The race is on…
World leaders are scrambling to gain control of global molybdenum assets on speculation that China will cut exports.
China is the world's largest producer of molybdenum, supplying over a third of global supplies. But growing domestic demand may prompt the Chinese government to restrict exports…
This may cause the price of molybdenum to rise significantly in 2011, and lift share prices of primary producers.
China moves to secure molybdenum resources
China has been a net buyer of molybdenum for the year, importing over 5.5 million pounds of the strategic metal used to harden steel.
| China produced about 160 million pounds of molybdenum in 2009. This year, analysts expect Chinese molybdenum to increase nearly 20% to 190 million pounds. |
Despite being the world's largest supplier, China may be forced to continue importing molybdenum in 2011.
The country's recent economic stimulus package — which focuses on infrastructure — will continue to require a large supply of molybdenum for high-strength steel to be used in bridges, power plants, and pipelines.
This will continue to have a significant impact on global molybdenum supplies. And China has already recognized the importance of securing molybdenum resources…
Last month, the Chinese Ministry of Land and Resources reported it was planning to set up strategic reserves for 10 metals — including molybdenum and rare earth metals.
The Chinese government recently showed its commitment to helping the domestic market secure molybdenum supplies. Just a few months ago, the gov't accelerated a financing approval for Hanlong Investments, a privately-owned Chinese company, to fund the development of General Moly's (AMEX: GMO) Mt. Hope project.
General Moly (AMEX: GMO)
Hanlong Investments will purchase 25% of General Moly for $80 million and procure a $665 million loan from a Chinese bank. The total funding from the Hanlong transaction is anticipated to fund all remaining capital requirements for Mt. Hope, currently the largest and highest-grade primary molybdenum project in development.
Primary producers like General Moly and Thompson Creek Metals (TSX: TCM) will receive a premium because molybdenum is usually a byproduct of copper production, which is usually fixed.
Thomson Creek Metals (TSX: TCM)
The price of molybdenum has increased 12% over the past four months, with molybdenum oxide currently trading on the London Metals Exchange for $32,500 per tonne — or $14.75 per pound.
Molybdenum prices should remain strong in 2011 if Chinese demand remains robust; analysts believe prices could reach as high as $23-$24 per pound next year.
China has imposed mining quotas in the past and may curb exports again in 2011, which could greatly affect prices.
Molybdenum miners have already made significant gains due to supply concerns globally…
And primary molybdenum miners, like General Moly and Thomson Creek, may see continued growth for their assets in 2011 as demand accelerates.
Good Investing,
Luke Burgess
Analyst, Wealth Daily
Investment Director, Hard Money Millionaire and Underground Profits
