Thursday, February 18, 2010
Molybdenum Bounces Back To Magic Number
It is 6:06 AM in the break room. Have a mug of Thor's lightning bolt java and let's read a postcard I just got from Miss Moly. We packed her off last week with her cousin Cobalt to attend a reception in their honor at the London Metal Exchange (Miss Moly Flies to London). Both minor metals will trade their first futures contracts on the LME this coming Monday, 2/22. Shortly after she arrived molybdenum hip-hopped from $15/lb to $16/lb; yesterday it added another four bits to make $16.50/lb. She writes that she's the toast of London town and the exchange hasn't even begun to trade her futures. Her uncle Nickel, another key metal in the manufacture of steel, has enjoyed a similar bounce. Here's a 1-month chart of both:
Last August, molybdenum hit $16.50 and the Report called it a "magic number" (see note 1) because it was roughly two times up from its 2009 low but only halfway to the high of 2008 (Moly Hits Magic Number, Dr. Doom Speaks to Miners, 8/4/2010). Ironically the same article reported economist Nouriel Roubini (aka Dr. Doom) predicting a pullback in commodity prices followed by a gradual uptrend in 2010. Hopefully we've seen the worst of this and we are back on track. Last year moly prices peaked than declined as China's stimulus and stockpiling ran its course. Kevin Loughrey, President and CEO for Thompson Creek Metals (TC), also sees a more sustainable price environment this year and next (Molybdenum on CNBC News, 11/24/2009). Our own General Moly (GMO) offered an excellent analysis of last year's price action (Good Golly Miss Moly, 9/18/2009).
One encouraging sign is a decline in the LME warehouse inventory for nickel coincident with the recent rise in prices. Similar data will be available for molybdenum after things get rolling on the Exchange. With the exception of aluminum, nickel is the only LME base metal experiencing a draw-down possibly indicating a return of real demand as opposed to speculation. Copper is the counterexample, experiencing both a rise in price and inventory making it more difficult to sort out true demand from investor bets on the future of copper prices. Here are both LME inventory profiles for comparison.
Time will tell, but the Colonel remains optimistic that molybdenum prices will continue to rise with the expansion of the market base and a steady global recovery of the steel industry. Miss Moly can't wait!
Enough chart talk, let's walk the walk:
4-WD is OFF - the VIX or "fear index" is below 25, smoother markets are expected (what is this?)
An ORANGE light is ON for possible adverse regulation/legislation: Miner Taxation, Cortez Hills & mercury emissions
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
Oil is up $0.86 in early trading to $78.19 (March contract, most active); Gold is down $1.5 to $1118.6 (April contract, most active); Silver is up $0.142 to $16.240 (March contract); Copper is up $0.0345 to $3.2740 (March contract); Molybdenum is its at $16.50
The DOW is up 23.73 points to 10332.97; the S&P 500 is up 1.78 points to 1101.29. The miners are up:
Barrick (ABX) $39.91 up 3.51%
Newmont (NEM) $48.80 up 3.30%
US Gold UXG) $2.56 down 1.99%
General Moly (Eureka Moly, LLC) (GMO) $2.51 up 0.40%
Thompson Creek (TC) $13.21 up 0.61%
Freeport-McMoRan (FCX) $76.35 up 1.64% (a bellwether mining stock spanning gold, copper & molybdenum)
The Steels are up, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $39.16 up 1.24% - global steel producer
POSCO (PKX) $119.91 up 0.34% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 1.33% to $1,267,335.46 (what is this?).
Headline photoraph by Mariana Titus
Note 1: The so-called magic number is more accurately called the "geometric mean" which is related to but different from the "arithmetic mean" or simple average. The former is the square root of the product of two numbers; the latter, the sum of two numbers divided by 2. In molybdenum's case the geometric mean of the 52-week high and low is $16.50 and the arithmetic mean is $21.00. The ole Colonel finds the geometric mean to be the more important metric to gauge benchmarks in volatile commodity price swings. When you are at the geometric mean you're n times up from the low and 1/n th from the top. For moly, n=2.06155 and our claim of "double the bottom and half the top" is roughly correct.