China Craves Molybdenum

“For the first time in years, the Chinese have become net importers of molybdenum,” reports Chris Mayer in his latest Special Situations alert. Moly, if you are unfamiliar, is a lynchpin of the energy complex. It’s a vital resource for oil pipelines, nuclear reactors and fuel refiners. Above all, moly is used to strengthen steel.

“China recently became a net importer of moly because its mines are too costly to run profitably at current low moly prices. Various estimates put about half of China’s moly production at costs north of $13 a pound. The current moly price is only $8 and change — down from $30-plus last year, mainly as energy markets softened. So there have been a lot of shutdowns in China, as Chinese producers can’t make any money.

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“China is the world’s largest producer of steel, by far. No one’s even close. China produces nearly 40% of the world’s steel. It makes twice as much steel as the No. 2 guy, the European Union. Much of that steel will need moly.

“Therefore, any rebound in moly is bound up in the China growth story. In fact, over the past five years, Chinese demand for moly has grown 27% annually, compared with only 4% globally. China alone now makes up 25% of the global demand for moly — about 110 million pounds.”

Thus, if you believe in the China boom, concludes Chris, “molybdenum is a winner, albeit one that is temporarily resting, like a basketball player taking a breather before he steps back on the court. All the elements that pushed moly to $30-plus per pound in the first place are still in place for yet another run at three sawbucks or better. Molybdenum is cheap at $8 per pound.”

“Despite this year’s slowdown, we continue to believe strongly in the Asia story,” adds our colleague Frank Holmes, just back from a trip to Singapore. “Rapid urbanization, an expanding middle class and government policies that promote prosperity are among the factors that we see as driving future growth in that region.

“China’s spending to build out its infrastructure has gotten a lot of attention, but that emphasis is a key government initiative in many Asian countries. Construction cranes are a common sight in Singapore, where the government has committed to spending more than $40 billion over the next three years on new roads, public housing and other infrastructure projects

“One of the biggest projects now under way in Singapore is the Marina Bay Sands hotel and casino, which I could see from my hotel window. Look at all of the cranes:

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“This will be the country’s first casino, following a change in its gambling laws last year, and its first step toward its goal of becoming the Monte Carlo of Southeast Asia.

“This construction, which is valued at more than $3.5 billion, is providing jobs for thousands of workers and consuming many thousands of tons of steel, cement and other commodities. Similar work is under way across Asia, and many more projects are in the pipeline.”