LONDON, November 8, 2018
LONDON, November 8, 2018 /PRNewswire/ --
Molybdenum prices recovered over the course of 2017, following two successive years of decline. Ferromolybdenum prices slumped in 2015, reaching a floor of US$12.4/kg in November of that year. Although prices started to recover in 2016, the rise was modest and on average, prices in 2016 were still below the previous year's average. This rise continued through 2017, reaching an average of US$23.6/kg in December of that year and a full-year average of US$20.3/kg. There have been further gains in 2018, with prices rising to an average of US$30.8/kg in March of this year, but since then, prices have started to trend lower, albeit slightly. So far in 2018, the ferromolybdenum price has averaged US$29/kg.
Demand for molybdenum in 2017 was 18% higher than a decade previously, thanks mainly to increased use in steel applications. However, there have been other significant changes in molybdenum demand over the same period, namely where this molybdenum is being consumed. In 2007, China accounted for 21% of global consumption, but this share had risen to 36% by 2017. The increase in China's share of consumption in the past decade has been at the expense of other industrialised countries: demand in the USA has shrunk over the same period, lowering the country's share of global consumption from 15% a decade ago to 10% in 2017. Similarly, Europe's share of demand has declined from 33% in 2007 to 25% in 2017, also exacerbated by a modest decline in demand in absolute terms.
Recovery in oil prices has spurred demand for molybdenum, particularly from the steel sector
The molybdenum market endured a sharp slump in demand in 2015 as oil prices crumbled, followed by a weak recovery in 2016 as oil prices stabilised. The decline in activity in the oil & gas sector had a major impact on its requirement for oil country tubular goods, and by extension, on demand for molybdenum.
Oil prices recovered in 2017, however, driving renewed activity in the oil & gas sector. This led to a rise in operating rigs worldwide and so drove up requirements for molybdenum-containing steel products. The rise in operating rigs was centred on North America, which acted as a swing producer, where the average number of active oil and gas rigs rose by 70% in 2017, compared to a global rise of 27%. Operating rigs in other regions did not exhibit the same level of growth: there were marginal falls in Latin America, Europe and in the Middle East. In fact, the only region other than North America to see a rise in operating rigs in 2017 was Asia Pacific. This acceleration in oil & gas exploration activity helped drive a 6.8% y-on-y rise in molybdenum consumption in 2017.
Consumption from the oil & gas sector should continue to grow in 2018, albeit more slowly than in 2017: the number of oil and gas rigs operating worldwide has continued to grow so far in 2018, but at a slower pace than last year. As of September 2018, there were 8.8% more rigs operating worldwide than last year, but total operating rigs are still well below the levels seen during the 2011-2014 period, when crude oil prices were above $100/bbl, compared to around $70/bbl so far in 2018.
Higher demand followed by rise in supply
The improvement in molybdenum demand in 2017 has been matched by a rise in supply. Mined production of molybdenum dropped in 2015 and again in 2016 as primary producers responded to the price weakness by curtailing output, while supply from by-product mines continued to climb. This changed in 2017 when the improvement in demand and in pricing encouraged some primary producers to lift output, while supply from by-product mined rose further.
China remained the largest producer of molybdenum in 2017, thanks to its large primary mines. The country produced 90.8kt of molybdenum-in-concentrate in 2017, of which 57.8kt was from primary sources. Chile was the second-largest producer of mined molybdenum, with supply in 2017 reaching 62.7kt, but unlike China, all this production comes as a by-product of the country's copper mining industry. The USA was the third-largest producer, with an output of 39.2kt, of which 14.5kt came from primary mines.
Prices have risen further in 2018, but is upside limited?
The slide in molybdenum prices in 2015 and 2016 was reversed in 2017, as the demand environment improved. This rise continued into early 2018, when the ferromolybdenum price traded slightly above US$30/kg Mo but has reversed - slightly - in recent months as the market absorbs last year's market surplus. This could limit upside to prices this year, although Roskill still expects a y-on-y rise in prices over the course of the year.
Looking further ahead, demand is expected to continue, which should spur idle capacity to come back online and for new mines to start producing. Until those new projects do come online, however, market deficits are likely in the short term, followed by several years of surpluses as the new supply becomes more than sufficient to meet rising demand. It is only towards the end of our forecast period that a dearth of new projects leads to a slowdown in supply and new - but small - market deficits.
Roskill's Molybdenum: Global Industry, Markets & Outlook, 14th Edition report was published in October 2018. The report is essential reading for anyone needing a comprehensive overview of the industry, with forecasts for supply, demand and prices to 2028.
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