World-renowned chemist Carl Wilhelm Scheele discovered it only two years after the U.S. declared independence from Britain. But it took another 116 years for someone to find a use for it, when a French armor company recognized its remarkable hardness and durability and used it to strengthen its steel armor plates.

Over the next century, captains of industry and chemists alike toyed with the element in hundreds of different applications. Eventually, these experts introduced molybdenum into the manufacturing of aircraft parts, electronics and power generation, along with many other applications.

Characteristics of a Super Metal

The metal’s unique properties make it the indispensable element it is today. Molybdenum is harder than chromium, lighter than tungsten and more resistant to compression than graphite. It also has a higher melting point than boron and reacts less to temperature changes than vanadium. These characteristics still make alloy makers and scientists marvel at molybdenum’s advantages.

It’s these advantages over lesser metals that let molybdenum contribute to the world’s infrastructure. One of the most important industries that use molybdenum is pipeline manufacturing. Manufacturers use it to strengthen their main assets, the actual metal that carries oil and gas throughout the world. We’ve been working on this with Mayer’s Special Situations editor Chris Mayer for months. Here’s what he writes:

“It takes about 2.6 million pounds of moly for every 1,000 miles of pipeline. Just for a frame of reference, there are something like 50,000 miles of pipeline in the planning stages globally.”

In just this one industry, current demand dictates at least 128 million pounds of molybdenum. At current prices, that puts us in the ballpark of $4.4 billion. But many other industries require this truly precious metal…

Moly’s the Word from Clean to Green

Molybdenum’s anti-corrosive properties make it crucial to the production of the oil in tar sands and offshore drilling. Crude oil refineries use it to remove sulfur. Government mandates to reduce the amount of sulfur in oil make this even more attractive.

But many other energy companies have to rely on molybdenum for its unique properties. One up-and-coming energy source, geothermal, needs it for drill bits. To drill deep into the Earth’s crust takes a very hard metal to rip apart the rocks and mantle. This small industry is taking off and will continue to increase the demand for molybdenum. But other renewable energies use this metal.

The solar power industry uses molybdenum’s conductivity to form strong electrical connectors that make the whole process work.

The rapidly growing windmill industry takes advantage of molybdenum’s hardness and durability to strengthen the massive propellers that must endure all kinds of wear and tear from Mother Nature.

The nuclear industry, which is once again growing at a rapid pace, is required to use only the most radioactive-resistant and strongest materials to build its pipes and reactors. Molybdenum is the only thing that fits.

Even the “green car” revolution uses molybdenum’s comparative lightweight to boost fuel-efficiency and overall safety. The list goes on and on…

Molybdenum also has a few other special characteristics that make it irreplaceable at any price. One contribution of the remarkably important element is to plant growth. Fertilizer companies incorporate it into their products to ensure the required assimilation of the plants to nitrogen — an essential element of plant growth.

Molybdenum’s most important application, however, is in the production of steel. We already stated this element’s outstanding strength. To make durable steel, you need to add molybdenum to the alloy. With tremendous growth in China and India, tons and tons of steel are produced to erect the massive skyscrapers and factories we read about on the front page of the business section every day.

But no metal is worth investing in if it’s going to stay cheap. So we have to look at molybdenum’s supply and demand…

A 1,000% Jump Is Just the Beginning

With so much demand coming from just about everywhere you look, it wears on the metal’s suppliers. Molybdenum production is growing at only a 3% clip annually. Compare that with China’s 10% annual demand growth and it’s clear that new mines need to open for the producers, which have been shipping the metal out as fast as they can pull it out of the ground.

This imbalance between supply and demand has caused molybdenum’s price to skyrocket. Just a few years ago, you could buy a pound of the metal for $3. Today, it costs around $34. That’s quite a run-up for an element few have heard of.

As you can see, the metal’s price sharply increased between 2004–2005 as production slipped and roasters (essentially the same as refineries for the oil industry) met full capacity. But industry experts expect the start of a multiyear bull market for molybdenum prices next year as supply falls lower than demand.

