Molybdenum prices to rise on market uncertainty

There is presently a growing panic among molybdenum traders. From our sources, it appears reduced inventories have been overpowered by rushing demand for the silvery-white 'energy metal.' On the day before the Ryan's Notes metals conference at the New York Athletic Club on Tuesday, our sources told us moly traders are sweating, scrambling to find inventory. One told us, "$50 per pound molybdenum is a heartbeat away." This would represent an increase of nearly 50 percent from present pricing.

How did this tightly controlled, somewhat secretive and closed market get out of control?

Record nickel prices are one of the key drivers. Scarce inventory has forced ThyssenKrupp AG, the world's largest stainless steel manufacturer, to start reducing the company's use of nickel. Further cuts are being contemplated.

Finnish austenitic provider Outokumpu plans to increase production of ferritic stainless steels. Ferritic steels continue to use molybdenum, but are nickel-free. Outokumpu recently released a low-alloyed duplex stainless steel, trademarked LDX2101, with low nickel content, but balanced with manganese, nitrogen and molybdenum. Allegheny Ludlum began campaigning for greater manganese use earlier this year in stainless steel products.

According to the International Stainless Steel Forum, the fastest growing type of stainless are those grades absent the nickel content, or with lesser nickel in the composition.

In yesterday's article, we covered the soaring substitution of super-ferritic stainless steels for copper-nickel and austenitic condenser tubes in nuclear reactors, coal-fired power plants and other power plants.

Plymouth Tube general manager Dan Janikowski told us, "This year, at the pace we are going, we will sell more of this tubing than we've ever sold before. We are working at a record pace." He was referring to the high chromium, low nickelstainless steel tube called UNS #S44660, which contains 3.7 percent molybdenum.

The S44660 tubing is presently used in Lake Maracaibo's PDVSA collection towers (Venezuela) and in the U.S. government's Strategic Petroleum reserves for cooling gas and/or crude when utilizing sea or brackish waters.

This week, Janikowski meets with General Electric to discuss plans for reactor condenser tubing for nuclear power plants to be constructed for Entergy and Dominion. Recently, his company won the contractor to supply tubing to China's Qinshan #2 reactor. He estimated condenser tubing for newpower plants can range between 35,000 and 41,000 pounds of molybdenum.

Our research shows there could be more than 1,000 power plants constructed around the world over the next decade. This quantity of molybdenum consumption alone would represent about one year's of current mining production. China is reportedly constructing between one and twopower plants per week.

According to Janikowski and Edward Blessman, technical director of Trent Tube, the major business with respect to the North American power plant market comes from re-tubing worn-out or eroded copper-nickel tubes in the plant's steam condensers. These come in the form of life extensions for both nuclear and fossil fuel plants. "Two-thirds of our activity is in re-tubing existing plants," Blessman told us. "Scarcity of water is driving the re-tubing."

New water rules in Nevada, New York, Missouri, Iowa and Arizona have forced power plants to use treated sewage water as cooling water. Utilities can't get fresh water to use in cooling their plants.

Blessman explained that secondary water, such as waste water, can have elevated levels of hydrogen sulfide, ammonia and chloride. These chemicals punish copper-nickel tubing. The highly corrosive water-environment has driven the replacement for super-ferritic stainless steel tubing. Janikowski and Blessman agreed this trend is expected to accelerate because of lessened water availability.

Nowhere is this scarcity more evident than in the Middle East. They both agreed this region has run out of fresh water and are using sea water or treated waste water in their district cooling and refrigeration.

We spoke with Otto Spork, who had been traveling in Europe. His Toronto-based Sextant Strategic Opportunities Fund was recently ranked the 'best-performing Canadian fund' over the past twelve months with 117-percent returns for that period.

Spork, who had been traveling through the Middle East to promote his recently launched Global Water Fund, confirmed there was no surplus fresh water left in Saudi Arabia, Bahrain or the United Arab Emirates. He called the situation 'desperate." This has driven more countries in this region to construct more desalination plants – another potential key driver for the molybdenum price.

Another key factor driving the molybdenum demand, according to Blessman, is the growing number of regulations about copper discharges into the environment.

Blessman explained, "Federal limits are one parts per million, which is very easy to meet with copper alloy tubes." But he added, "Localized limits, mostly state driven, could be much more stringent." Blessman pointed to the 12 parts per billion (ppb) discharge limits recently issued for new permits at three NIPSCo (Northern Indiana Public Service) coal-fired plants which discharge into Lake Michigan. He told us this was reported at the Champaign Electric Utility Chemistry workshop last month. "I know of another plant here in Wisconsin with 45 ppb limits.

What we didn't realize is the impact of corrosive water on copper-nickel tubing. Janikowski told us, "Condensers weighing 800 thousand pounds at installation weigh about one-half as much because of all the copper discharges over time."

These discharges can eventually pose a danger and/or downtime during the power plant's operation. In a paper Janikowski presented at an industry workshop in 2003, he wrote, "The copper can replate on turbine blades, resulting in loss of efficiency, or on boiler tubes, resulting in premature failures. In some North American regions, high discharge levels have prevented the reuse of copper alloys in power plant heat exchangers."

"Copper-nickel isn't totally out of use, but the high cost and copper release issues have cut into the amount used," Blessman told us. "My personal estimate is these are less than 20 percent of the power condenser market these days."

Janikowski agrees, "We know of only one new power plant sited or built in the past ten years in North America using copper-nickel tubing. All of the other new plants have chosenstainless steel or titanium. Some existing power plants are still re-tubing with copper-based tubing but this percentage is dropping." Because of the high price of titanium and nine-month (or longer) lead times, stainless is outpacing titanium by four to one for such tubing.

The high price of nickel and the far lower price of chromium are driving manufacturers to rely more upon molybdenum for the improved thermal performance required in many power-related applications. The crossover to secondary water for coolingpower plants demands a high level of corrosion-resistance not found in many replacement metals. Of course, molybdenum is best-known for its anti-corrosive properties.