Baltimore, MD-The future of molybdenum is very promising, especially with the recent surge in the energy sector. Consumption of moly will increase over the next decade. And its wide applicability will increase demand. Although you may not be able to pronounce molybdenum, I assure you that's not a requirement for investing in this silvery white metal.
Moly is primarily used in alloys, catalysts and electrodes. It is highly effective at hardening steel. When alloyed with steel, moly helps it endure both high and low temperatures. As a result, this metal is highly valued for use in nuclear power plants, oil drill rigs and oil or natural gas pipelines.
Stainless steel accounts for up to 25% of the demand for moly. It gives it more resistance to corrosion. The auto industry uses moly-coated steel to give their cars a longer life.
Demand for moly as a catalyst is expected to grow over the next few years. This is due to stricter vehicle emission regulations.
So where exactly does it come from?
According to the International Molybdenum Association (IMOA), China holds 43% of the world's moly reserves, followed by the U.S. with 28%. Total global reserves are estimated at 19 million tons.
The countries that produce the most moly are the U.S., Chile and China. The IMOA reports that over 400 million pounds were produced in 2005. That's a 16% increase from the previous year.
Moly only occurs naturally combined with other elements, mostly in sulfide minerals of other metals-particularly copper.
But due to the current metals boom, moly is an excellent extra bonus. The price has skyrocketed since 2000. At that time it was trading at $2 per pound. Just last week the price for molybdenum oxide averaged $25.25 per pound.
That's an increase of 1,162%!
Riding the Energy Wave
The reason I like moly so much is because of its benefits in the energy sector-more specifically for its future use in the oil and natural gas industries.
The IMOA says, "Molybdenum additions up to 7% strongly improve the corrosion resistance of stainless steels in a wide variety of environments. It is especially effective in improving pitting and crevice corrosion resistance in chloride containing environments."
This means it is highly desirable in the oil and gas industry for strengthening their drilling rigs and pipelines.
Offshore oil exploration is going to be the next big thing. Major oil companies will need to push farther and deeper to find the next giant oilfield. At the moment there is only half the amount of drilling rigs that existed in the early 80s.
And the environment of future drilling locations is getting harsher. Drilling in arctic temperatures will put a major strain on equipment. Moly will help the steel drills survive longer in Arctic temperatures.
Moly will also be vital for deep-water drilling. It can save the oil companies millions by preventing corrosion from saltwater.
The length of pipelines being constructed this year is enough to wrap around the earth three times!
Play This Lasting Bull
There are several ways to invest in molybdenum. Two thirds of mine production is conducted by just ten companies. And moly can help diversify your portfolio.
One example is Idaho General Mines, Inc. (AMEX: GMO). They are setting up to be a significant player in global molybdenum production. Within the next two years, Idaho is expecting to begin production at their Mount Hope project. This site holds about 1.3 billion pounds of recoverable moly.
That makes it one of the largest molybdenum properties in the world.
But the real test for moly is whether it can sustain its high price.
Since nearly 75% is used for metallurgical purposes, the price of steel needs to stay high. Demand is fueled mainly by China. Last year it grew approximately 10%. And the forecast for steel prices this year remains positive.
Copper and nickel reached record highs in 2006. Moly can be extracted at practically no cost from the former and used to help strengthen the latter.
The price of molybdenum was expected to drop from $24/lb to $20/lb this past year. But as I said earlier, it actually jumped higher. And the commodity boom we are currently experiencing will only bolster future prices.
Until next time,
Keith Kohl |
