Vanadium Market Update: H1 2019 in Review

After experiencing one of its best years to date in 2018, prices of both vanadium pentoxide (V205) and ferro vanadium have fallen dramatically.

Weakened demand, failure to enforce new rebar standards in China and economic uncertainty have all weighed on the price of the specialty battery metal.

Ferro vanadium hit its year-to-date high on December 5, 2018 when it reached US$126.50 per kilogram. V205 also reached its highest point of US$28.80 per pound around the same time.

Both have steadily slipped from those highs in the months since. Currently, the price of V205 is US$8.10 and ferro is US$36.70.

The vast majority of produced vanadium is used in China for steel applications, more specifically the high-strength low-alloy used to make construction rebar. This end use was part of the reason behind vanadium’s sharp price growth in 2018.

The Chinese government implemented new stricter rebar standards at the end of 2018, prompting smelters to stockpile vanadium for future use, helping to drive the price higher.

Vanadium is also used to construct vanadium-redox flow batteries (VRFB) which can store large amounts of energy. VRFBs are designed for large scale energy storage, like power grids, or charging stations.

However, market watcher Andrew O’Donnell, managing director of Supercharged Stocks, thinks there is no cause concern with the current price depreciation.

“I’m not that concerned about the price, I think it’s somewhere around US$8 right now, which is not ideal necessarily, it’s a bit too low,” said O’Donnell. “I think ideally around US$12 would be great because it’s good for actual miners and of course that is a good price as well to continue developing the redox battery. So, you don’t want it too high because if it’s too high then the batteries are too expensive (and) too low, of course, is not good.”

O’Donnell had expected vanadium to perform slightly better following the rare earth news in late March.

“I was a little bit surprised that it didn’t react with the rare earth story – rare earth did explode – but for whatever reason, vanadium didn’t get carried along with it. I think people focused solely on the trade war idea and picked up on the rare earth story rather quickly,” he said.

Vanadium market update: By the quarter

With prices starting the year at an all-time high, there was renewed interest in ramping up production and exploration. Leading the charge was US-based uranium producer Energy Fuels (TSX:EFR,NYSEMKT:UUUU).

Vanadium, which is becoming increasingly used to manufacture VRFBs, is a by-product of uranium mining, in addition to other metal and energy extraction.

With its eyes set on becoming the first American vanadium producer, the company looked to its mill ponds were as much as 4 million pounds of recoverable vanadium is dissolved.

“We are extremely pleased with the quality and purity of our initial batches of finished vanadium product. Energy Fuels is the newest vanadium producer in the world to respond to today’s relative market strength, and we are now one of the only vanadium producers in North America,” Mark Chalmers, president and CEO of Energy Fuels, said in an announcement.

In Late January, vanadium took centre stage in the 2019 OTCQX best 50 companies list. Topping the exclusive list was Largo Resources (TSX:LGO,OTCQX:LGORF) a vanadium flake, high purity vanadium flake and high purity vanadium powder company with its Maracás Menchen mine project located in Bahia State, Brazil.

At the beginning of Q2, ferro vanadium was selling for US$59.00; while V2O5 was trading for US$14.90.

As the first quarter of 2019 drew to a close, Bushveld Minerals (LSE:BMNannounced its subsidiary Bushveld Energy commissioned its first VRFB energy storage system in South Africa.

The initial unit deployed by Bushveld is expected to have a peak output of 450 kilowatt hours.

While vanadium has long been used as an alloy material for steel manufacturing, the real potential the metal hold is in its energy storage capabilities.

According to the International Renewable Energy Association, “VRFBs already offer some of the lowest system costs among battery technologies and are expected to decrease in cost by 66 percent through to 2030, which is faster than any other technology in energy storage.”

At the end of the quarter, V2O5 sat at US$8.30 and its counterpart was US$38.

Vanadium market update: Supply and demand trends

The future of vanadium appears to be bright despite prices continually sliding since January. The optimism is mostly related to the vast potential that lies from the VRFB energy storage sector, which will offer home owners and business owners the power to store clean renewable energy — lots of it.

Depending on their size, VRFBs are able to provide hundreds of megawatt hours at grid scale. This means that they are able to be charged thousands of times without losing capacity, while holding large amounts of energy.

The vanadium in the batteries also never degrades, so old units can be taken apart and the vanadium recovered for future use.

“What vanadium redox batteries seem to be doing is really leading the charge on the battery front — it’s pretty impressive,” said O’Donnell.

Roskill is expecting some growth in the vanadium market for the rest of 2019 as Chinese construction season begins to ramp-up.

“The ongoing tolerance period for new rebar standards in China is the main factor contributing to falling vanadium prices. In addition, higher-than-expected substitution of ferrovanadium for ferroniobium in China (caused by high vanadium prices) has reduced vanadium demand and helped push prices downwards. Ferroniobium imports into China peaked at 7,000 tonnes in January 2019 but fell back to 3,000 in February,” wrote Roskill’s Jack Beddar.

Vanadium market update: Companies to watch

As a byproduct metal there are certainly lots of ways investors can be exposed to vanadium.

Andrew O’Donnell, has a favorite of his own — First Vanadium (TSXV:FVAN,OTCQX:FVANF).

“They’ve met their milestones, they are hitting their targets, so they’re plugging along just fine. When I see those things, and companies are meeting a milestone and stock is responding, I’m not concerned,” he said.

For Mercenary Geologist Mickey Fulp, who carefully tracks a variety of resources including uranium, gold and rare earths he sees one company dominating the sector outside of China.

“Energy Fuels — they produce vanadium at a really cheap price and I would submit they control the US vanadium market,” said Fulp. “Whatever they decide to do they are going to make money on vanadium when the price is high and when the price goes low they are just going to quit producing.”

Fulp is skeptical of the new vanadium mining projects, mostly because there are so many ways to recover the metal as a byproduct of other mining efforts, making pure-vanadium plays uneconomical.

“Vanadium plays that are popping up in Canada and the western US none of them have a prayer,” said the self-professed contrarian. “[A]ll the vanadium in the world comes from four sources.”

Those sources are a byproduct of steel smelting, a byproduct of uranium mining, residues from petroleum refining and as a by-product of solid waste.

Vanadium market update: A look ahead

Looking ahead to the rest of the year, vanadium is expected to experience an uptick in demand which will likely translate into some positive price momentum. But just how much remains to be seen and is reliant on a variety of factors.

The most significant price catalyst would be China enforcing its own rebar standards more rigorously, according to Roskill.

“Whether or not Chinese regulations are enforced, supply-side constraints suggest that the vanadium market will remain tight over the medium term,” notes a May press release. “With the market now in structural deficit, there are questions surrounding how supply will meet demand.”

Much of the price growth will also depend on how quickly the VRFB market can grow. While the systems offer large capacity energy storage, the tight correlation between cost of the system and the vanadium market price can drive the cost of the systems higher than its lithium-ion counterparts.

“While reasonable growth in demand is expected towards the end of the outlook period, Roskill expects that given the general tightness in its baseline outlook for supply and demand, large volumes of vanadium are unlikely to be available to the battery sector at a price suitable for VRB commercialization over the medium term.”

Andrew O’Donnell suggests those interested in investing in vanadium companies plan for a long-term investment scenario.

“Unfortunately, the interest in the [vanadium] market was waned quite a bit, but this is a long term play for me and I think that if people buy it, pay attention to it and just kind of leave it … it’s not a trading one where you are going to be sitting and staring at it every day,” he said.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Energy Fuels is a client of the Investing News Network. This article is not paid-for content.

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