U.S. miner General Moly Inc sees the molybdenum market poised for a rebound with a pick up in demand growth and limited new supply sending prices to a peak in 2012, said Chief Executive Officer Bruce Hansen.
Demand for the minor metal, used as a strengthening and anti-corrosion agent in steel, should increase as low inventories get replenished, China turns net importer and consumers start to increase purchases, he said.
On the supply side, limited growth of copper mines with molybdenum as a by-product and disciplined output cuts at both primary and by-product molybdenum mines following sharp declines in global demand should help support prices, Hansen told the New York Society of Securities Analysts recently.
"Moly inventories have remained low and are projected to remain relatively low going forward, partly because there are no new primary moly mines currently in development," he said.
"And we've seen the Chinese, who historically have been net exporters, turn net importers after shutting some high-cost operations and buying Western moly-oxide production," he said.
Citing analysts' average forecasts, he said, molybdenum prices should peak in 2011 to 2012 in the $18 to $22 a lb range, with long-term averages ranging from $13 to $15 a lb.
Molybdenum oxide prices MLY-OXIDE-LON rose to $10.25 a lb in June from a five-year low around $8 in April, but remain well below last year's high at $34 per lb.
General Moly sees only a small 0.4 percent annual growth rate from 2008 to 2013 for copper in the Americas, where much of the by-product molybdenum is mined.
"From a macro standpoint, I think it's the best time to be thinking about investment in base metals," said Hansen.
"I think we're close to the trough in the economic cycle. If we're not there, we're pretty close," he added.
The CEO said the slumping steel market is already showing some growth, especially stainless steel which was significantly destocked even before metal prices crashed last fall.
About 40 percent of molybdenum demand comes from the energy sector and General Moly thinks it will continue to be a robust growth area for the metal.
For example, he said, "As we see higher sulphur feed stocks, we see the push to ultra-low sulphur diesel and that's been one of the fastest growing segments of moly consumption."But current slowness has prompted General Moly to postpone development of its own Mount Hope molybdenum mine in Nevada.
About 60 percent of the project's basic engineering was completed last July, but the company is still moving forward with equipment orders for mills and roasters requiring long lead times and expects to complete permitting by mid-2010.
Hansen said Mount Hope will stay, "in a conserving cash mode until the molybdenum price gets into the mid-teens. At those type of prices we generate significant returns."The mine has direct operating costs of $5.23 per lb of molybdenum assuming an oil price of $80 a barrel.
Once Mount Hope starts up, it has capacity to produce an average of 40 million lbs per year in the first 5 years, with proven and probable reserves of 1.3 billion lbs of molybdenum.
He said the company was aiming to start producing by 2012.
General Moly's Liberty mine, also in Nevada, was previously mined and is now in the prefeasibility study stage.
Liberty can produce 20 million lbs of moly and 18 million lbs of copper by-product a year. Its operating costs come to $6.0 per lb of molybdenum, with reserves of 500 million lbs.