Molybdenum is consumed in a broad array of chemical and metallurgical applications spanning the energy, transport, construction, chemical, medical and electronics industries. CRU’s Samuel Hayes discusses the ongoing supply deficit and its market implications. Samuel is editor of CRU’s Molybdenum Market Outlook, a comprehensive service which provides detailed forecasts for supply, demand, costs and prices for the next five years.
South American molybdenum supply declined in 2022
With 58% of 2022 global concentrate supply originating from by-product operations, molybdenum production is highly dependent on South American copper mining operations. Despite strong Q4 production, supply from the Americas suffered in 2022, declining 9% year-on-year (y/y), driving the 0.8% decrease in global mine supply.
Southern Copper’s Toquepala has halved Mo output y/y in 2022 Q3, reducing 2022 output by 20% y/y as a result of lower grades. Sierra Gorda mine similarly reduced production throughout 2022, reporting lower metal content in mined ore, lower recovery and a lower volume of ore processed. Codelco, too, has reported lower output from El Teniente and El Salvador.
Political disruption is also threatening to continue to choke supply. The Las Bambas’ operation faces disruption by ongoing protests from the local community due to continued political instability and protests since the ousting of Pedro Castillo in December 2022. Blockades and issues transporting supplies threaten both production and exports, with the current extent of the disruption yet to be uncovered.
South American supply has trended downwards in 2022 despite a strong 2022 Q4.
Data: Cochilco, Peruvian Ministry of Energy and Mines, CNFEOL, CRU
As a result of falling production, global mine supply has been in a deficit since 2021 Q1. Global stocks have reduced steadily from a high of 199 Mlbs to 117 Mlbs as of the end of 2022 Q4, equivalent to 66 days of consumption. The outlook is heavily dependent on new projects delivering increased supply, with the global balance not expected to return positive until 2024.
Continuing deficits throughout 2023 are expected to support oxide prices until further supply from projects narrows the gap in 2024. Greater volatility is expected in pricing with drawdowns in working inventories to continue.
Sentiment around the supply deficit as well as recent disruptions in Peru have led to significant recent rises in pricing. Corrections in March suggest that recent pricing in part has stabilised, with previous rises at least in part a result of traders capitalising on market uncertainty.
Continued high pricing may drive more primary supply
Primary mines have historically provided 40-50% of molybdenum supply, with most primary operations driven by
Chinese greenfield investment to respond to strong domestic demand.
Opportunities for new primary mine operations outside of China have previously been slim, with by-product producers historically not reacting to low pricing due to integrated production processes, maintaining low incentive pricing.
However, with EU molybdenum oxide prices averaging $31/lb in February, previously unattractive projects may warrant revisiting. Greenland Resource’s Malmbjerg project utilised an incentive price of $18/lb Mo in their Definitive Feasibility Study, published in April 2022. The proposed mine, located on the remote eastern coast of Greenland, could become Europe’s first significant molybdenum source and benefit european stainless producers with more available supply from an EU associate country with unquestionable ESG standards alignment.
Centerra Gold’s Endako and Thompson Creek mines may also warrant review given high price incentives. The North American mines acquired by Centerra Gold in 2016, were placed into care and maintenance in 2014-2105 given weakness in the molybdenum price at the time. Centerra Gold previously commented that the mine operations would be evaluated as market conditions warrant.
Reduced Oil & Gas investment threatens moly demand
US oil industry activity vs molybdenum oxide price. Data: CRU, Baker Hughes
The oil and gas sector continues to be the largest and most volatile end-use sector for molybdenum. Consumption from this industry depends largely on demand for moly-bearing oil country tubular goods (OCTG) products, which is predominantly driven by investment in the construction of oil rigs, platforms, refineries and pipelines.
Oil & gas investment appears to be declining in North America. In January, the IEA stated their expectation for global crude oil demand to rise to an all-time high in 2023 to a record 101.7 million barrels a day, whilst Russian supply is expected slow under the full impact of European sanctions.
US crude production has increased significantly to 12.3 M b/d; however, activity indicators have continued to stagnate. The Baker Hughes rig count reduced to its lowest since September 2022 while Brent has been trading around $78 to $83 /bbl, continuing its decline from highs in 2022 Q2.
Molybdenum demand growth by sector. Data; CRU
The Energy Information Administration has forecast continued increases in oil & gas production in 2023, however commented that US drillers remain cautious and show no signs of increased activity at the start of 2023.
CRUs in-house economic group forecasts that oil prices are expected to continue to decline through 2023 and into 2024 because of a building supply surplus and only moderate oil demand growth expected from China and the West. Continued low brent pricing provides little incentive for investment in oil and gas, expected to provide downward pressure on moly demand.
Future demand is expected to be driven by renewables – especially in China. China added 145.1 GW of renewable energy in 2023 against the rest of the world’s 172.6 GW according to the IEA. Consumption of moly bearing steels in wind, estimated at approximately 140kg moly contained /MW installed wind capacity, as well as in solar will continue to provide some optimism for molybdenum end use demand.
Conclusion
The global supply deficit is expected to continue for molybdenum throughout 2023 and into 2024. Continued volatile pricing is expected, with continued market corrections resulting from speculation on disruption in South America,
Longer term prospects are expected to remain mixed. Oil and gas investment in the west is expected to decline, presenting downside risk for molybdenum prices. Future demand will be driven by moly intensity in renewable technologies such as wind turbines and EVs. While short-term prospects are poor in the oil and gas industry, moly consumption should continue to find support from this sector going forward. However, a sustained period of low oil prices currently represents the most significant downside risk to our moly demand forecast.
Samuel Hayes
Molybdenum market analyst, CRU
Contact samuel.hayes@crugroup.com for more information on CRU’s Molybdenum services.
