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Substitution of sewage treated water or seawater and environmental concerns about discharges from copper-nickel tubing in power plant condensers could strongly impact the direction of copper, nickel and molybdenum prices.

Decreasing use of copper and nickel in some parts of the world could lead to surpluses in both metals. But this would not be the case for molybdenum, although some analysts have erroneously forecast a similar molybdenum surplus would materialize by 2010.

On the surface, we realize the logic behind such predictions. About 60 percent of molybdenum is mined as a byproduct of copper production. Nickel is often mentioned in the same breath as molybdenum, especially when both are required in hefty amounts for the super austenitics.

But, according to the International Stainless Steel Forum, the fastest growing type of stainless are those grades absent the nickel content, or with lesser nickel in the composition. According to the International Molybdenum Association (IMOA), 25 percent of all molybdenum consumption in 2005 was used for stainless steel applications. While the bull market in stainless steel should continue past 2010, nickel could be left behind.

In a previous article, we discussed the rising use of austenitics for the re-tubing of nuclear power plant condensers. Changes have taken place in the marketplace, which are now driving the ferritics instead of the austenitics.

Chinese economic growth has driven nickel prices past what many consider stratospheric levels. This is because China’s ten-plus-percent GDP growth consumed about 18 percent of the world’s 2006 nickel production. Between 2002 and 2005, China alone accounted for nearly the entire increase in world nickel consumption.

Soaring prices have forced ThyssenKrupp AG, the world’s largest stainless steel manufacturer, to reduce the company’s use of nickel. Further cuts are being contemplated.  Finnish austenitic provider Outokumpu plans to increase production of ferritic stainless steels. Ferritic steels continue to use molybdenum, but are nickel-free.

According to experts we interviewed, the replacement of fresh water with accelerated use of highly corrosive treated wastewater and seawater will continue to drive the use of molybdenum in the tubing for many power plants worldwide and increasingly for tubing found in desalination and water recovery plants. The emergence of super-ferritics in power plants could add to far less nickel content but maintain as much as four percent molybdenum in power plant condenser tubes.

We talked with Dan Janikowski, general manager of Plymouth Tube Company, and Edward Blessman, technical director of Trent Tube, about recent developments in the power plant and water markets. Both are highly regarded in the tubing field. Blessman previously contributed to an article about molybdenum consumption in power plants for the IMOA; Janikowski’s name is found in the scientific literature for power plants and desalination.

Janikowski told StockInterview about the demand for super-ferritic stainless steel, “This year, at the pace we are going, we will sell more of this tubing than we’ve ever sold before. We are working at a record pace.” Plymouth supplies tubing to China, Japan, Mexico, Taiwan, India and other countries. “We were just awarded a contract a few days ago for tubing for a new nuclear plant in China, Qinshan #2,” Janikowski explained. His company will supply 700,000 feet of feed water tubing for the reactor.

Super-ferritic tubing is being used for all categories of power plants: coal, combined cycle, gas-fired and nuclear. One of Janikowski’s favored products is the UNS #S44660. The chemical composition of this super-ferritic includes up to 28 percent chromium, typically 3.7 percent molybdenum and about 1.5 percent nickel. The balance of the stainless steel includes trace elements and more than 60 percent iron.

While power plants, desalination and water recovery plants are primary end-users, the S44660 is no stranger to the petrochemical industry. Two major petroleum-related projects – both exceeding 1.2 million meters – chose this super-ferritic for cooling gas and/or crude utilizing sea or brackish waters: the PDVSA collection towers in Lake Maricaibo (Venezuela) and the U.S. government’s Strategic Petroleum Reserves.

This week, Janikowski meets with General Electric to supply tubing for nuclear power plants, which are being manufactured on behalf of Dominion and Entergy. We inquired as to how much molybdenum the reactors’ condensers would require. “Those are both 1600 MW plants so they’ll each require five million feet of (super-ferritic) tubing,” he told us. “That comes to 1.1 million pounds of tubing.” Janikowski calculated 0.22 pounds of molybdenum were used for each tube foot – about 41,000 pounds of molybdenum per reactor.

“These reactors will use thinner walls, about 0.5 millimeters in thickness,” Janikowski pointed out. Power plant condensers use one-inch diameter tubes which are 0.022 inches thick. Edward Blessman told StockInterview, “In the past year, orders have been for 1.25 inch outer diameter and 0.022 inches, but have been as high as 0.028 inches thick.”

