Molybdenum seen weak in 2009 but recovery in 2011

LONDON, March 4 (Reuters) - Molybdenum prices will stay low at between $10.50-$11 a lb this year because of weak demand from steel makers, but in 2011 it will rise to above $20 as demand rebounds, U.S.-based CPM Group said on Wednesday.

Douglas Horn, commodity analyst at CPM said global stimuli packages will help boost prices of molybdenum, a byproduct of copper, to around $16 in 2010.

"There is a large amount of government infrastructure spending coming online," he said at a conference organised by the London Metal Exchange (LME) and Metal-Pages.

"Our estimates indicate that over $700 billion will be poured into the market on the infrastructure side."

Molybdenum MLY-OXIDE-LON prices currently at around $9 are down from around $34 a lb last August.

"They fell for a very good reason -- there has been a deep drop in steel production," he said. "The fourth quarter (of 2008) was particularly bad for the stainless steel industry and they are the largest moly consumer."

Horn said 70 percent of molybdenum demand comes from steel production and output cuts during this slowdown had exceeded previous recessions.

On the supply side, Horn said there was a big bulge of "probable development projects" in 2012, but they would depend on financing.

"But once re-stocking resumes ... (any upturn) could be very drastic, very swift and demand for molybdenum could be quite strong," he said.

COBALT OUTLOOK

The metal exchange is planning to launch futures contracts for molybdenum and cobalt either this year or early next year. [ID:L4267331]

Eric Taarland, a senior consultant at CRU Group, told the conference he expected substantial growth in the use of cobalt over the next 10 years.

This growth will largely be fuelled by environment-friendly legislation and an increase in demand for hybrid car batteries.

Cobalt, a byproduct of nickel mining, is used in aerospace sector and is a key component of re-chargable batteries.

Taarland cautiously added however, that there was a risk of over-supply in the medium-term due to new mining projects, but said the downturn in commodity prices and a weak economic outlook could result in more cutbacks.

"The credit crunch and recession has and will hit cobalt demand," Taarland said. "Our macro analysis suggests that true recovery will not hit until next year."

"We do expect a recovery in 2010 to be considerable and for this to continue into 2011."

Taarland added that 50 percent of cobalt production facilities in the Democratic Republic of Congo had already been cut, with 40-50 percent of Chinese refining capacity suspended.

CRU expects cobalt COB-CATH-LON to remain below $20 a lb this year. Prices are currently around $15 a lb. (Editing by xxxxxx)