Vanadium prices have risen sharply since mid-2017, sending investor interest – and end-user concerns – soaring in this often-overlooked commodity. Traditionally just a minor, though important, alloying element in steelmaking, vanadium is the potential next big thing in grid-scale stationary energy storage solutions. This Insight from CRU examines the origins of the price spike and explains why the higher price environment will last longer than in the past.
Why did prices surge?
Between June 2017 and May 2018, prices for ferrovanadium DDP Europe increased from $12/lb to $30-32/lb, the highest level since 2008. Other ferrovanadium benchmarks surged too, along with the Chinese vanadium pentoxide (V2O5) feedstock price which rose from a typical $5-6/lb range to over $15/lb in May 2018.
A coincidence of cyclical, structural and one-off factors have triggered this:
In the years leading up to 2017/18, weak steel and vanadium prices drove out high cost co-product1 supply. The closure of Highveld Steel and Vanadium in South Africa in 2014 on its own cut out ~12% of global vanadium supply. Market pressures for Chinese co-producers were reinforced by a low international iron ore price which cut raw material costs for their domestic competitors: Chinese co-product supply of vanadium dropped by 22% between 2014 and 2016.
Rising environmental standards have been introduced in China, including controls on production facilities in Hebei and Sichuan, as well as waste importation bans that impacted vanadium producers' ability to access vanadium rich slags, have constrained supply. Along with broader supply-side reform to curb over-capacity and improve profitability, Chinese vanadium suppliers have been unable to respond fully to higher prices.
Traders and producers took speculative positions, buoyed by the January 2018 announcement of new standards for tensile strength of Chinese steel rebar which are expected to sharply drive up vanadium's intensity of use when they come into force in November 2018. Momentum was reinforced by excitement about the potential for vanadium's use as a battery material, as well as isolated concentration issues at slag processors in early 2018 which reduced the availability of V2O5 concentrate.
High prices set to last several years
Today's price level of ~$30-32/lb EU FeV 80% V, while not "infrequent", has historically (in the last 20 years) not been sustained for more than a year, as seen during 2004/2005 and 2007/2008. This time we expect prices to stay elevated for longer, as some of the cyclical drivers unwind much more slowly than in the past and structural factors provide long term support.
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