Date: May 18, 2018
Since prices bottomed two-and-a-half years ago, several commodities have vied for the title of ‘top performer’. That moniker – seen through the eyes of producers and bulls of commodities, rather than consumers – has few stronger contenders than vanadium, a soft, grey metal used in the steel and chemicals industries.
In 2017, the vanadium price more than doubled, on top of a 72 per cent climb in 2016, amounting to a fivefold increase between November 2015 and April this year. That puts it ahead of other ‘hot’ battery metals, including cobalt and lithium, whose prices have swelled amid expectations of surging demand from electric vehicle manufacturers. Those London-listed miners with exposure – Bushveld Minerals (BMN) chief among them – have benefited accordingly.
Despite this, there are reasons to believe that the vanadium price will continue to rise, irrespective of the market’s history of sudden spikes and violent drops. Interestingly, this is a view broadly held by mining analysts and producers alike. Asked why things will be different this time, they cite two excellent drivers of long-term demand, and a long list of structural impediments to supply.
These dynamics are complex, but comprehensible. Whether they will prove temporary or a lasting feature of the market will be largely determined by the strength and size of a deficit that looks likely to persist until at least 2020, according to the base case forecasts of industry consultant Roskill.
Steel the show
For all its blue-sky potential, vanadium’s principal application is decidedly low-tech. More than 90 per cent of the metal is used in steel manufacturing, where the addition of two pounds of vanadium will double the strength of a tonne of product. As you’d expect, China has an outsized role in the demand for the metal, given its dominance in steel, although over the next decade the country’s annual production growth is expected to fall to 0.9 per cent – compared with 1.76 per cent globally – in part to adjust to its own falling steel consumption.
Yet within those numbers is a hidden driver: growing enforcement in China of high-strength rebar steel standards. According to analysis from Bushveld and consultancy TTP Squared, China used 48g of vanadium per tonne of steel produced in 2017. Were Chinese steelmakers to match European standards, this would require an additional 30g per tonne. Again, using 2017 Chinese steel production as a benchmark, this would equate to another 24kMt (thousand metric tonnes) of vanadium.
Some bears suggest a potential surge in medium-term demand (and with it price) runs the risk of substitution to niobium, another high-strength steel alloy. For steel manufacturers, there are obstacles to this, however, including complicated adjustments to production facilities, and the reliance on securing off-take deals from an industry dominated by one Brazilian company, CBMM. As such, there is reason to believe that steel producers have some capacity to absorb higher vanadium prices, particularly if prices of a more important input – iron ore – soften, as many expect.
