Perfect storm30 Aug 2018 12:17
A reminder of the strength in the vanadium market, taken from the recent ARC broker note.
'Vanadium market continues to tighten.
After pausing for breath in May, vanadium prices once more surged upwards in the latter part of Q2, sending ferrovanadium (FeV) to a ten-year high of over US$80/kg V by mid July and taking the year-to-date average to cUS$68/kg. This continued a steep upwards price trend established last year, fuelled by growing market tightness arising from constrained co-product vanadium supply coupled with firm demand amid new (and more stringent) standards for Steel rebar in China. The supply side drivers show little sign of abating near term, in our view, with a 'perfect storm' of factors contributing to potentially prolonged market tightness.
Weak steel prices earlier this decade prompted a curtailment of high-cost magnetite iron-ore based steel production, with the side-effect being a reduction in co-produced vanadium that is a s l a g by-product from such operations (and which has historically been the world's dominant source of vanadium). According to commodity consultant CRU Group, Chinese co-product supply of vanadium dropped by 22% between 2014 and 2016 (immediately preceding the sharp upturn in vanadium pricing), while, away from China, the closure of the Highveld steel operations in South Africa in 2014 removed around 12% of global vanadium supply.
Meanwhile, on the demand side of the equation, a growing safety push in Chinese construction has led to the introduction of new minimum tensile strength standards for steel rebar used domestically. This is increasing the intensity of vanadium use in Chinese steel production towards that of the West, firming demand for vanadium despite only modest growth in steel production rates.
The vanadium redox-flow battery (VFRB) sector meanwhile has begun to develop in the wake of significant growth in renewable energy generation over the past decade, and could emerge as a significant new demand market for vanadium over the medium to longer term.
Other than in the, in our view unlikely, event of significantly higher steel demand and iron-ore prices, we cannot see the factors behind this structural shift in the vanadium market unwinding any time soon. Currently available margins in the steel and iron ore sector are unlikely to incentivise a re-activation of idled co-product capacity, in our view, while the introduction of more stringent environmental regulations in China (including restrictions on importing vanadium-rich s l a g material) are constraining the ability of domestic primary and secondary vanadium production to respond to the current elevated price environment.
We believe this compelling supply-demand outlook places increasing strategic importance on the very select group of primary vanadium producers, such as Vametco, that have potential to expand output into the gap left by mothballed co-product supply.'
Good times ahead for the FeV price and for Bushy!
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