European market participants are split on the outlook for regional vanadium prices over the rest of this year, with some expecting prices to jump from September as steelmakers return to restock but others wary that China’s steel production cap could weigh on global prices.
Ferro-vanadium prices have remained stable throughout the summer, despite the seasonal dip in demand from steel mills, averaging $39.38-40.46/kg duty unpaid Rotterdam since the beginning of the third quarter. This is up significantly from the full third quarter of last year when prices averaged $23.80-24.40/kg du Rotterdam, as Covid-19 restrictions hampered steel production and demand.
Some market participants expect demand for ferro-vanadium to increase significantly once steel mills return to the market in early September, which converters hope will bring prices up more in line with input costs. The spread between regional prices for ferro-vanadium and its feedstock, vanadium pentoxide (V2O5), is currently unusually wide, with V2O5 at $9.50-10.00/lb duty paid Rotterdam — a level at which converters would typically aim to sell ferro-vanadium at $42/kg or more in order to achieve healthy profit margins.
European demand for V2O5 has also slowed during the summer, with market participants repeatedly describing the spot market as “dead” and “non-existent” in July and August. Prices have remained firm — supported by Chinese export prices and the ever-present logistical delays that have disrupted supply chains for many commodities — although some market participants warn that this could partly be symptomatic of low liquidity and a downward correction could follow when trading activity picks up again. Chinese export prices have averaged $9.31-9.57/lb fob since the start of July, having reached a peak of $9.50-9.75/lb fob at the beginning of August.
Lower Chinese demand could weigh on EU prices
While most market participants expect next month’s return of European steel mills to lift prices in the near term, some are wary that China’s decision to limit steel production could weigh on global vanadium demand in the longer term.
Beijing has decided to cap steel production so it does not exceed 2020 levels, which is likely to dampen Chinese demand for vanadium, and strong Chinese steel output in the first half of this year could lead to significant production cuts from July-December in order to meet this target.
“A little bit more demand in Europe will not move the dial too much. China is much more important from a global perspective,” a European trader said, while a converter said, “I expect prices will increase to $41-42/kg, but I do not think prices will go above $45.”
Not everyone expects the Chinese steel production cap to weigh on European vanadium prices. “There is a cap on steel production, but not on consumption,” a vanadium producer said. Therefore, if Chinese steel production is limited, steel consumers might opt to buy higher-quality steel from neighbouring countries such as Japan and Korea. Increased demand for vanadium in these countries could offset the lower Chinese demand and lend support to prices.
“We expect vanadium prices to remain elevated and well above long-term averages throughout the second half of 2021,” the president of producer Largo Resources, Paulo Minsk, said recently.
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