🏗️️ Your Guide To Investing In Molybdenum — The Little-Known Metal Used To Make Important Alloys & Compounds
Chances are, you’ve probably never heard of molybdenum before. This is because not only is it relatively rare since it doesn’t occur naturally as a free metal, its applications are almost exclusively used in the industrial sector. That being said, the metal is quite an important one since it’s used to mix with other metals and create alloys (like steel) with enhanced properties and increased resistance to things like corrosion. Because of this property, molybdenum is used in influential industries and sectors, like the military, nuclear power generation, as well as the chemicals industry, making it an increasingly important commodity.
What Can It Do For You
🧺 Portfolio Diversification. As always, adding commodities to your portfolio can help diversify and lower risk. Adding molybdenum to your portfolio means owning an asset that tends to act differently to other asset classes, and even to other commodities.
💰 Profit. Compared to a number of other commodities, molybdenum prices have been relatively subdued for a number of years now, and have never fully recovered since the 2008 financial crisis. That being said, the metal’s versatility and alloying properties means it’s used in major industries and sectors, and so molybdenum prices are arguably linked with the strength of the global economy. Generally, there are a number of trends that can act as support for molybdenum prices. These include growing Chinese and emerging market demand, as well as infrastructure demand. However, there are a number of risk factors that can put downward pressure on prices. These include potential overproduction of the metal in response to rising prices, excess stockpiling by China, & a global recession that could weaken demand for the metal as infrastructure investment plans are paused.
What Affects Molybdenum Prices
There are several key factors that are involved in moving the price of molybdenum:
- 🇨🇳 Chinese Production & Demand. China is both the world’s biggest molybdenum producer and consumer, accounting for about 40% of the world’s supply, according to the USGS. Any disruptions in supply or demand in this country can have an impact on prices.
- 🌏 Global Economic Strength. Similarly, generally speaking, economic activity can affect molybdenum demand. In the pie chart shown below, most of the demand for molybdenum is for engineering steel. So, the better the economy, the more likely that infrastructure investments increase, which could mean more demand for molybdenum, and therefore, increasing its price.
- 🏛️Government Policy. Things like subsidies, tariffs, restrictions, and trade policies can definitely have an impact on molybdenum prices. One one hand, governments may push for restrictions on polluting industries, such as mining. This could have an effect on prices as it would cause uncertainty in supply. Furthermore, proposals for infrastructure investments could certainly boost demand for molybdenum. On the other hand, since China produces roughly 40% of the world’s molybdenum supply, any changes in its trade policies can have an effect on prices.
- 🔄 Substitution. Unlike other commodities, there aren’t many substitution options for molybdenum, due to its availability and versatility as an alloying metal. Nevertheless, there are a number of potential substitutes to keep an eye out for, especially if molybdenum prices rise. This can potentially lower demand for molybdenum as the industrial consumers may be incentivised to switch to alternatives.
- 📈 Stock Levels. Stock levels can certainly play a part in moving prices as it can be a key indicator on supply and/or demand levels, which can then lead to speculation in the market.
- 🏷️ Production Costs. Input costs such as the cost of electricity, coal, and crude oil can have an impact on molybdenum ore extraction and refining into molybdenum. Furthermore, recycled scrap molybdenum metal can also impact prices as it adds to supply in the market. According to the USGS, recycled scrap accounts for as much as 30% of current supply.
What Is It Used For?
As mentioned above, molybdenum is added to other metals such as steel, iron, and nickel to enhance certain properties and improve resistance. Below are some of its uses, and more information about molybdenum’s applications can be found here.
- 🔪 Steel, Nickel, Iron Alloys. As you can see from the chart below, most of the world’s molybdenum is used to create a variety of different alloys, all of which is used in a variety of industries, like nuclear power generation, missile and aircraft, automotive, mining, chemicals, etc. This is done since molybdenum enhances certain properties, like improved hardenability, increased resistance to corrosion, etc.
- 💡 Electronics. Certain electronic components in electronics, such as filament supports, semiconductors, and thin-film solar cells all have molybdenum.
- 🛢️ Oil & Petroleum Refining. Molybdenum compounds are used as a catalyst to speed up chemical reactions. This is important since it’s used in chemical reactions that create polymers and plastics, and crude oil and petroleum refining.
- 🌱 Fertiliser. Molybdenum is actually an essential element for plants and animals, and so a lot of fertilisers contain a small amount of the metal.
- 🧪 Lubricants. A certain molybdenum compound can be used as an effective industrial lubricant due to its layered molecular structure.