Generally speaking, a larger coal-fired plant requires three million feet of condenser tubing which weigh about one million pounds. More than 35,000 pounds of molybdenum is used this tubing. Smaller coal-fired plants require about 7,000 pounds of molybdenum.

Business for extending the life of power plants is booming. “Two-thirds of our activity is in re-tubing existing plants,” Blessman told us. “Scarcity of water is driving the re-tubing.”

Although the United Nations has forecast that two-thirds of the planet’s population will be living with water stress by 2025, power plants have already begun suffering from a scarcity of fresh water as coolant.

New water rules in Nevada, New York, Missouri, Iowa and Arizona has forced power plants to use treated sewage water as cooling water. Utilities can’t get fresh water to use in cooling their plants.

Blessman explained that secondary water, such as waste water, can have elevated levels of hydrogen sulfide, ammonia and chloride. These chemicals punish copper-nickel tubing. The highly corrosive water-environment has driven the replacement for super-ferritic stainless steel tubing. Janikowski and Blessman agreed this trend is expected to accelerate because of lessened water availability.

Nowhere is this scarcity more evident than in the Middle East. They both agreed this region has run out of fresh water and are using sea water or treated waste water in their district cooling and refrigeration.

So, we spoke with Otto Spork, who had been traveling in Europe. His office had informed us he had recently spent several months in the Middle East. Spork was featured on the cover of the June issue of Worth magazine with regards to the track record of his Toronto-based Sextant Strategic Opportunities Fund. According to the Globe & Mail rankings, his fund’s 117-percent returns over the past twelve months rated his fund as the best-performing Canadian fund for that period.

Spork confirmed there was no surplus fresh water left in Saudi Arabia, Bahrain or the United Arab Emirates.  He explained, for example, “The Saudi’s aquifers dried up because they were mismanaged – trying to grow crops in the desert.”

He called the situation ‘desperate.” Spork told StockInterview, “People are using bottled water for drinking water and getting this from 25-gallon drums. The rest is desalinated water, which they are using for showering and laundry, as well as industrial uses.” Spork has been traveling through the Middle East and Europe as part of the due diligence efforts for his recently launched Strategic Global Water Fund.

Spork believes the region is primed for nuclear desalination. “Those areas have the money,” he told us. “Water needs energy and energy needs water.” Both Blessman and Janikowski had doubts about nuclear desalination because of cheap and abundant gas reserves found in the Middle East.

However, Gene Clark wrote in the April 2007 issue of The Nuclear Review, “The technology of coupling nuclear energy and desalination plants has already been applied in Japan and Kazakhstan, where commercial facilities have been operating since the 1970s.” Kazakhstan has abundant natural resources in both the petroleum and uranium sectors. Clark wrote that market demand for the large scale deployment of nuclear desalination would more likely be utilized ‘in countries where water and energy needs are most serious.’

Janikowski, whose company provided super-ferritic tubing to a desalination plant in Dubai, has been working with fabricators and engineers to open the door for high performance stainless. “Once that happens, a typical large system in the Middle East, may have 25 million feet of tubing at about 0.25 pounds per foot with 3.7 percent molybdenum,” he told us. “This comes to about 230,000 pounds of molybdenum.”

Some experts have forecast as many as 100 desalination plants could be built in the Middle East over the next twenty years because of the scarcity of fresh water accompanying rapid population growth in the region.

According to Janikowski, many of the multi-stage distillation plants utilize copper-nickel and titanium. He believes the problems inherent with copper-alloy tubing suffering corrosion in the highly aggressive Arabian Gulf waters could lead to a rapid acceptance of super-ferritics.

According to the World Energy Council, the Gulf Cooperation Council (GCC) countries will require an additional 100,000 MW over the next ten years to meet demand. The GCC countries include Saudi Arabia, Kuwait, Bahrain, Qatar, United Arab Emirates and Oman.  According to Power-Gen Middle East, “Spending on waste water systems will double in the course of the next ten years in Saudi Arabia alone.” They estimate about $100 billion will be required to replace existing water pipes and systems.

Blessman and Janikowski foresee major developments beyond desalination plants in the Middle East. Janikowski pointed out, “Based on my sources, second to the new desalination plants, the tubing required for the substantial growth in district cooling is a big molybdenum user. In the past, when using clean water for cooling, copper worked fine. It is no longer an alternative.”

