Inelasticity

Smiley from the PeakOil board posted on resource supply/demand inelasticity:

It is often said that the problem with predicting oil prices is that we have never seen a structural deficit of an important industrial commodity.

Perhaps I found an analogy with oil, molybdenum. Molybdenum is a metal which is used in steel production. Since 2002 supply demand balance swung to the demand side. The demand has outgrown the supply.

This deficit has had some very interesting consequences for the price. over the past three years the price of molybdenumoxide has increased from $2 to $28.50, a fourteenfold increase . Since the speculative position on this market is relatively small we can assume that these prices reflect the real supply demand fundamentals. It is staggering to see how a relatively small supply shortage can lead to these enormous price increases. It really shows how inelastic these markets are.

I think the steel market and the oil market are fairly comparable when it comes to inelasticity. If so then this is what we can expect for oil when the market runs into a deficit. The price increases we have seen so far are nothing compared to what is going to happen.

If moly is of any guidance we can expect the price to suddenly double, triple or quadruple when a real shortage occurs. That is a pretty scary thought.

Doing a bit of research on this topic, it looks as if the price of molybdenum becomes inextricably tied to how much copper mining occurs. Apparently, molybenum gets collected along with the copper ore, and if copper demand slumps (as it has recently, internet bubble bursting and all that) so to the molybdenum supply decreases, and therefore the price of molybdenum rises.

http://www.roskill.com/reports/molybdenum

Anybody that has done high-tech vacuum science work knows the many ways molybdenum gets used. Pure molybdenum has some weird properties. If we want some tough high-T structures that we wish to spot-weld stuff to, the choice is between tantalum and molybdenum. You can only bend molybdenum a few times before it breaks (that's real inelasticity for you), but tantalum has more flex to it. (Curiously, tantalum has its own set of supply/demand problems due to all the African in-fighting over the valuable ore -- link)

In the other place it gets used, as a bolt lubricant, we know that research labs end up using lots of molybdenum disulfide (vacuum scientists refer to this as "moly"). If molybdenum disappeared, physical science research would definitely feel it, same as with an impending helium shortage.

And weird enough, but bicycle manufacturers actually paid attention to the molybdenum shortage:

Gira bike manufacturer ponders profitability over molybdenum shortage

Chrome-moly frames used to have more popularity than they do now, but still, I found it fascinating to read how they analyze and adapt to this shortage.