Supply squeeze sparks 122% rally in little-known metal market

A key benchmark for molybdenum — which boosts the performance of alloys in pipelines, jet engines and power-generation turbines — surged 122% in the past year to 5,510 yuan ($799) a ton, as of Wednesday. Much of that gain has come just in the past few months. The rally is being driven by a series of supply disruptions and growing demand from the renewables and military sectors.

“The molybdenum market has been caught in a perfect storm,” said Grant Sporre, an analyst at Bloomberg Intelligence. “Strong demand from the energy sector has boosted demand for alloyed steel products, while there have been disruptions in the supply side.”

The silver-gray metal is typically extracted as a by-product of copper mining by companies like Freeport-McMoRan Inc., Antofagasta Plc and Southern Copper Corp. Much higher molybdenum prices are buffering those companies from high costs and slightly lower copper prices. For Freeport, the top producer, a $5 change in molybdenum prices translates to $375 million in cash flow.

The rally is also a way for mining companies to fight inflation given byproduct revenues are deducted prior to calculating cash costs for the primary metal.

Not surprisingly, producers have been keen to tout molybdenum, or moly for short, this earnings season.

Antofagasta Chief Executive Officer Ivan Arriagada said this week that moly “provided us an interesting revenue stream” as water restrictions in Chile restrained copper output. Southern is looking at opportunities to lift moly output with the market “supported by global supply shortages and strong demand in China and the US,” said Chief Financial Officer Raul Jacob.

Moly’s price surge has also meant that some stainless-steel producers have already been forced to cut output, according to researcher Shanghai Metals Market.