Panicked Buyers to Drive Molybdenum Price and Moly Stocks Higher

There is presently a growing panic amongpower condenser market these days."
molybdenum traders. From our sources, it appearsJanikowski agrees, "We know of only one new
reduced inventories have been overpowered bypower plant sited or built in the past ten years in
rushing demand for the silvery-white 'energy metal.'North America using copper-nickel tubing. All of the
On the day before the Ryan's Notes metalsother new plants have chosen stainless steel or
conference at the New York Athletic Club ontitanium. Some existing power plants are still re-tubing
Tuesday, our sources told us moly traders arewith copper-based tubing but this percentage is
sweating, scrambling to find inventory. One told us,dropping." Because of the high price of titanium and
"$50 per pound molybdenum is a heartbeat away."nine-month (or longer) lead times, stainless is
This would represent an increase of nearly 50outpacing titanium by four to one for such tubing.
percent from present pricing.The high price of nickel and the far lower price of
How did this tightly controlled, somewhat secretivechromium are driving manufacturers to rely more
and closed market get out of control?upon molybdenum for the improved thermal
Record nickel prices are one of the key drivers.performance required in many power-related
Scarce inventory has forced ThyssenKrupp AG, theapplications. The crossover to secondary water for
world's largest stainless steel manufacturer, to startcooling power plants demands a high level of
reducing the company's use of nickel. Further cutscorrosion-resistance not found in many replacement
are being contemplated.metals. Of course, molybdenum is best-known for its
Finnish austenitic provider Outokumpu plans toanti-corrosive properties.
increase production of ferritic stainless steels. FerriticInvestment Opportunities in Molybdenum Companies
steels continue to use molybdenum, but areAt this time, there are less than a full handful of
nickel-free. Outokumpu recently released aprimary molybdenum producers. The majority of
low-alloyed duplex stainless steel, trademarkedmolybdenum production comes as a byproduct of
LDX2101, with low nickel content, but balanced withcopper mining. A year ago, we forecast the rise of
manganese, nitrogen and molybdenum. Alleghenyprimary molybdenum producers. Shares in companies
Ludlum began campaigning for greater manganesewe began covering a year ago, such as Thompson
use earlier this year in stainless steel products.Creek and expectant producer Roca Mines, have
According to the International Stainless Steel Forum,appreciated exponentially.
the fastest growing type of stainless are thoseHow much upside is left? This depends more upon
grades absent the nickel content, or with lesser nickelthe price of molybdenum than any other factors. A
in the composition.year ago, moly companies were kneeling in their
In yesterday's article, we covered the soaringprayer boxes, hoping molybdenum would not sink
substitution of super-ferritic stainless steels forinto the teens. Back then, we argued it would go in
copper-nickel and austenitic condenser tubes inthe opposite direction. Industry forecasts were less
nuclear reactors, coal-fired power plants and othersanguine and suggested we were mistaken.
power plants.About eleven months ago, we talked with Michael
Plymouth Tube general manager Dan Janikowski toldMagyar, the USGS molybdenum commodity specialist
us, "This year, at the pace we are going, we will sellabout pricing of the metal. He explained, "The
more of this tubing than we've ever sold before. Wemolybdenum market usually needs about 10 to 12
are working at a record pace." He was referring toweeks of inventory for its comfort level." That
the high chromium, low nickel stainless steel tubecomes to about 60 to 80 million pounds. "The amount
called UNS #S44660, which contains 3.7 percentof moly floating around right now, in the hands of
molybdenum.producers and traders, might be about 10 million
The S44660 tubing is presently used in Lakepounds." About two weeks of production.
Maracaibo's PDVSA collection towers (Venezuela) andIn November 2006, Magyar told us, "There is not
in the U.S. government's Strategic Petroleum reservesenough excess to rebuild inventories." Clearly, the
for cooling gas and/or crude when utilizing sea ormoly supply climate got tighter since we began
brackish waters.coverage on this space.
This week, Janikowski meets with General Electric toIn the May 2007 Monthly Stainless Steel Report
discuss plans for reactor condenser tubing for nuclearprepared by Damstahl®, the company forecast
power plants to be constructed for Entergy andthat molybdenum ore supply is expected to increase
Dominion. Recently, his company won the contractorby only 12 percent to 460 million pounds by 2009.
to supply tubing to China's Qinshan #2 reactor. HeThe Danish stainless steel manufacturer wrote, "The
estimated condenser tubing for new power plantsmarket will remain tight for some time." This
can range between 35,000 and 41,000 pounds ofcompares with a statement one trader made to
molybdenum.American Metal Market magazine in late May, "The
Our research shows there could be more than 1,000demand is there but the supply isn't."
power plants constructed around the world over theOn May 29th, the supply got tighter. The recently
next decade. This quantity of molybdenumIPO'ed Sprott Molybdenum Participation Fund
consumption alone would represent about one year'sannounced the purchase of 600,000 pounds of
of current mining production. China is reportedlymolybdenum. Eric Sprott, who has been promoting his
constructing between one and two power plants permoly fund in the media, has reached legendary status
week.among Canadians for his prescient investing in the
According to Janikowski and Edward Blessman,uranium sector three years ago. For example, one of
technical director of Trent Tube, the major businessSprott's favorite uranium companies, Energy Metals
with respect to the North American power plantCorp, announced on Monday it would be acquired by
market comes from re-tubing worn-out or erodedUranium One at more than 1000 percent from the
copper-nickel tubes in the plant's steam condensers.level where the fund manager began acquiring the
These come in the form of life extensions for bothcompany's shares.
