October 11, 2010 / 3:29 PM / 7 years ago

LMEWEEK-Fundamentals favour molybdenum over cobalt -CPM Group

* Molybdenum demand rising, supplies fail to keep pace * China's cobalt stocks to add downward price pressure

By Michael Taylor

LONDON, Oct 11 (Reuters) - Production of molybdenum will fail to keep pace with robust demand, resulting in firmer prices in the coming years, while China's large stocks of cobalt will weigh on prices, commodities research firm CPM Group said.

Between 2009 and 2012, consumption of molybdenum, an ingredient in making steel, is set to grow by 9.2 percent, Catherine Virga, director of research at CPM Group, said on Monday at the London Metal Exchange (LME) conference.

"There are few probable (molybdenum) projects expected until 2013, and even then there is a significant amount of risk to (those) projects," Virga said.

"Molybdenum prices might not see much of a (price) pick-up until re-stocking resumes in the first quarter of next year," she added.

On the European spot markets, molybdenum oxide MLY-OXIDE-LON traded at around $15.20 a lb, down from $18 a lb touched in April, its highest since late 2008.

China is the world's largest producer of molybdenum, accounting for about 35 percent of the market estimated at more than 425 million lbs. [ID:nLDE65G1BX]

Stainless steel producers account for about 26 percent of global consumption.

Virga said that a new molybdenum mining quota from China for 2011 is expected to be released shortly.

"China shifted back to being a net exporter of molybdenum in the second quarter of 2010," Virga said. "We do see prices reflecting the cyclical re-stocking and de-stocking trends in the steel market.

Re-stocking of steel could lead to mine re-starts, with Chinese production rising over 11 percent this year, Virga added.

"(But) demand for molybdenum is expected to recover at a much swifter pace than supply," she said.

"(Growth in) annual molybdenum demand is supposed to average 10.2 percent between 2010/2011, that's compared to 3.9 (percent) from mine supply. Any bottlenecks in bringing new supply online will move the market into a deeper deficit," she added.

COBALT OVERSUPPLY?

LME launched futures contracts for molybdenum and for cobalt, which is used to make aero engines and batteries for hybrid cars, on Feb. 22. [ID:nLDE64I1J7]

Three-month molybdenum MOD3=LX was quoted at $30,500/$37,500 a tonne at 1230 GMT, compared with a last trade at $33,000 on July 28.

Three-month cobalt CBD3=LX was quoted at $38,000/$38,900 a tonne, down from a previous trade at $39,000 on Oct. 8. Low-grade cobalt 99.3 COB-ING-LON traded at about $19.25 a lb.

The majority of new supplies of cobalt that are forecast to come online are sourced from the Democratic Republic of Congo, Virga said.

"Potential supply disruptions in Congo could actually lead to prices running up towards $25 at the end of the year," Virga said.

"However, even if you look at some of the probable projects in this politically instable region, you could see the market moving into over-supply in the next couple of years."

Virga added that outside of the DRC, the majority of cobalt is sourced from by-product producers.

Only around 10 percent of global cobalt production is from primary operations, with the nickel industry accounting for around 35 percent.

Virga said that higher copper, nickel, and platinum prices are increasing supplies of by-product cobalt production.

"We do think the market is going to move into a much wider surplus this year," she said on cobalt. "Overall demand fundamentals are optimistic for 2011, but with the high levels of Chinese stockpiles and the fact that ... supply coming online, cobalt prices could turn a bit south. "We have prices in 2011 falling to an annual average of $18 per lb or $39,700 per tonne." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a factbox on cobalt, click: [ID:nLDE6960ZM] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Michael Taylor; editing by Jane Baird)

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