Shadow of volatility, questions over concs production hang over molybdenum markets: LME Week
The future is clouded for molybdenum markets into the end of 2023 and beyond, sources have suggested, as uncertainties persist around concentrates production and consumption, with the potential for knock-on effects on molybdic oxide and ferro-molybdenum. As LME Week approaches, Fastmarkets take a deep dive into production dynamics
The alloy and oxide markets are no strangers to volatility, with Fastmarkets’ twice weekly assessment of the price of ferro-molybdenum 65% Mo min, in-whs Rotterdam and molybdenum drummed molybdic oxide 57% Mo min, in-whs Rotterdam both seeing major volatility throughout 2021 and 2022.
This year, alloy and oxide markets have seen even more pronounced volatility, at least part of which has been linked in recent months to the upstream situation in Chile and Peru, which are among the major production hubs for molybdenum.
Drought in Chile and social unrest in Peru were cited among the reasons for the decline in molybdenum production in the two countries, contributing to record high ferro-molybdenum and molybdic oxide prices, along with decreased imports of the alloy from South Korea and Armenia.
By January this year, the wide spreads and large swings that have characterized price moves for much of 2023 had begun to emerge, and in February, ferro-molybdenum prices had hit $101-110 per kg Mo in Rotterdam.
This marked the first time the price had breached $100 per kg Mo since June 2005. Around the same time, molybdic oxide prices in Rotterdam reached $39-40 per lb Mo, the highest since May 2005.
Since then, both prices have seen rapid, albeit less dramatic, movement, with ferro-molybdenum at $x in Rotterdam as of per kg Mo and molybdic oxide in Rotterdam at $x per lb Mo as of October 6.
Participants in molybdic oxide and ferro-molybdenum markets in Europe have also described muted spot activity because those converting molybdic oxide to ferro-molybdenum face tight margins, and a weak steel market adds pressure on sellers.
The upstream influence
The influence of the upstream market has been undeniable, with fluctuations in the molybdenum concentrate market at the root of some of the most pronounced volatility in alloy and oxide prices this year.
But whether there will be a deficit of concentrate this year or next is far from clear.
On the one side, a trader was relatively convinced of a shortage.
“[I think] this year will be the third year in a row of deficits for molybdenum,” the trader told Fastmarkets. “[It could be] about a 4% deficit, which would be quite significant.”
A second trader added that the potential deficit could be 25 million-30 million lb, although they added that it was uncertain whether this will come to pass or not.
In 2022, according to data published by the International Molybdenum Association (IMOA), total output globally was 577.8 million lb. Assuming output remains flat in 2023, a difference between output and consumption of 25 million lb would put the disparity between the two at 4.23%.
“It is quite hard to tell. With China figures, we can never quite tell. For this quarter, [it seems] there’s a bit more coming from some places, with new mines now producing. If that continues into the fourth quarter, there could be a bit more output than was originally expected,” the second trader said.
“My feeling was that there could be a bit more this quarter, but not enough to make up for [shortfalls]. The market is still tight,” the second trader continued, adding that going into next year there has been a lack of consensus over whether the market will be balanced or will see a small deficit.
“I think it is a bit unlikely to be balanced,” the second trader said. “Any changes are likely to be to the downside on production.”
This could contribute to ongoing elevated prices next year, they suggested, although it will also depend partly on how the European market performs, as cost concerns and inflationary pressures persist. Importantly, it will also depend on China.
China absolutely dominates this market. What’s going on in China is the key to the whole thing.
“China absolutely dominates this market. What’s going on in China is the key to the whole thing. I do think the market is still going to be tight in the fourth quarter and into the first quarter of next year,” the second trader said.
“There’s no resilience. Unless demand is dropping, which it isn’t likely to, there isn’t a lot of back up. It doesn’t take much for something to impact on the supply side,” the second trader added.
On the other side of the argument, a third trader suggested there was almost no chance of a deficit.