Why have copper-nickel tubes for power plant condensers (and some other uses) fallen into disfavor?

“Copper-nickel isn’t totally out of use, but the high cost and copper release issues have cut into the amount used,” Blessman told us. "My personal estimate is these are less than 20 percent of the power condenser market these days.”

Janikowski agrees, “We know of only one new power plant sited or built in the past ten years in North America using copper-nickel tubing. All of the other new plants have chosen stainless steel or titanium. Some existing power plants are still re-tubing with copper-based tubing but this percentage is dropping.” Because of the high price of titanium and nine-month (or longer) lead times, stainless is outpacing titanium by four to one for such tubing.

Concerns about copper discharges into surrounding water have led to regulatory changes. The inner linings of copper-alloyed tubes are eroded through the recirculation of seawater, brackish water or secondary water, such as treated waste water.

Janikowski told us, “Condensers weighing 800 thousand pounds at installation weigh about one-half as much because of all the copper discharges over time.”

These discharges can eventually pose a danger and/or downtime during the power plant’s operation. In a paper Janikowski presented at an industry workshop in 2003, he wrote, “The copper can replate on turbine blades, resulting in loss of efficiency, or on boiler tubes, resulting in premature failures. In some North American regions, high discharge levels have prevented the reuse of copper alloys in power plant heat exchangers.”

In a previous article we wrote about the ‘stealth’ nuclear renaissance with the U.S. Nuclear Regulatory uprates which have added about the same amount of megawatts as four nuclear reactors. Blessman told us this involved rebladed turbines, updated control systems, and condenser tubes.

Regulations in some states have changed of copper discharges from power plants, as a result. Blessman explained, “Federal limits are one parts per million, which is very easy to meet with copper alloy tubes.” But he added, “Localized limits, mostly state driven, could be much more stringent.” Blessman pointed to the 12 parts per billion (ppb) discharge limits recently issued for new permits at three NIPSCo (Northern Indiana Public Service) coal-fired plants which discharge into Lake Michigan. He told us this was reported at the Champaign Electric Utility Chemistry workshop last month. “I know of another plant here in Wisconsin with 45 ppb limits.

And alarm bells about copper discharges are sounding off elsewhere. Last month, a report issued by the Guangdong Provincial Oceanic and Fishery Administration announced that nearly 8.3 billion tons of sewage poured into coastal waters off this south China province last year. An estimated 1.26 million tons of chemicals were reported in this sewage -much of this waste included copper. As a result, fish stocks are said to be experiencing degradation in terms of quality and variety.

Industrial wastes discharged into the Nairobi (Kenya, Africa) River Basin, including copper discharge, have been called ‘death traps flowing with poison.’ Nine rivers flow through the city of three million but fresh water is scarce. Some of this comes from copper and discharges are now heavily fined.

According to the U.S. Environmental Protection Agency, high levels of copper can lead to gastrointestinal distress. Long-term exposure can reportedly lead to liver or kidney damage.

Finally, we asked Janikowski what would transpire in the molybdenum marketplace, if and when stainless steel producers made the crossover to nickel-free grades. He told us, “There are two directions being pursued to reduce nickel: (1) Switching to ferritic stainless steels, for which we’ve had significant discussion, and (2) Substitute manganese for nickel and the alloy stays austenitic.” He added, “In either case, you still need chromium and moly to provide the needed corrosion resistance.”

In the May 2007 Monthly Stainless Steel Report prepared by Damstahl®, the company forecast that molybdenum ore supply is expected to increase by only 12 percent to 460 million pounds by 2009. The Danish stainless steel manufacturer wrote, “The market will remain tight for some time.” This compares with a statement one trader made to American Metal Market magazine in late May, “The demand is there but the supply isn’t.”

Many point to massive molybdenum mining projects, such as Climax and China Molybdenum’s Luoyang-based moly mine, as oversupplying the market. However, much of the new capacities at Luoyang won’t be added until 2010 or later. With a mine life reported at about 46 years, this very large open pit molybdenum mine must first remedy the fractured rock layer of the underground stope roof. The goafs in the open pit must be treated first using the Voussoir Beam treatment.

On June 1st, China signaled international mills, which it has been supplying, that the country’s molybdenum oxide and ferromolybdenum would now cost the country’s exporters 15 percent. Japanese steel mills may be the first to take their trade elsewhere, probably to Chile, where that country hopes to gain market share for the sale of its molybdenum products.

