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Mining and Forestry
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Scotia conference - MoMolybdenum - Catherine Virga, CPM Group ■ Ms Virga forecasts the molybdenum market to remainin a deficit through 2010 with a surplus to emerge in 2011 . Ms Virga believes that global demand formolybdenum will range between 5% and 6% in 2007 to 2009, with growth continuing to be driven largely by growth in the stainless steel industry and growth in the production of superalloys and molybdenum containing catalysts. She highlighted the strong correlation between global energy consumption and total molybdenum demand and stated that demand for molybdenum in the steel industry is relatively price inelastic. ■ As CPM believes molybdenum demand to be relatively inelastic, the group does notbelieve that substation out of molybdenum is a significant threat to the market . Due tothe metals robust properties, Ms Virga believes that users of the metals are limited in their ability to substitute for other metals in numerous applications. In addition, she stated that some of these substitutes have relatively small markets and therefore can not handle substitution in significant quantities. ■ On the supply side, CPM forecasts that supplygrowth out to at least 2011 will be driven by primary producers . The share of productionattributable to primary production is estimated to increase from 39% in 2007 to 50% in 2011 while the supply from by-product production remains relatively flat out to 2011. With the increase in production from primary producers, the dominant market players are expected to lose roughly 5% of their market share over the next two years. With regards to China, CPM forecasts that the country's 2008 production will continue to increase, although the introduction of export quotas and higher export taxes will reduce supplies to the rest of the world. ■ Rising cash operating costs should supporthigher molybdenum prices in the future . CPMestimates that in 2011, costs in the 90th percentile will be about $11.20/lb with the lowest cost producer operating at a cost of $3/lb (Exhibit 5). ■ With regards to prices, CPM is forecasting molybdenum prices to average $34/lb in2008 and $32.25/lb in 2009 . As the supply side is expected to remain tight over the next twoyears, CPM expects prices to remain over $30/lb with the potential for price spikes above $50/lb possible should significant supply shocks occur. ■ Scotia Comment - Our molybdenum price forecasts for 2008 and 2009 of $35.50/lb and$31/lb, respectively, are in line with the prices forecast by CPM. However, we are forecasting a smaller deficit in 2008 and a slight surplus in 2009 with production growth in 2010 largely outpacing demand growth, resulting in a more significant surplus, at which time we expect prices to fall to about $21/lb. |
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