Molybdenum Markets

The highest natural arch in the world is 25 miles southwest of Kashi, Xinjiang, China. It’s made of sandstone and nearly 1,200 feet tall. Eric Shipton (1907-1977), the famed British mountain climber, “discovered” the arch in 1947.

Of course, he really didn’t “discover” it in the usual sense. Local Chinese had known about the arch for hundreds of years. It just escaped Western notice until Shipton’s arrival. Shipton had a long resume of climbing mountains all over the world, from Mount Kenya to India’s Kamet. In his book Mountains of Tartary, though, he got the location of the arch mixed up. So when a team from the Guinness Book of World Records set out years later to verify the existence of the arch, they couldn’t find it. So the arch was “lost” again.

It wasn’t until 2000 that a National Geographic team found it again. As National Geographic Adventure reports: “It beggars belief that a significant wonder of the world could remain missing in an age of satellite imagery, but there it is.” So we discovered the arch, lost it and discovered it again. Of course, it hadn’t moved all the while.

And that gets us to element 42. It’s called molybdenum, or “moly” for short (pronounced “molly”). It’s a metal that, like other natural resources, has been around a long time. People thought it was some sort of lead compound. It was, however, officially “discovered” by German-Swedish chemist Carl Wilhelm Scheele in 1778. Even then, it took a while before we figured out what to do with it. So essentially, moly was lost yet again.

Fast-forward a bit into the modern, smoke-belching world of steel and oil. Steel producers and energy companies know all about Scheele’s discovery. Steel producers use it to strengthen steel. But only recently, due to a number of factors, has the market rediscovered this metal — in a big way. In fact, some are now heralding moly as the “energy metal.”

The moly market has long been one marked by sleepy indifference. The price of moly wandered under $5 per pound for most of the ‘90s and in the first couple of years of this century. But this once-drowsy backwater has suddenly become a frenzy of deal-making and price spikes. At work are the usual suspects, supply and demand.

Moly has many uses. For the most part, it’s used to reinforce steel of all kinds. It has a growing use in oil and gas pipelines. It takes about 1.6 million pounds of moly for every 1,000 kilometers of pipeline. Just for a frame of reference, there is something like 80,000 kilometers of pipeline in the planning stages globally. That’s a lot of moly.

Moly’s big push toward new highs will come from booming energy markets. All of the trends in the energy world play well in moly’s favor. Deeper drilling and longer pipelines to find and access more remote oil and gas will consume a lot of moly. Then there is ocean exploration. Just think of all those deep-water platforms sitting out there in the rolling, watery plains of the Gulf of Mexico and the North Sea. They need moly, too. The increasing reliance on heavy oils and tar sands, which are corrosive fuels, is good for moly — which has anti-corrosive properties.

Oil refiners use moly as a catalyst to reduce the sulfur content in crude oil. Government mandates require lower sulfur content in gasoline and diesel fuels — which bodes well for moly demand. About 95 percent of all oil refineries use moly in this way.

Nuclear plants also use moly for pipes. In fact, mandates now require moly on all pipe refits to existing plants. The majority of existing plants are about 22-44 years old, so refits will be big. Plus, there are hundreds more on the drawing board worldwide. A nuclear plant requires about 400,000-500,000 pounds of moly. So I certainly don’t see demand weakening there.

Plus, there are many more uses of moly. It’s used in cars to build lighter, stronger and more fuel-efficient vehicles. In a way, moly is a “green metal” — if such a thing is possible — because of its role in reducing “greenhouse gases.” It has other unique properties valuable in making pigments, corrosion inhibitors and lubricants.

The neat thing about this is that substitution is difficult. So even though the price of moly is up a lot, it has not affected demand much. That’s also due to the fact that most applications require a relatively small percentage of moly relative to overall cost. So its cost to, say, a refinery, is a lot more than it was, but is still small compared with overall costs.

And there are few substitutes for moly. I expect the moly market to remain tight at least through 2009.

Chris Mayer
May 9, 2008

The Daily Reckoning