Minimizing cost risk
In order to cushion the effects of the volatile price of molybdenum, Chilean molybdenum producer Molymet has adopted a strategy of close cooperation with its customers, coupled with tailored product solutions.
livingmetals: How has the raw material price for molybdenum changed over the past years?
John Graell Moore: In 2015, the molybdenum price fell sharply. In 2014 we were looking at a price of 11.3 US dollars per pound*, but last year it fell to 6.65 US dollars per pound, a fall of a good 42 percent. Despite this fall, Molymet is able to minimize the risks associated with this price volatility thanks to an appropriate financial and commercial framework.
livingmetals: What is causing this trend?
John Graell Moore: Over the past years, the drop in the price of molybdenum has been greater than for other raw materials. Above all, this has to do with the fact that the molybdenum price is strongly linked to the steel industry. And the steel industry is suffering from extreme overcapacity, particularly in China. As the largest producer and consumer of molybdenum, China’s economy is showing clear signs of slowing down. The underlying outlook for the global demand for molybdenum is not positive. There are two main reasons for this: On the one hand there is the slowdown in economic growth in China, the largest consumer of molybdenum in the world. On the other hand, demand has fallen for molybdenum alloy steel pipes, which are used in the oil and gas industry. We nevertheless expect the molybdenum price to recover slightly this year, primarily as a result of a number of port and railway investment projects in China which require heavy-duty steels.
livingmetals: Surely low raw material costs are what the processing industries dream of?
John Graell Moore: History teaches us that raw materials prices are subject to certain economic cycles. Because fluctuations are determined by a large number of different factors, it is extremely difficult to predict how prices will change. These factors include supply levels, global demand for the products concerned, developments in technology, different end uses and new materials that replace the old ones. Experience leads us to believe that a period of high prices such as we had a few years ago will be followed by a period of low prices. But I am essentially optimistic that the molybdenum price will stabilize again.
livingmetals: What steps are you taking to remain competitive?
John Graell Moore: To start with, we are aiming to negotiate long-term supply contracts with our customers in order to mitigate the risk of volatile product prices and to stabilize our business. Beyond that, we are looking to expand our business portfolio to include molybdenum metal products, to offer a wider range of refractory metals and to develop recycling technologies to recover these metals and use them as raw materials. Furthermore, we shall redouble our efforts to take account of the needs of our customers and develop solutions that allow them to boost their earnings and provide a more comprehensive service for their end customers.
livingmetals: And how do customers benefit from this?
John Graell Moore: For many years it has been part of our corporate philosophy to regard our customers as partners, in the sense that we are constantly working at understanding their key requirements and building long-term customer relations. Over the years, the closeness of this cooperation has allowed us to establish a successful bond with each customer, to know the exact scope of their requirements and in this way to support them in growing their business.
livingmetals: Why is molybdenum important for industry?
John Graell Moore: A large proportion of the molybdenum produced worldwide is needed in the steel industry, where it is used as an alloy additive for stainless high-performance steel. As an additive, it improves certain properties of the steel, such as its hardness, high-temperature strength and corrosion resistance. It also increases the service life and efficiency of machines and plant equipment. Molybdenum is also used in pigments, catalytic converters, lubricants and many other applications.
* Molybdenum approx. 14.8 US dollars per kilo, Tungsten 40 US dollars per kilo
A large proportion of all molybdenum is used in the steel industry. Smaller quantities are needed in the chemicals industry and in the form of pure metal for high-tech materials. Good news: The vast majority of all molybdenum remains in the raw materials loop permanently.