The Case Against Molybdenum
There are a couple of risks involved if you want to get involved with molybdenum. Firstly, as seen above on molybdenum’s price chart, prices have been subdued for a number of years now, and have not fully recovered since the 2008 financial crisis. In the short term, due to the pandemic, demand for the metal fell, especially from the oil and gas industry, a significant consumer for the metal. Furthermore, even though demand fell, production supply did not, and in fact, increased from the previous year. That being said, as economies recover and industries resume production, demand for molybdenum should recover back to previous levels. The risk here is the potential overproduction and continued excess stockpiling by China, already holding almost half of the world’s molybdenum reserves. This excess supply can certainly put downward pressure on prices, at least in the short term.
The Case For Molybdenum
Firstly, like other commodities, molybdenum can serve as a portfolio diversification tool & a hedge against inflation. Overall, the main long term trend that can act as support for molybdenum prices is growing Chinese and emerging market demand. As China and other emerging economies continue to grow and industrialise, demand for molybdenum could certainly grow as well. Similarly for developed economies, governments may seek to replace older infrastructure systems with newer ones, which can certainly add to demand and act as support for prices. Additionally, due to low molybdenum prices, molybdenum production is expected to be lower as producers adjust to prices accordingly.
Popular Ways To Invest In Molybdenum — Pros/Cons of Each
Unfortunately, you can’t invest in physical molybdenum. Instead, here are some of the more popular ways in which you can invest in the metal. If you’re still confused about how any of these work, refer back to our basics newsletter for a refresher.
- Molybdenum ETFs. There are molybdenum ETFs that invests in companies that mine for molybdenum as well as a number of other metals. So, while you will have some exposure to molybdenum prices, you’ll also be exposed to a number of other factors. Nevertheless, these ETFs are traded on stock exchanges, so they’re very easy to buy and sell. However, there are no assurances that you actually own the physical metal. You also probably won’t be able to take delivery of your molybdenum. Depending on which broker you go with, you may be charged with trading commissions. ETFs also charge an expense ratio, or management fee that gets taken out of their total holdings and is then reflected on your account. Whichever ETF you choose, be aware of the fine print — the risks and costs.
- Molybdenum Stocks. These are shares of companies that have exposure to molybdenum prices. There are no fees, apart from trading commissions depending on your broker. They don’t necessarily follow the price of molybdenum since company profits and stock market movements need to be taken into account. Additionally, many of these companies also have exposure to other metals, not just molybdenum. Because of all this, you’re exposed to a greater number of risks involving company profitability, exposure to price movements of other metals, etc. You may want to consider looking at the company’s annual reports (especially operational costs), portfolio of what mines they have, the other metals they produce, and potential expansion plans.
- Molybdenum Futures Contracts. A binding agreement traded on futures exchanges between two parties where they agree to buy/sell molybdenum at a specified time in the future with an agreed-upon price. The London Metals Exchange (LME) offers these contracts, with each representing 2,205 pounds of molybdenum. These futures contracts are cash settled after the contracts have expired. Because you are using a significant amount of borrowed money, even small price changes in molybdenum can either lead to massive profit, or massive losses beyond what you paid for, potentially leaving you in massive debt. They are certainly high-risk and not recommended for beginners. Further, fees associated with futures trading include broker commissions, and exchange/clearing fees.
TL;DR — Is It The Right Investment For You?
As always, it depends on what your aims are. Similar to other commodities, molybdenum can be used as a portfolio diversification tool to spread your exposure to different kinds of assets. Overall, the main long term trend that can act as support for molybdenum prices is growing Chinese & emerging market demand, and the potential for producers to lower their production in response to low prices. However, there are a number of factors that can put downward pressure on prices. These include the potential overproduction of the metal met with lowered demand, continued excess stockpiling by China, & a global recession that could weaken demand for the metal.
🧺 If you are considering adding molybdenum to your existing portfolio or bundling it with a number of others, you may want to consider doing dollar-cost averaging (regular investments over time) to build your molybdenum position so you can take advantage of any volatility in the market.
💰 If you are considering adding molybdenum for speculation and profit, you may want to monitor the factors that affect molybdenum prices mentioned above. You may also want to keep track of the annual molybdenum publications provided by the USGS to identify supply and demand levels. In addition to monitoring the factors mentioned above, you may also want to consider performing some technical analysis on molybdenum’s price chart to help consolidate trends and patterns to help with your decision. That being said, its price can also swing unexpectedly and dramatically, so be prepared and have an exit plan in place.
As always, if you are unsure, check in with a professional financial advisor before making any moves.