• BBN

There's Some Real Steel to this Vanadium Price Rise

Updated: Jun 2


In a previous blog post entitled Are Vanadium Prices Already Showing us their Future? I discussed the signs that current vanadium prices were giving us regarding their future. Since then the vanadium price has continued to react strongly and my own $8 per lb V205 barrier has now been broken.


What that has led to is a significant rise of FeV prices in all 3 major markets with China, in particular, having now passed $40 per kg.


In the second part of the post, I introduced the TPP Squared presentation in more detail. Presented at the Vanitec 8th Energy Storage Meeting it offers a wonderfully detailed insight into the mechanics of the vanadium market with expectations on where the market is heading in 2021.


Core to this is the belief that the world vanadium market will run a c. 5,440mtV deficit this year. This is based on the understanding that there are essentially two markets, China and Ex-China.


For the Ex-China market to function correctly it requires excess vanadium produced in China to remain balanced. In 2021 TPP Squared expect this to be c. 9,000mtV based on 815,000Mt of steel production.



At the same time, they see China as having an ever diminishing surplus due to in part their increased steel production but mainly because of the regulatory requirement to further improve the strength of their steel products.


Hence why we see in the above slide Chinese vanadium content increasing from 0.0555 KgV/MT Steel in 2019 to an expected 0.065KgV/MT Steel in 2021.


To demonstrate, Chinese steel production is expected to be c. 8% higher in 2021 compared to 2019, but vanadium demand due to that strengthening requirement would actually rise by 28% over the same period.


Despite this China is still expected to run a smaller surplus of c. 3,500mtV but down heavily from the c. 9,500mtV in 2019 and nowhere near enough to satisfy that 9,000mtV of Ex-China demand.


An inventory deficit doesn't necessarily always mean that's it's a market one. However, as I have covered previously on my Twitter feed it is clear that vanadium market inventory has had limited opportunity to recover from the spike of 2018 and that spike demonstrated a significant world shortage of available vanadium. at that time.




A combined c. 2,500mtV surplus through 2019/20 cannot possibly be able to answer the call when 2021 comes knocking with a c. 5,440mtV deficit.



Progress to Date


So with that knowledge now in our pocket here's the really interesting part.


The above 2021 market deficit of c. 5,440mtV, requires the following steel production in 2021 to be achieved.



China =1,077,886t (ave. 89.83Mt per month)

Ex China = 815,000t (67.91Mt per month)

Total = 1,892,886t (157.67Mt per month)

In addition, vanadium average content in China made steel is expected to increase by c. 8.2%. Outside of China that same vanadium content is expected to increase by c. 3.15%.

According to the worldsteel April 2021 report, the following year to date average monthly production has been achieved.


China = 91.7mt (+2.08%)

Ex-China = 72.08mt (+6.14%)

Total = 163.78mt (+3.9%)

This was substantially assisted by China producing a record 97.9Mt of steel in April 2021.


If the current increase is maintained then the following steel production + vanadium demand should then occur.

China = 1,100,300Mt x 0.0627 =68,989mtV

Ex-China = 865,000Mt x 0.059 = 51,035mtV

Total = 120,024mtV

That is 1,337mtV higher than currently anticipated and would then increase the deficit this year from said 5,439mtV to more like 6,780mtV. Meaning that the world is on course to demand even more vanadium in 2021 than TPP Squared currently predict.




Can the Uplift in Demand be Maintained?

Now here are three recent reports from China on the current state of play within their steel market. All are taken from MySteel.net. The first discusses China's mid-May daily steel output. The second talks about China "June steel output to rise slightly." The third is titled "global steel demand growth to peak in Q3" and is a quote from the CISA vice head of market research.


What those 3 reports indicate is that May and June are on course to post equal/more steel output than the record seen in April. In addition, the CISA (China Iron & Steel Association) see this demand growth (not just demand but growth) pushing into Q3 of this year.


Because the first 4 months have been so strong, the average remaining monthly steel production required to maintain the TPP Squared forecast has now been reduced. Here it is.


China = 88.9mt

Ex-China = 65.88mt

Total = 123.82mt


I will repeat what I said earlier. April 2021 steel production in China was 97.9Mt and May/June + possibly Q3 are all expected to at least run very close to that figure. Meaning that the deficit is set to expand even further.


Now of course there are elements such as Niobium substitution and the possibility that the predicted uplifts in vanadium strengthening don't occur. However, it is now abundantly clear to me at least that there's ample wriggle room on this because steel market demand is currently running well above the levels forecast by TPP Squared.




Other Points of Interest


Even if Ex-China merely maintains the current 6.14% increase to the TPP Squared FY 815,000Mt forecast, at FY 865,000Mt it will still come in c. 13,000Mt below what was achieved in 2019 (see here).


Meaning a failure to recover any of the 67,000Mt of lost production seen in 2020 due to the Covid pandemic.


Additionally, having done an extensive exercise on average monthly steel production in China/Ex-China, it is clear that February is by far the worst-performing month and we've already had that.


Better still between 2016 - 2020 Chinese steel production between May-Oct bettered April's output in three out of five years. In the other two years, it fell but not by much.


2016 = 1.7%

2019 = 2.7%


So we aren't talking major pullbacks here and with expansion expected to continue through to Q3, this year's deficit is likely going to continue to grow past even that revised figure of c. 6,780mtV.


According to TPP Squared, $6.00 - $7.00 per lb V205 reflects "the historical equilibrium market clearing price when supply exceeds demand."


At the + $8 per lb V205 mark, we are well past that point and clear market tightness exists.





"A secondary peak occurs at $15.00-$16.00/lb V2O5 representing a point of price stability in an environment where supply struggles to meet demand. At this price level we don’t see very much substitutional loss of demand and so in tight markets there is support for prices in this range."

The Chinese vanadium market is extremely tight right now with major FeV producers upping their prices again this week.





The above analysis says that this tightness is not going to let up because Chinese steel output isn't letting up and as I have demonstrated that is set to continue right through Q3. It also says that Ex-China is also holding up its side of the bargain and has the ability to add more as this year continues to unfold and Covid lockdowns continue to ease.


With that in mind, vanadium prices look set to continue their rise and major world macro events aside, the above $15.00-$16.00/lb V2O5 pricing point looks very possible from here because right now there looks to be little standing in its way.




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

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