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Msg  38345 of 65647  at  1/16/2008 7:21:06 PM  by


Scotia conference - Mo

Molybdenum - Catherine Virga, CPM Group

Ms Virga forecasts the molybdenum market to remain

in a deficit through 2010 with a surplus to emerge in

2011. Ms Virga believes that global demand for

molybdenum will range between 5% and 6% in 2007 to 2009, with growth continuing to be

driven largely by growth in the stainless steel industry and growth in the production of

superalloys and molybdenum containing catalysts. She highlighted the strong correlation

between global energy consumption and total molybdenum demand and stated that demand

for molybdenum in the steel industry is relatively price inelastic.

As CPM believes molybdenum demand to be relatively inelastic, the group does not

believe that substation out of molybdenum is a significant threat to the market. Due to

the metals robust properties, Ms Virga believes that users of the metals are limited in their

ability to substitute for other metals in numerous applications. In addition, she stated that

some of these substitutes have relatively small

markets and therefore can not handle substitution in

significant quantities.

On the supply side, CPM forecasts that supply

growth out to at least 2011 will be driven by

primary producers. The share of production

attributable to primary production is estimated to

increase from 39% in 2007 to 50% in 2011 while

the supply from by-product production remains

relatively flat out to 2011. With the increase in

production from primary producers, the dominant

market players are expected to lose roughly 5% of

their market share over the next two years. With

regards to China, CPM forecasts that the country's

2008 production will continue to increase, although

the introduction of export quotas and higher export

taxes will reduce supplies to the rest of the world.

Rising cash operating costs should support

higher molybdenum prices in the future. CPM

estimates that in 2011, costs in the 90th percentile

will be about $11.20/lb with the lowest cost

producer operating at a cost of $3/lb (Exhibit 5).

With regards to prices, CPM is forecasting molybdenum prices to average $34/lb in

2008 and $32.25/lb in 2009. As the supply side is expected to remain tight over the next two

years, CPM expects prices to remain over $30/lb with the potential for price spikes above

$50/lb possible should significant supply shocks occur.

Scotia Comment - Our molybdenum price forecasts for 2008 and 2009 of $35.50/lb and

$31/lb, respectively, are in line with the prices forecast by CPM. However, we are

forecasting a smaller deficit in 2008 and a slight surplus in 2009 with production growth in

2010 largely outpacing demand growth, resulting in a more significant surplus, at which

time we expect prices to fall to about $21/lb.

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