Molybdenum concentrate and ferromolybdenum prices both surged 57%, while Jinmolybdenum Co., Ltd. posted a first-half profit forecast of nearly RMB 1.5 billion.

By Dong Peng, a reporter for 21st Century Business Herald, reporting from Chengdu.

The decline in molybdenum prices in March this year led to a quarter-on-quarter drop in Jinduicheng Molybdenum Co., Ltd. (601958.SH)’s second-quarter earnings. However, amid a sharp rise in molybdenum prices during the first half of the year, the company’s current‑period profits are expected to surpass its full-year results for 2022.

On the evening of July 10, Jinmolybdenum Co., Ltd. issued an earnings forecast, projecting net profit attributable to shareholders of between RMB 1.33 billion and RMB 1.53 billion, up approximately 100.01% to 130.09% year over year.

Regarding the reasons for the change in performance, the company stated: “International molybdenum prices have remained volatile at high levels, with the prices of major molybdenum products rising year over year. The company has seized market opportunities and actively organized and scheduled production…”

And the most fundamental driver of performance is, without a doubt, the rise in molybdenum prices.

In particular, during the first quarter of this year, molybdenum concentrate prices surged sharply, climbing as high as around RMB 5,680 per tonne. Although both molybdenum concentrate and ferromolybdenum prices have since fallen significantly after March, overall price levels remain at historically elevated levels.

A comparison of Jinduochuan’s quarterly earnings also reveals a very strong correlation with the aforementioned fluctuations in molybdenum prices.

Taking molybdenum concentrate and ferromolybdenum prices as examples, according to data from Antaike, the average price of 45–50% grade molybdenum concentrate in the first half of 2022 was RMB 2,612.7 per tonne, compared with RMB 4,089 per tonne for the same period this year—a year-on-year increase of 56.5%. In the first half of 2023, the average price of ferromolybdenum (60% Mo) stood at RMB 272,300 per tonne, up 57% from RMB 173,400 per tonne in the corresponding period last year.

By contrast, in terms of its business structure, Jinmolybdenum Co., Ltd. derives the vast majority of its revenue from molybdenum furnace feedstock, molybdenum metal, and molybdenum chemical products. The resulting rise in prices for these molybdenum‑based products has been a key driver behind the company’s earnings growth.

However, as molybdenum prices in the second quarter of this year were in a recovery phase following a decline, the average price of molybdenum products was significantly lower than in the first quarter. For example, the average price of ferromolybdenum reached RMB 317,400 per ton in the first quarter, while in the second quarter it fell to RMB 228,800 per ton.

On the corporate earnings front, Jinduicheng Molybdenum’s profitability declined quarter-over-quarter in the second quarter.

According to the periodic report, the company’s net profit for the first quarter of this year was RMB 833 million. Based on the aforementioned earnings forecast (median), the company’s net profit for the second quarter is estimated at approximately RMB 597 million, representing a quarter-over-quarter decline of around 30%.

Fortunately, Jinmolybdenum Co., Ltd. enjoys distinct scale and cost advantages. The company operates two large open-pit molybdenum mines, with the Jinduicheng Molybdenum Mine ranking among the world’s six largest primary molybdenum deposits.

The integrated production model means that, although the listed company’s financial performance is subject to fluctuations in molybdenum prices, it has remained profitable since its IPO in 2008.

It should also be noted that molybdenum is primarily consumed as an alloying additive, with the vast majority of end‑use demand coming from the steel industry.

For example, molybdenum furnace feedstock, which accounts for a significant share of Jinmolybdenum Co., Ltd.’s revenue, includes industrial molybdenum oxide, ferromolybdenum, and molybdenum metal particles, primarily used as alloying additives in products such as iron, steel, and nickel alloys.

This makes molybdenum prices highly sensitive to downstream steel mills’ tendering activities, with molybdenum producers generally exhibiting limited bargaining power within the industry chain. For instance, when steel mills face profitability challenges, they tend to significantly reduce their tender volumes, thereby weakening demand for molybdenum products and making it difficult for molybdenum prices to rise substantially.

During a recent research visit, Jinmolybdenum Co., Ltd. also noted, “In the face of a certain degree of suppression in demand from high‑priced raw material markets, processing companies are experiencing cost inversions, and their willingness to procure raw materials is declining, which will in turn compel raw material prices to fall by a noticeable margin.”

From the perspective outlined above, further increases in molybdenum prices and corporate earnings will likely depend on an improvement in end‑user demand and downstream steelmakers’ profitability.