Roskill - Vanadium: Supply-side Changes Driving Price Rises

LONDON, May 26, 2017 /PRNewswire/ --

Vanadium prices fell quarter-on-quarter in 2015, with European FeV80 prices averaging around US$13.5/kg in Q4 that year. Prices have not been that low, in nominal terms, since 2003. The following year saw a slow but steady increase, with prices ending 2016 above US$22/kg. So far, 2017 has seen prices strengthen further with the Q1 average exceeding US$25/kg, and with prices reaching above US$28/kg in April and May.

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While prices are driven by numerous factors, the recent price rises have in part been underpinned by structural changes on the supply side of the market. Production of vanadium feedstock peaked in 2013 and has since declined year-on-year. China remains the largest producer in the world although output dropped between 2014 and 2015. Nonetheless, the country accounted for an estimated 44% of world production last year. The biggest producers were Pangang and Chengde. Russia, the world's second-largest feedstock producer, has seen production increase and then stabilise in recent years, with nearly all production accounted for by slag production at Evraz Group's Nizhny Tagil steelworks. As of 2015, Russia represented 20% of feedstock production. 

It is not decreases in China, nor increases in Russia, but developments in South Africa which represent the most important structural changes to the market in recent years. South Africa was the second-largest producer of vanadium feedstock until 2014. That year, the country accounted for 14% of global feedstock but this figure is expected to fall sharply by end-2016. Following the closure of Evraz Highveld's Mapochs mine, together with the suspension of operations at Vanchem, there are now only two major producers of vanadium in South Africa: Glencore and Vametco.

The closure of Evraz Highveld in South Africa has significantly reduced global supplies of vanadium feedstock. Further, reports in China continue to suggest tightness in vanadium feedstock availability owing in part to cutbacks in steel production. Ongoing environmental inspections have also impacted vanadium supply. In addition, less material is being shipped from Russia to China following the shutdown of an iron ore mine.

Limited feedstock availability has had knock-on effects. The closure of Highveld has impacted production at Treibacher in Austria and Vanchem in South Africa in particular. There have been several shutdowns in China owing to feedstock shortages. Additionally, the situation in Russia forced the shutdown of the Jianlong steel mill in Heilongjiang.

While supply is tight, Roskill understands that demand in China, the world's biggest consumer of vanadium, has been sluggish. World apparent consumption of ferrovanadium increased at 8.6%py between 2009 and 2015. The biggest consumers of ferrovanadium are China, the USA, Russia, and Japan. As of 2015, steel applications are estimated to account for just over 90% of total use of vanadium. Vanadium use in steel can be further subdivided into HSLA steel, full alloy steel and carbon steel, with HSLA and fully alloy steels together accounting for over three-quarters of all vanadium consumption in steels. Non-ferrous alloys - mostly in the form of titanium alloys, super alloys, and magnetic alloys, are believed to account for a smaller percentage of consumption (4.5%). Chemical applications represented around 3.5% of consumption in 2015 while other applications, including batteries, accounted for the remaining 1%.

Stable demand growth is expected for vanadium in most applications. Growth in vanadium consumption in steel will be dependent on intensity of use, as well as growth in steel demand. Vanadium content in steel varies according to type and grade, and differs by producer and region. This is particularly the case with reinforcing bars (rebar), used primarily in the construction industry. Higher-strength rebar contains more vanadium and, therefore, the more high-grade rebar used globally, the more vanadium is consumed. This means that construction regulations, such as those introduced recently in China, which mandate the use of certain rebar for key applications can considerably impact vanadium demand.

There has been a great deal of interest in the potential of vanadium redox batteries (VRBs) in recent years. In Roskill's new report, a focused chapter dedicated to the use cases, competing technologies, advantages, disadvantages and economics of VRBs has been included. As of 2016, Roskill estimates that demand from VRBs accounted for less than 500t of vanadium pentoxide consumption. VRBs will likely achieve commercial success in specific energy storage applications such as load levelling, which will support an increase in market share and in vanadium demand.

The forecast increase in vanadium demand across several end-use applications will drive higher levels of vanadium supply over the coming decade. Future trends in iron ore consumption will have a significant bearing on vanadium co-production levels, just as historic increases in vanadium co-production have as much to do with higher demand for iron ore as increased demand for vanadium. Demand for both has been driven by the growth of steel industries, particularly in China, where rapid expansion of steel capacity has led to the development of large, vertically-integrated state enterprises that undertake mining, smelting, processing, and sales and distribution. In 2015, steel output dropped by roughly 3%. Roskill expects further drops in 2016 before a recovery in 2017. Declines in Chinese steel output could have implications for vanadium supply, compounding recent reductions from South Africa. 

New supply could be brought on stream to meet rising demand. Few new operations have been commissioned in recent years, with the exception of the Maracás Menchen mine owned by Largo Resources. Instead there have been some notable closures, although the assets of three former producers: Evraz Highveld, Vanchem and Atlantic, could potentially be brought back into production on higher demand and price incentives and thus generate additional vanadium feedstock. Alternatively, there are several companies developing projects that are at advanced feasibility stages, but will have to overcome the critical hurdle of securing sufficient financing to commence construction.  

Roskill's vanadium market report has forecasts out to 2026. It is essential reading for anyone needing a comprehensive overview of the vanadium market.  

Vanadium: Market Outlook to 2026, 15th Edition is now available from Roskill Information Services Ltd, 54 Russell Road, London SW19 1QL UK. Click here for further information or to download the report brochure.

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