia over the disputed Nagorno-Karabakh region. The Kajaran deposit is an open-pit mine run by the Zangezur Copper Molybdenum Combine (ZCMC) and one in which Cronimet has a 60pc stake acquired in 2005. The mine operates at an ore rate of 12.8mn t/yr and the deposit is estimated to hold 5.22mn t of copper and 0.72mn t of molybdenum.

Oxide powder remains scarce, with one market participant noting that "if you're able to buy [material] in either Busan or Tianjin, you can sell it before the ink [on your purchase order] is dry."

The supply crunch in Europe has been exacerbated by Chinese buyers looking abroad to bolster stocks and fuel a recovery from Covid-19 outages. Prices for 57pc oxide have risen by 10.4pc over the past 10 days in Rotterdam to a seven-month high of around $9/lb duty unpaid in mid-October. Still, prices at this level remain $1.30/lb lower than the two-year average.

Chinese buyers bought large amounts of molybdenum oxide during the 2008 financial crisis as demand from the rest of the world collapsed because of a lack of available credit. China also stockpiled large amounts of lower-grade material from the international markets in anticipation of future demand despite holding 48pc of the world's 17.3mn t in deposit, according to the International Molybdenum Association.

With this shift in buying fundamentals, oxide prices rose from $32.60/lb on 31 December 2007 to $33.40/lb in the first nine months of 2008, before ex-China demand crashed to yield average prices of $16.11/lb over the rest of the same calendar year. The Covid-19 crisis has presented Chinese buyers with a similar opportunity to the financial crisis of 2008, although the cause is clearly different.

By Maximilian Court