“I definitely don’t see a shortage of concentrate,” the third trader said. “If we go by annual consumption, [I think] that’s going up by about 3% next year, but from this year to next year, you also have Teck and Anglo [potentially producing more].”
The third trader stressed, meanwhile, that they did not see plain sailing ahead for the molybdenum market.
“Will the market be tight? Probably. Then also with the cost of financing, I think premiums this year will be high. Next year, it won’t be a smooth ride,” the third trader said.
Another key consideration is demand, a fourth trader told Fastmarkets.
“It’s very unpredictable. China is the biggest in terms of supply and consumption, but the domestic market information is not easy to access,” the fourth trader said.
“It’s very hard to judge what’s actually going to happen to the market [even] a few months from now. All in all, it’s proved it can be very volatile.”
What does global concentrate data show?
Data published by IMOA has shown falling production in 2021 and 2022, while consumption rose while industrial activity returned to normal in the wake of the Covid-19 pandemic. But the most recent figures, covering the first quarter of 2023, show something of a shift.
In 2021, according to IMOA data, global production of molybdenum was 581.4 million lb, down 3% year on year, while global consumption was 614.3 million lb, up 14% from 2020.
In 2022, global production was 577.8 million lb, down 1% from 2021, while global consumption was 631.5 million lb, up 3% year on year.
This suggests a disparity in output versus consumption in 2021 of 5.5%, and a disparity of 8.9% in 2022.
In both 2021 and 2022, China was the largest producer and the largest consumer of molybdenum, while South America was the second largest producer and Europe the second largest consumer, the figures showed.
In IMOA’s data for the first quarter of 2023, global production was down 3% quarter on quarter to 146.8 million lb, although this was up 6% year on year.
During the quarter, global consumption was also down, falling to 144 million lb, a decline of 8% quarter on quarter, and 6% year on year, according to IMOA.
In this period, China was the only producing region to see an increase in output, at 67.2 million lb, up 3% quarter on quarter and 14% year on year, the IMOA figures showed. At 41.2 million lb, South American production was down 7% quarter on quarter and 2% year on year.
China remained the largest user during the first quarter of 2023, but its consumption also saw the largest decline for the period, at 56.1 million lb, down 19% quarter on quarter and 14% year on year. Meanwhile, Europe – the second largest consumer – saw increases in consumption of 5% quarter on quarter and 8% year on year.
IMOA does not publish forecasts on total molybdenum output and does not comment on the global molybdenum market.
What do upstream production figures show?
In 2022, Chinese producer CMOC, for example, posted output of molybdenum metal of 15,114 tonnes and sales of 16,044 tonnes. Production was down 7.76% and sales were down 3.13%.
For 2023, the company posted guidance of 12,000-15,000 tonnes, although there was no commentary on the reason for the projected figure.
Poland-headquartered KGHM, which has a 55% stake in the Sierra Gorda open-pit copper and molybdenum mine in Chile, said in its assumptions for its 2023 budget that it expected 5.7 million lb of molybdenum production during the year, on a 55% basis.
KGHM holds its stake in the mine alongside South32, which holds the remaining 45% as of February 2022.
In 2022, based on its stake, KGHM posted molybdenum output from Sierra Gorda of 2.9 million lb, compared with 8.2 million lb in 2021. The decline was linked to lower molybdenum grade in the processed feed, leading to lower recovery rates and in turn lower metal production, Fastmarkets understands.
Meanwhile, US-headquartered Freeport McMoRan, which describes itself as the world’s largest producer of molybdenum, reported 85 million lb of production in 2022, flat against the year before, and up from 76 million lb in 2020.
In its second-quarter earnings release, the company said it was expecting 79 million lb of molybdenum sales in 2023, which will be roughly equivalent to the amount it produces, Fastmarkets understands. The earnings release did not go into detail on the reason, but it is understood to be linked to mine sequencing and grade.
Chilean state-owned copper miner Codelco said in its annual report for 2022 that it produced 20,498 tonnes of molybdenum during the year, down from 21,045 tonnes in 2021, and has provided guidance of 18,000 tonnes for 2023, and 17,500-18,500 tonnes in 2024. It also cited the prolonged drought in the country as one of its strategic risks.