Current molybdenum producers are looking high and low for new mines to produce this metal. Unfortunately, it doesn’t grow in our backyards. It is almost always mined alongside copper, but not in high grades.

So finding a pure molybdenum play isn’t easy. However, there are significant mines throughout parts of China, Chile, Canada and the U.S. In fact, back in 1978, oil giant Exxon stumbled on the world’s largest and highest-grade molybdenum mine in Nevada. But the metal’s price wasn’t worth the hassle of development.

Today, we have quite a different story. And this month’s Penny Stock Fortunes recommendation happened to pick up this undeveloped mine while prices were still in the basement. Now this tiny junior miner is on the verge of production, and you are on the verge of huge profits…

Sincerely,
Jim Nelson
September 18, 2008

Investing in Molybdenum was originally featured in the Penny Sleuth.

This metal has several interesting characteristics that make its usage integral to several forms of energy creation.

Moly has the sixth highest melting point of any element. It is highly corrosive resistant and doesn’t expand, contract, harden, or soften under extreme temperature changes. In fact, of all the commercially used metals, moly has the lowest heating expansion. For example, moly is used in making stainless steel; hence the corrosion resistance and life span of your shiny ratchet set.

Moly is added to steel and cast iron to make metal alloys and superalloys that are much greater in strength. It can be found in anything from airplanes and cars to construction beams and filaments. This metal has tons of application and, better yet, is used in almost every aspect in the world of energy.

Molybdenum’s Applications in the World of Energy

As I said, moly is used to make high-strength metal alloys. It can be found in almost every modern drill. It greatly increases the strength of the drill and can limit technical mishaps, reducing costs. In that sense, moly is needed in every aspect from drilling exploratory holes in an oil and natural gas field to drilling the production and injection wells that go into getting a geothermal power plant up and running.

You can also find moly in the coal field. If it’s a longwall mining operation, it can be found in the shearers used to extract the coal and the conveyers used to transport it. In an open-pit, truck-and-shovel operation, moly is again used in both the extraction and transportation processes.

The corrosion resistance, combined with temperature insensitivity, makes moly very important in the production of oil and natural gas pipelines. The Alaskan Pipeline consists of a half-inch metal alloy that could handle up to 25,000 PSI and temperatures of negative 70 degrees Fahrenheit. You could find up to 7% moly in that 800 miles of pipeline. Without moly, you definitely wouldn’t be getting an above 99% reliability rate, which delivers the U.S. with approximately 775,000 barrels of oil per day.

Molybdenum is also used as a hydroproccessing catalyst in petroleum production. In English, moly is used to remove sulfur and nitrogen in making light, sweet crude. This is very important as the quality of oil is diminishing more as “the low-hanging fruit” in the oil world has already been picked. Canadian oil sands and the tar oil from Venezuela are examples of oil that contain high levels of external elements that need to be purged in order to create light, sweet crude oil.

Molybdenum can be found in every modern turbine used in a power plant. All power plants, except wind and water, directly use heat to turn a turbine. In the highly abusive environment of a turbine, strength, corrosion resistance, and heat insensitivity make moly the perfect industrial metal for power plant turbines. It greatly increases the life span, reducing the cost of the power plant.

In a geothermal power plant, moly can be found in the back-pressure turbine or the condenser and pumps that reinject the fluids back into the earth. In wind energy, moly is used in the actual structure of the windmill and can be found in everything from the bearings to the generator. In hydroelectricity, again, moly can be used in the turbines and generators.

Molybdenum’s contributions to the world of nuclear energy are by far the most significant. Without molybdenum, the nuclear world would be set back at least 20 years. Newly developed high-performance stainless steel (HPSS) contains up to 7.5% moly. I cannot stress the importance enough of HPSS to the world of nuclear energy. This alloy can more than triple the life of aging fleet condenser tubes. Fleet condensers, which are rather large, are used in the heat transfer process.

