Molybdenum, or “moly,” is an important material in the manufacturing of many applications. It is used to improve the corrosion resistance of stainless steel as well as the strength, toughness, hardenability, and weldability of steel materials used across many industries. Other use cases include nickel alloys, chemical compounds, and lubricants. Due to its many applications, it is expected that the green energy transition will increase demand for molybdenum products substantially. In turn, this demand will translate into greater price risk for the industry.
Moly prices have shown persistent volatility in the past, driven by changing supply and demand factors. On the demand side, moly is impacted by fundamentals of industries such as the oil and gas sector (because moly is used in oil rigs, platforms, refineries, and platforms); infrastructure projects; and stainless steel demand. The high volatility can present problems for both sellers and buyers of moly as projects and profits are affected by price changes.
Introducing Molybdenum Oxide (Platts) futures
Molybdenum Oxide (Platts) futures, from CME Group, offer an effective mechanism to hedge the price risk of moly. Derivatives like Moly futures are financial instruments whose prices move in line with the prices of their underlying product. By hedging with futures, both buyers and sellers can protect themselves from adverse price movements which negatively affect their profit margins. The CME Group Moly product is financially settled against the Platts Molybdenum Oxide Daily Dealer (Global) assessment, which provides a daily reference price range for the global molybdenum market.
Each Moly futures contract represents 1,322.77 lbs of Molybdenum Oxide, the equivalent of 60% of one metric ton. The contract is priced in U.S. dollars per pound and is available for the current and next calendar year.
Visit Molybdenum Oxid (Platts) contract specifications to view all the details for this product.
Hedging example
In early October, a moly trader agrees to sell 100 tons of moly oxide to a refiner for December delivery at the prevalent Platts December average price. The trader, who sits on molybdenum oxide inventory, is now faced with the risk of falling prices when it comes time to deliver the product to the refiner.
To hedge risk on this forward sale, the trader can sell 100 December futures contracts at the price currently available in the market. Should the price in the physical market drop between October to December, the lower selling price to the refiner will be offset by a gain in the futures market. For the seller of a futures contract, the futures position shows a gain when the final settlement price of the contract is below the initial transaction price.
On the other hand, if the moly market rallies, any benefit from a higher physical selling price is offset by a loss in the futures position. Regardless of the market direction, hedging with Moly futures locks in a selling price for the trader‒ netting the physical sale and financial gains or losses on the futures. It is important to note that by hedging, a company is trying to mitigate risk, not make additional profit through speculation. Therefore, if properly hedged, adverse and favorable price fluctuations will net the same result.
Moly futures are available to trade through your bank, broker, or electronically nearly 24 hours a day.
The future is unknown. Moly futures allow those involved in the purchase or sale of moly to manage their price risk. To learn more about Moly futures, visit https://www.cmegroup.com/moly.
