China Environmental Inspections Expanding as Vanadium Market Tightens
Those readers who have been following the Bushveld Minerals story closely these last few weeks will perhaps have picked up on my posts about the steel curbs in Tangshan, in China
If not here's a link.
After an initial shock to the iron ore futures market, these prolonged curbs have had no lasting effect on the input costs to steel. What has however been interesting to witness is the recovery in vanadium prices, which now once again sit close to year highs in both China and the US. So to date, if said steel curbs are being implemented fully, their effect on vanadium demand in China has been minimal. However, their longer-lasting effects on iron ore prices potentially still need to fully play out.
However, as I pointed out on my Twitter feed recently, these environmental curbs are now being expanded to other provinces (see here). 4 key provinces have been named, Shanxi, Liaoning, Anhui, and Jiangxi.
This further report from Metalbulletin, dated 1st April, states that the full list of expanded inspections now covers eight provinces, with Henan, Hunan, Guangxi, and Yunan, also now included.
Here's China's reported stone coal production for March 2021.
Of the total c. 765t of V205 flake/powder and Ammonium metavanadate produced in March 2021, 96% came from provinces that are about to go under the environmental inspection knife.
Furthermore, these inspections appear to be taking on a more strict format, with the new environmental inspection tours now including "current officials from governmental departments other than the Ministry of Ecology and Environment." A move that has never been seen before in previous inspections and an indicator that greater implementation and adherence to any negative findings, will be now be seen.
For anyone slightly lost by this reference to stone coal production in China, in short, 87% of China's total vanadium resources exist in stone coal. Extraction tends to be limited due to the high costs but also because the techniques employed come with higher pollution.
So, when China sets about carrying out a more committed set of environmental inspections and includes the vast majority of all key stone coal-producing provinces, it is worthy of following the story more closely.
Additionally, we have this,
Liaoning Province - Home to Hongjing Industrial Co Ltd, the producer of 5,500t V205 and c. 7% of China vanadium products.
Anhui Province - Home to the Lujiang Vanadium Mine, where information on actual output is limited but still worthy of acknowledgement at this time.
It should also be noted that Anhui is one of just two vanadium mining provinces in China, the other being Sichuan. See section 5 here.
If we now look more closely at the enclosed numbers above, we see that the estimated supply of V205 in March in China was running at c. 10,661 tons (+ domestic ammonium metavanadate production), whilst demand was far higher at c. 14,534 tons.
As an indication of the sort of numbers the domestic ammonium metavanadate producers are achieving, enclosed below are the March figures, which stood at a reported 830 tons. Meaning much of that supply gap is being maintained, which makes any further interruptions to that supply through these new tougher inspections, all the more significant.
Whilst the report is a tad fluffy, particularly when it comes to import/export estimations, we are still talking a c. 3,000 ton supply issue for the month of March (28%). A position that the report determines rather charmingly to be "a bit tight."
Here's the latest report provided by Vanadiumprice.com. We are currently in the middle of the month transaction wise with the main steel mill bids tending to come towards the end of each month. However, as has been the message for some time now, "the raw material market price is still firm."
So we have a tight domestic Chinese market, which is now potentially going to come under added pressure from new and more serious environmental inspections. Both of which are set against a backdrop of continued stress in other world markets, as they continue to battle Covid restrictions and lockdowns. So potentially more demand pressure to come in a market where even substantially elevated Chinese production has still not properly balanced even its own domestic market.
All of which adds to my belief (assuming demand follows through) that the vanadium market is going to come under further pressure as this year unfolds. A move that if indeed true can be well-timed in terms of its effects on vanadium producers such as Bushveld Minerals, as their refurbishment and maintenance effects mean that production volumes (and indeed costs) are,
"weighted towards the second half due to a 35-day maintenance shutdown at Vametco during Q1 2021."
As I discussed in my previous article, Bushveld Minerals - Some Key Thinking, surging vanadium prices do not help the fledgeling VRFB market and so should not be the long term investors goal. However, there's certainly some room to play with and with substantial further funding required to complete their full expansion to 8,400 mtV, I am sure Bushveld Minerals management will welcome them with open arms.
In this year of 'pain' that BMN must suffer in order to realise the full benefit of the assets they have acquired, such pressure in the vanadium market is most welcome because this is the year where we see their production costs peak. After that, it should be about fairly rapid reductions as Vanchem comes back online and Vametco expands and de-bottlenecks, giving company overheads a far greater realm in which to be shared.
I will be keeping a close eye on all of the above elements, as Q2 and indeed the year, continues to unfold.
Note - This article represents the opinion and research of the author only and the author currently holds a position in one or more of the stocks mentioned. Nothing shared in this article is to be deemed financial advice. Where possible all facts have been checked and references provided, however it is the responsibility of the reader to check all details for themselves before making any financial decisions. Please also refer to the disclaimer policy