By
Chris Mayer, editor, Capital & Crisis
Saturday, May 23, 2009
When Carl Wilhelm Scheele discovered element 42 back in 1778, he could scarcely have imagined just how important this silvery-white metal would become one day.
Today, the entire energy complex relies on this metal – for everything from oil pipelines to nuclear reactors. Without this metal, the energy business would grind to a halt. Plus, as society gets all worked up over carbon emissions, element 42 is having a greater role to play here, too. Refineries, for instance, use it to remove the sulfur from gasoline and diesel fuels. It's also used in desalination plants, which turn saltwater into drinkable water.
Element 42's main gig is to strengthen steel. It makes steel more resistant to corrosion and extreme heat. As a result, it is incredibly important to just about every infrastructure project you can name and rides the coattails of the great infrastructure build in China, India, and other emerging markets. Globally, the steel industry uses about 85% of element 42 taken out of the ground.
Element 42 is also known as molybdenum, or moly for short. I've been a "moly bull" for several years, but a recent development has me even more bullish on this metal: For the first time in years, the Chinese have become net importers of moly.
China recently became a net importer of moly because its mines are too costly to run profitably at current low moly prices. Various estimates put about half of China's moly production at costs north of $13 a pound. The current moly price is only $8 and change – down from $30-plus last year, mainly as energy markets softened. So there have been a lot of shutdowns in China, as Chinese producers can't make any money.
China also has export quotas that restrict the amount of moly that can leave the country. China knows how important moly is to its growth. It wants to keep moly cheaper and readily available in China.
But you can sell all you want to China. That's the key. And China will need lots of moly. China is the world's largest producer of steel, by far. No one's even close. China produces nearly 40% of the world's steel. It makes twice as much steel as the No. 2 guy, the European Union. Much of that steel will need moly.
I think you can boil down the moly thesis as a sidecar on steel. As steel production rises, moly demand will also rise. In that, there is a long-term story worth hanging onto. China is only just entering its most metal-intensive phase of economic development. As China gets richer, its use of steel will rise at a much faster pace.
So any rebound in moly is bound up in the China growth story. In fact, over the past five years, Chinese demand for moly has grown 27% annually, compared with only 4% globally. China alone now makes up 25% of the global demand for moly – about 110 million pounds.
The beauty of moly as a long-term investment lies in this portrait of long-term demand against a seemingly limited batch of high-grade moly deposits. The long-term demand has, so far, been a reliable upward march.
Molybdenum World Demand
Also, when we think about supply, the ongoing credit crisis has basically quashed whatever new moly projects were on the board. The big New Hope project, owned by General Moly, is at least 20 months away after it gets financing. In this climate, I don't see it getting financing anytime soon. And other big projects by Freeport and Moly Mines have been pushed out to 2011 or canceled altogether.
To sum up: Molybdenum is a winner, albeit one that is temporarily resting, like a basketball player taking a breather before he steps back on the court. All the elements that pushed moly to $30-plus per pound in the first place are still in place for yet another run at three sawbucks or better. Molybdenum is cheap at $8 per pound.
Although the global economic crisis will sidetrack China for a while, the country is just entering its commodity-intensive growth phase. This phase will create terrific investment opportunities in energy, agriculture, and mining for us. "Moly" is just a chapter in a long story... one we'd all be wise to follow.
Sincerely,
Chris Mayer
Editor's note: Chris Mayer is the editor of Mayer's Special Situations, a monthly investment advisory focusing on small, hundreds-of-percent-upside investments. We consider it required reading at DailyWealth. For information on how to access the Special Situations portfolio, including Chris' top moly pick – a small miner that could shoot up 1,000% in the next moly bull market – click here.
As go the foolish policies in Washington, so goes the dollar...
During last winter's panic, the market bolted to the safety of the U.S. dollar. As folks traded commodities, real estate, and risky bonds for the greenback, the dollar index soared from 71 to 89.
But now Washington's absurd plan to "spend and tax" our way to prosperity is punishing the dollar again. It's like the market has finally noticed the government's huge debts and is saying, "I've had enough. I can't take your inflation and borrowing anymore."
As you can see, the dollar has given back over half of the rally's move and is about to break down to a new nine-month low. It's time to dump the dollar and buy "real money."
Gold Stocks Haven't Even Begun to Soar By Dr. Steve SjuggerudFriday, May 22, 2009
So gold stocks are cheap based on history... People are not clamoring for them, yet... And with cheaper oil and currencies, earnings of gold miners will surprise on the upside. In other words, if you think you've missed it in gold stocks, you haven't.
The biggest individual investment I personally made in the last six months was buying an India-based hedge fund. Why did I buy?
The Biggest Reason to Get Excited About Investing in Agriculture By Chris MayerWednesday, May 20, 2009
The kicker to all this is that last year, we had a record crop and the stocks-to-use ratio barely budged. There is no way we are going to top that harvest this year with all the drought hitting different parts of the world.
If you don't yet own shares and you're looking for an inexpensive way (yes, inexpensive – you're buying gold in the ground for $15 per ounce) to own gold with significant upside potential, consider buying...
The Japanese government is broke and can't pay back its debts. I think the gargantuan fall in the yen comes when Mrs. Watanabe figures out Japan's government will never pay back the $7 trillion she loaned it.