Perhaps an export-unfriendly trend is developing in the stainless steel space? In April, India’s Tata Steel stopped exporting supplies of chrome ore, which is used to manufacture ferrochrome – an integral component in stainless steel products. Following China’s lead, India hopes to add value to its ore. Tata Steel recently announced it was investing in facilities to manufacture ferrochrome.

Both commodity superpowers are racing to build infrastructure in their countries. While researching our new publication, Investing in China’s Energy Crisis (available this week), we investigated the mind-boggling roads China has established to ensure the country’s energy security can become predictable. During our research of the Fischer-Tropsch process, which is used in the manufacture of syngas, we discovered molybdenum plays a vital role in the production of synthetic fuel – not only for transportation purposes, but something as simple as a plastic cup.

As a result of our research, we have concluded those who believe the molybdenum market will be ‘oversupplied’ by 2010 have not done their homework.

China consumes 44 percent of the world’s iron ore, 31 percent of steel, 25 percent of aluminum, 22 percent of copper and so on down the metals list. The country’s basic infrastructure and transportation system is expanding at historical levels which can only be compared to the 25-year industrialization of Europe and North America. This ran from the middle 1870s through the year 1900. A more recent, but less dramatic comparable, would be the post-World War II global reconstruction period of 1950 to 1970.

One barometer of future growth could be used as a quantitative measurement: Annual steel demand per person. This might also help forecasters predict when the boom might end. According to World Steel Dynamics, annual steel demand per capita in United States and the European Union stands at approximately 400 kilograms; China lags at 250 kilograms. Another 150 kilograms per person to reach the U.S. and EU levels doesn’t sound like very much, but China has a far greater population than both combined.

Interestingly, India’s annual steel demand per capita presently stands at a paltry 30 kilograms.

We suspect just as China’s rapid growth catches its breath, sometime between 2011 and 2015, the world’s second most populated country – India – could repeat the accelerated growth success story China now enjoys.

If 100 desalination plants require 23 million pounds of molybdenum in the Middle East, and if 1000 power plants in China/India/US/Middle East require 350 million pounds of molybdenum over the next decade or longer, then where will sufficiently mined molybdenum come from? If this doesn’t shock, then consider that more than 3,000 cars are daily rolling off China’s assembly lines – which collectively consumes about 2700 pounds of molybdenum per day.

Adanac Molybdenum Corp’s executive vice chairman Larry Reaugh told us, “I’ve been watching the moly story unfold since our exploration days in the mid 1990s. The usual market demand will be further upwardly effected through new usage created by environment, energy and water requirements in emerging economies in Asia, South America and the Middle East.” Reaugh believes the molybdenum price will eclipse the previous 2005 highs, as early as this summer. (Top-rated fund manager Otto Spork, mentioned earlier in this article, has molybdenum exposure through his fund’s investments in Adanac.)

Eric Sprott, whose firm recently launched the Sprott Molybdenum Participation Fund, told Canada’s Business Television, this past week, “Our view is that moly, which at one time touched $40, could have a very good chance of going back there again.” He believes inventories have been depleted and that demand has already exceeded supply.

One of the molybdenum companies in which Sprott has invested is Roca Mines. We talked with Scott Broughton, chief executive of this company. He agreed with Sprott, “Current demand for concentrates is clearly outpacing supply.”

Broughton knows this because his company will be mining and milling at the MAX molybdenum deposit in British Columbia this summer. “We have gotten significant, recent interest from Asian and North American buyers,” he told StockInterview. “Those buyers are both end-users and metals brokers desperately seeking off-take, despite the fact that Roca Mines already committed its production for 2007.”

Pioneering moly commentator Ken Reser is overjoyed with recent developments in the market place, but insists, “Moly prices have a fair ways to climb yet as more new uses and realities of molybdenum demand present themselves.” Reser, who also serves as a research consultant to Adanac, believes molybdenum could become front page news soon, as we have found in the uranium mining market.

But Reser warns, “Many investors are going to be burned by the rainbow chasers and fly-by-nights.”

We anticipated the growing interest in molybdenum mining companies will continue to attract herds of investors. In a recent article, we prepared a ‘ratings checklist’ for investors to utilize when evaluating the smaller, and possibly prospective, molybdenum juniors. As a reference case, we reviewed United Bolero, which met our coverage criteria. For other possibilities, one can review StockInterview’s Molybdenum HQ.