nuclear and fossil fuel plants. "Two-thirds of ourWe believe Sprott will repeat his success in the
activity is in re-tubing existing plants," Blessman toldmolybdenum market.
us. "Scarcity of water is driving the re-tubing."This past week, Sprott told Canada's Business
New water rules in Nevada, New York, Missouri, IowaTelevision, "Our view is that moly, which at one time
and Arizona have forced power plants to use treatedtouched $40, could have a very good chance of
sewage water as cooling water. Utilities can't getgoing back there again." He believes inventories have
fresh water to use in cooling their plants.been depleted and that demand has already
Blessman explained that secondary water, such asexceeded supply.
waste water, can have elevated levels of hydrogenOne of the molybdenum companies in which Sprott
sulfide, ammonia and chloride. These chemicals punishhas invested is Roca Mines. We talked with Scott
copper-nickel tubing. The highly corrosiveBroughton, chief executive of this company. He
water-environment has driven the replacement foragreed with Sprott, "Current demand for
super-ferritic stainless steel tubing. Janikowski andconcentrates is clearly outpacing supply."
Blessman agreed this trend is expected to accelerateBroughton knows this because his company will be
because of lessened water availability.mining and milling at the MAX molybdenum deposit in
Nowhere is this scarcity more evident than in theBritish Columbia this summer. "We have gotten
Middle East. They both agreed this region has run outsignificant, recent interest from Asian and North
of fresh water and are using sea water or treatedAmerican buyers," he told StockInterview. "Those
waste water in their district cooling and refrigeration.buyers are both end-users and metals brokers
We spoke with Otto Spork, who had been travelingdesperately seeking off-take, despite the fact that
in Europe. His Toronto-based Sextant StrategicRoca Mines already committed its production for
Opportunities Fund was recently ranked the2007."
'best-performing Canadian fund' over the past twelveSome are not surprised at the molybdenum price's
months with 117-percent returns for that period.strong rally over the past year. Adanac Molybdenum
Spork, who had been traveling through the MiddleCorp's executive vice chairman Larry Reaugh told us,
East to promote his recently launched Global Water"I've been watching the moly story unfold since our
Fund, confirmed there was no surplus fresh waterexploration days in the mid 1990s. The usual market
left in Saudi Arabia, Bahrain or the United Arabdemand will be further upwardly affected through
Emirates. He called the situation 'desperate." This hasnew usage created by environment, energy and
driven more countries in this region to constructwater requirements in emerging economies in Asia,
more desalination plants - another potential key driverSouth America and the Middle East."
for the molybdenum price.Reaugh, who follows the sector like a hawk, believes
Another key factor driving the molybdenum demand,the molybdenum price will eclipse the previous 2005
according to Blessman, is the growing number ofhighs, as early as this summer. (Top-rated fund
regulations about copper discharges into themanager Otto Spork, mentioned earlier in this article,
environment.has molybdenum exposure through his fund's
Blessman explained, "Federal limits are one parts perinvestments in Adanac.)
million, which is very easy to meet with copper alloyPioneering moly commentator Ken Reser is
tubes." But he added, "Localized limits, mostly stateoverjoyed with recent developments in the market
driven, could be much more stringent." Blessmanplace, but insists, "Moly prices have a fair ways to
pointed to the 12 parts per billion (ppb) dischargeclimb yet as more new uses and realities of
limits recently issued for new permits at threemolybdenum demand present themselves." Reser,
NIPSCo (Northern Indiana Public Service) coal-firedwho also serves as a research consultant to Adanac,
plants which discharge into Lake Michigan. He told usbelieves molybdenum could become front page news
this was reported at the Champaign Electric Utilitysoon, as we have found in the uranium mining
Chemistry workshop last month. "I know of anothermarket.
plant here in Wisconsin with 45 ppb limits.But Reser warns, "Many investors are going to be
What we didn't realize is the impact of corrosiveburned by the rainbow chasers and fly-by-nights." We
water on copper-nickel tubing. Janikowski told us,agree because we've seen the number of uranium
"Condensers weighing 800 thousand pounds at'mining' companies grow from 30 to more than 400,
installation weigh about one-half as much because ofsince we began covering this space. Most lack the
all the copper discharges over time."technical expertise or deposits required to commence
These discharges can eventually pose a danger andmining operations.
or downtime during the power plant's operation. In aNonetheless, we anticipate this growing interest in
paper Janikowski presented at an industry workshopmolybdenum mining companies will continue to attract
in 2003, he wrote, "The copper can replate onherds of investors. In a recent article, we prepared a
turbine blades, resulting in loss of efficiency, or on'ratings checklist' for investors to utilize when
boiler tubes, resulting in premature failures. In someevaluating the smaller, and possibly prospective,
North American regions, high discharge levels havemolybdenum juniors. As a reference case, we
prevented the reuse of copper alloys in power plantreviewed United Bolero, which met our coverage
heat exchangers."criteria. For other possibilities, one can review
"Copper-nickel isn't totally out of use, but the highStockInterview's Molybdenum HQ.
cost and copper release issues have cut into theCOPYRIGHT© 2007 by StockInterview, Inc.
amount used," Blessman told us. "My personalALL RIGHTS RESERVED.
estimate is these are less than 20 percent of the