Wednesday, February 10, 2010

Steel Demand Driving Commodity Prices Higher

Iron Ore, Molybdenum

Demand for steel should help a number of companies connected to providing raw materials and other things related to the production of steel have some good years ahead.

Two particular commodities which will derive strong benefits from it are iron ore and molybdenum, and those producing and providing it; both play a key role in the steel market.

One seller of molybdenum, Sojitz Corp., based in Japan, is one such company, which says over the next three years sales of molybdenum should double what they are today based on steel demand alone.

The demand for molybdenum in China, like many things, has skyrocketed, and imports have increased to 80 million pounds in 2009, of which 19 million pounds was exported, a huge jump from 7 million imported in 2008. Demand in Japan also increased in 2009, coming in at 50 million pounds, while the country sold 20 percent of that.

With mine production for molybdenum, for some new mines, not scheduled to produce until 2012 and 2013, the demand for steel continues to surge while supply can't keep up with it.

Molybdenum stands at about $10 a pound at the time of this writing, and could go as high as $20 based on low supplies some believe.

Molybdenum is primarily used as ferromolybdenum or oxide in alloy or stainless steel. It is used as a steel strengthener in the oil industry for things like oil drills and oil and gas pipelines.

For iron ore, there's no doubt the price has strong support, and even with the Chinese attempting to negotiate lower prices, they're not having an easy time of it with the major producers like Vale, Rio Tinto and BHP Billiton.

The demand is so strong they couldn't keep their own domestic businesses from ordering it a going prices because they have to have it. Now that it has been publicized, it undercuts what appears to have been a strategy by the Chinese of attempting to make it look like they were going to cut back on stimulating their economy by tightening credit. That seems to have failed, and I don't think the Chinese want to end up doing what they did last year by paying even higher iron ore prices than they would have had to if they had made a deal with the big companies.

Either way, steel demand is now out in the open, and it'll be difficult for anyone to get great prices on iron ore or molybdenum with the demand seeming to outstrip supply at this time, and what looks like for some time to come.

Iron Ore, Molybdenum

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