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Trading Mo at lesser risk – the route to make price hedging possible

Volatility in commodity prices puts both buyers and sellers at risk. On a well-functioning market such risks can be handled through hedging, which makes for a smoother and more reliable trade. This is why SEB has often taken on the role as a market facilitator for somewhat rarer commodities – as the case of molybdenum (Mo) proves.

It all started with customer demand. Around 2006 several clients within the stainless-steel industry got in touch with Pär Melander, Commodities Sales at SEB, calling for a possibility to hedge their molybdenum prices, just like they were able to with the other metals used as alloys.

“Up until then the stainless-steel producers had passed the price risk on to their customers. With molybdenum being a volatile commodity, the price could differ quite a lot between an order being made and the delivery date. This, in turn, lead to the industry’s customers starting to ask for a fixed price on molybdenum. It was very much a chain-reaction”, Pär says. 

Molybdenum is added to steel to increase its strength and resistance to harsh conditions. But with the market for molybdenum containing a small number of buyers and sellers, this metal had largely passed unnoticed by the different exchanges around the world. Unlike for example nickel, another metal used in stainless-steel which could be traded on the London metal exchange. 

“We had to start from scratch, using our expertise and extensive networks to start connecting buyers and sellers of molybdenum. Soon we had set up a functioning over-the-counter (OTC) trade, where the parties could agree on future prices, based on the Platts metal index”, Pär says. 

His colleague Marten Hansen, Commodities Sales at SEB, adds: “To me, what we have done here is unique. All the way since the beginning, we have been able to provide our clients with fixed prices on a volatile and illiquid commodity, and thereby help both buyers and sellers mitigate risk.” 

Finally introduced on a metal exchange

After setting up the OTC trade of molybdenum in 2006, Pär Melander describes it as running at a steady pace for quite some time. In recent years, it has started to pick up and the volumes of molybdenum traded with SEB as a facilitator has increased by 320 percent, during the last 5 years.

“Since the beginning of 2023, molybdenum has also been introduced on the Chicago Mercantile Exchange, which has potential to increase the liquidity on the market”, Pär says. 

What does this mean for SEB’s services regarding this commodity?

“It’s a very positive development. It gives us yet another tool in our efforts to match buyer and seller needs and make the trade run smoother. A majority of the molybdenum that is cleared at the Chicago Mercantile Exchange, is in fact traded by us”, Mårten explains.

He continues: “Today we can offer our clients up to one year long tenors, when purchasing molybdenum. That is, a fixed price for a transaction that lies a year in the future. In addition, we have clients not only from Scandinavia but from several Northern European countries. All in all, the molybdenum market keeps developing, and we’re deeply involved in making it happen.”

A glance at the future

The market for molybdenum has started to take off, in other words, but what about the future? Will we see an increase in demand? Is molybdenum a commodity that perhaps will find new, unexpected areas of usage?

 “Maybe not in the same sense as the various battery metals. Still, there are some exiting areas where the use of moly is expected to grow substantially, like in making the rotor blades of windmills more resistant to wear and tear”, Pär Melander says.

“Other examples, related to the energy transition, can be found in the infrastructure around offshore wind projects, which will require a lot of molybdenum bearing steel. Furthermore, in the construction of nuclear power plants, plenty of special steel with high moly content has traditionally been used”, he adds. 

Mårten Hansen concludes that the molybdenum trading team at SEB are more than ready for any new development within the field.

“We have spent many years setting up a market infrastructure and building a vast trading network. This means we have all the tools needed to help both current and future clients getting the right price, volume and tenors when trading with molybdenum.”