The company cited delays on structural projects, and especially the Chuquicamata Underground mine, along with “operational issues” as reasons for the decrease in molybdenum output.
London-headquartered, Chile-focused Antofagasta saw molybdenum output of 9,700 tonnes in 2022, down from 10,500 tonnes the year before, although it is projecting 10,000-11,500 tonnes of production in 2023.
It cited the drought in Chile as a contributing factor, along with a decline in throughput and grades at its Los Pelambres mine, although its Centinela mine saw increased molybdenum output following an increase in grades. The higher overall production expectation in 2023 is based on higher throughput at Los Pelambres in particular.
At Rio Tinto, which produces molybdenum at its Kennecott operations in the US, production figures in its 2022 annual report showed declining molybdenum output year over year, from 20,400 tonnes in 2020, to 7,600 tonnes in 2021 and 3,300 tonnes in 2022.
Production guidance figures were not available for 2023, although as of July, Rio Tinto had reduced its refined copper estimate for the year to 160,000-190,000 tonnes, from 180,000-210,000 tonnes, as the completion of the rebuild of the Kennecott smelter was pushed back to September, from August.
At the same time, additional production from companies including Teck Resources and Anglo American is expected to enter the market in the coming months.
Teck, for example, posted a total of 2.5 million lb of molybdenum production in 2022, but was guiding 4.5 million-6.8 million lb in 2023, according to its annual report for last year, as output from its Quebrada Blanca operations in Chile will be included in the total. In the 2024-2026 period, the guidance figure grows to 14 million-24 million lb.
London-headquartered Anglo American produces molybdenum as a byproduct at its operations in Chile, and will also see output from its Quellaveco operations in Peru.
Total production, including Anglo’s output in Chile from Los Bronces and its 44% stake in Collahuasi, was 5,600 tonnes in 2022, up from 5,400 tonnes in 2021, Fastmarkets understands.
Meanwhile, according to its website, Quellaveco’s molybdenum plant will process 100% of the copper concentrate produced at the mine to obtain molybdenum concentrate at 52% purity, with an estimated output of about 10,000 tonnes per year once the plant is at full capacity.
In the first half of 2023, Quellaveco produced 760 tonnes of molybdenum, although this does not reflect the full half year period, as the plant only came into production after the start of the year, Fastmarkets understands. In total, across all its operations, Anglo produced 3,160 tonnes in the first half.
Australia-headquartered miner MMG, whose molybdenum output comes from its Las Bambas mine, also in Peru, has also seen a major increase in payable metal in molybdenum sold in the first six months of 2023 versus the same period in 2022.
The figure rose from 1,437 tonnes in the first half of 2022, to 2,039 tonnes in the first half of 2023, with fewer road blockages reported in 2023, and greater stability along the Southern Corridor in the country. Las Bambas had suspended operations for more than 50 days in 2022 as a result of social unrest.
Fastmarkets’ analyst view
With all this in mind, what does this mean for the molybdenum market this year and into 2024?
“Molybdenum markets have this year been pinned between slack demand and ongoing supply concerns following underperformance from a number of major miners, particularly in South America, over the last several years,” Fastmarkets analyst Harry Riley-Gould said.
“The result has been that ferro-molybdenum prices have been broadly stable in a rough $50-60 per kg range since April, up from an average of around $27 per kg over 2013-2022.”
This dynamic is expected to continue for at least the next six months, Riley-Gould said, in light of widespread headwinds to downstream steel demand and little sign of a sharp near-term recovery in production volumes.
But uncertainty remains high… the market is prone to volatility in the absence of reliable data from major production and consumption centers such as China.
“But uncertainty remains high and as the price surge in the early part of the year demonstrated, the market is prone to volatility in the absence of reliable data from major production and consumption centers such as China,” he added.
“Longer term, recovering production volumes should bring prices closer to historical average levels, although we currently expect [alloy] prices to remain elevated through to the end of 2024.”