Is Molybdenum Another Way to Ride the Energy Bull?

Earlier this month, a reporter from Business Edge (Ontario edition) was pondering investment advice he might receive over a fantasy lunch with different financial gurus, such as Warren Buffet, Jim Dines and Eric Sprott. He said of Eric Sprott, “You’d be hard pressed to find a savvier market player than Canadian money manager Eric Sprott – anywhere.” Because the reporter was appraising the dollar value of an auctioned “charity lunch” with an investment guru, he embellished upon his witticism, “This lunch could be worth a mint if Sprott were to let you in on the next big thing. In recent years, the CEO of Toronto-based Sprott Asset Management has been consistently ahead of the street.”

And what might this secret tip be? Perhaps molybdenum could become the next big thing. We talked with Maria Smirnova, a Sprott Asset Management Research Associate, who spoke positively of the metal, “I think the key to the molybdenum story is its wide-reaching applicability, especially in the energy sector.” She added, “This specialty metal is used in oil and natural gas pipelines, hydrocarbon desulphurization, oil drill rigs, pollution control equipment and nuclear energy applications.” Energy bulls, perhaps even the Sprott team which has bet heavily on the energy sector and invested in two molybdenum juniors, believe the world will need more “moly” during this commodities boom.

“It’s not sexy or glamorous,” Raymond James’ (Canada) uranium analyst Bart Jaworski told us during a telephone chat a few months ago, “and besides it’s dominated by the Chinese.” Well yes, that is true, but isn’t the uranium price also being driven higher by Chinese stockpiling? Another drawback for the metal, as Maria Smirnova, pointed out during a recent phone conversation, is that many can’t even pronounce ‘molybdenum.’ So, they call it ‘moly’ for short, as if this specialty metal belonged in the lyrics of Little Richard (Good Golly, Miss Molly).

According to the International Molybdenum Associations (IMOA), nearly 80 percent of the moly demand comes about for the manufacturing of tools, high speed steel, stainless steel and low alloy steel. Since World War I, moly has become a lower cost replacement for tungsten in hard and impact-resistant steels. It was first used as an alloying element in the production of Molybdenum Plate.

Molybdenum commodity specialist Michael J. Magyar describes molybdenum’s properties and uses in the United States Geological Survey Minerals Yearbook, “Molybdenum is a refractory metallic element used principally as an alloying agent in cast iron, steel, and super alloys to enhance hardenability, strength, toughness, and wear- and corrosion-resistance. To achieve desired metallurgical properties, molybdenum … is frequently used in combination with or added to chromium, columbium, manganese, nickel, tungsten or other alloy metals.”

Exploration for new sources of oil has led to the development of deep drilling The very deep reservoirs are often contaminated with corrosive sulphides, brines and carbon dioxide. Moly is the most sulphide stress cracking resistance low alloy steel available for use in sour wells. As service conditions deteriorate, oil companies are turning to higher molybdenum stainless steels (with 13 – 16 percent moly content) to manage the unfavorable elements at those depths.

Sixty percent of molybdenum consumption is used for stainless steels, super alloys or lower alloy steel. An example is a popular form of stainless steel called S31600 (Type 316), containing three to four percent Moly). This type of stainless steel was used to clad the exterior of tallest building in the world – the Petronas Towers in Kuala Lumpur in Malaysia, London’s Canary Wharf and in many other architectural applications in marine coastal environments.

According to the IMOA, “The most corrosion resistant stainless steels contain 6 to 7.3 percent molybdenum. These grades are used for power plant condensers, offshore piping, and critical components in nuclear power plants such as service water piping. In 1996, 6 percent moly stainless steels were selected for the absorber towers of more than twenty flue gas desulphurization scrubbers being installed in coal-burning power plants in South Korea.”

Molybdenum-based catalysts are growing. The oil industry has been using moly to remove sulphur from the compounds usually found in crude oil. As petroleum production turns to higher sulphur crude oil, they will require more molybdenum-based catalysts. Others plan to use moly in liquefying coal. True, this consumption remains early days. But, in early February, China Oil News reported China plans to spend $15 billion to build coal liquefaction plants in that country. China hopes to draw from its enormous coal deposits for conversion into oil products, using molybdenum-based catalysts.