Brass, copper, and nickel made up the alloys previously used in fleet condenser tubes. Although these alloys were efficient in conducting heat, their life span was only eight years. HPSS conductors were brought into play about 30 years ago. As of right now, the longest HPSS conductor has remained in service for over 26 years and is still going strong.

Older copper alloy fleet condenser tubes had corrosion issues. This affected the power plant in a couple of ways. It allowed for the buildup of corrosive materials, reducing the efficiency of the power plant. Also, the corrosion rendered weak spots in the fleet condenser tube, which could then result in holes. This was just not acceptable, because chemicals like sodium and chloride could leak and damage other vital parts of the reactor. Corrosion resistance leading to less buildup of undesirable substances increased the capacity of reactors by up to 20%.

The importance of molybdenum in nuclear energy is undeniable. But it is also used in harvesting EVERY other form of energy. Moly is the only way you can play these markets all at once.

Just because moly is vital to these markets doesn’t necessarily mean that there’s a bull market in this industrial metal. But, the supply-and-demand picture proves there will be…

Supply and Demand of Molybdenum

Supply for molybdenum faces a similar conundrum to that of oil. Although there is current mine production significant enough to meet demand, refiners, or roasters, are expected to run into a shortfall. Guesses on when this shortfall is estimated to come fall somewhere between 2009-2015, depending on demand. Yes, that’s kind of a large range, but let me tell you where those numbers come from.

A roaster is similar to a refinery in that it processes the moly into a fine powder, pellets, or any other form of refined moly used in the industrial world. Total world moly roaster capacity can currently put out at an annual rate of 320 million pounds. That 320 million pounds also barely meets global demand. There isn’t much more roasting capacity left. The problem is that there is no one actively permitting for the production of any new roasters here in the United States, and roaster production looks grim on a global level as well.

The exact date is impossible to predict, but a roaster shortage is definitely on its way. The data above are based on one very important assumption. The assumption is that mines will also be able to increase their output. Western demand looks to increase by around 3% annually, while China and the CIS are looking at a demand increase of around 10% annually.

Globally, demand is expected to increase at around 4.5% per annum. Unless moly mine production picks up at a rapid pace, shortfalls of the silvery metal are expected to arrive around 2009. Note that we are talking about mine production, and not roaster capacity anymore.

This increasing demand can be attributed to two main factors. Hydroprocessing catalysts are becoming essential in today’s market for crude oil. The other contributing factor is the increase in nuclear reactors planned for production. There are 48 nuclear reactors to be built by 2013, and approximately 100 are to be built by 2020.

The International Molybdenum Association (IMOA) says that an average reactor contains about 520,000 feet of stainless steel alloy. Some larger reactors contain over 1 million feet of stainless steel alloy. With the metal alloy containing up to 8% moly — well, you can do the math.

China currently produces around 20% of global production. If global supply is able to keep up with global demand, which I sincerely doubt, we’re still looking at China beginning to hoard the one-fifth of global production that it currently produces.

Molybdenum has to supply the growing growth in all energy markets. More and more people are industrializing in the developing countries. That requires energy, and I expect that energy to arrive from numerous sources. The supply-and-demand picture presents us with a double-edged dagger: Roaster shortages are unable to keep up with growing demand or mine production is unable to keep up with growing demand. I see both of these scenarios as very likely, but only one is necessary to send the price of molybdenum to new highs. As one or both of these scenarios come to light, expect China to limit and eventually negate exports, only throwing gasoline on the already blazing fire…

There aren’t many molybdenum plays, but we did find one…China Molybdenum Co. Ltd. (HK: 3993). Trading on the Hong Kong Exchange is both difficult and expensive. If you are serious about an investment like this, consult your broker.

Until that one becomes more readily available, we will keep our eye out for others just like it…

Regards,

Nick Jones
February 15, 2008

The One Metal That Secretly Controls the Entire Energy Industry was originally featured in the Penny Sleuth.