Think high vanadium prices are good news? You’re wrong.
Vanadium prices have plunged this year – taking investor sentiment down with it.
But investment can be a skittish beast, so it’s important to take a step back and look at the bigger picture.
The Chinese price for vanadium pentoxide flake peaked at $US33.90 ($47.52) a pound in early November last year but has since slid more than 57 per cent to $US14.40 a pound.
That’s the spot price by the way.
Because most vanadium is sold via private contracts (emphasis on private) investors should be using these prices as a guide only.
Most vanadium is used in steel-making. Over 90 per cent of production is added to steel rebar to make it stronger so buildings don’t fall over.
Roskill says “an ongoing tolerance period” for new rebar standards (which need more vanadium) is to blame for the price drop, which is a nice way of saying Chinese steel producers are akin to students getting a big homework extension.
But with the peak Chinese construction season still ahead, Roskill says the outlook for vanadium prices is ‘good’.
“It remains possible that vanadium prices will stabilise or even begin to increase as the year progresses,” Roskill says.
“Roskill maintains that any sign of strict implementation of new rebar standards will result in higher vanadium demand and thus higher prices.”
But are higher prices better for ASX-listed vanadium hopefuls?
The answer is no, Mastermines boss David Gillam says – low (ish) and stable is the key. Here’s why.
Just look at any commodity over time.
The Chinese will find a way around unsustainably high prices, usually to the detriment of existing producers.
Yet most investors believe higher prices are better. What they don’t understand is the substitution story, or the fact that the Chinese can bring new production online very quickly.
“The Chinese will never accept extended periods of high prices,” Gillam says.
“They will find a way to substitute or bring on more supply – this is why you see so many commodities run in cycles.
“They are masters at it.”
In fact, the high vanadium price caused a niobium substitution spike earlier this year. That’s something vanadium miners want to avoid.
The Chinese are also building a new mine which will be operational by 2020, Gillam says.
“The Chinese can bring these mines onstream much quicker than we can,” he says. “They can react very quickly.”
We know that there was a lot of panic in the vanadium market late last year.
Gillam says that panic absolutely appears to be gone now as things stabilise – and stability is crucial.
“The best thing for vanadium is that we find the ground somewhere between $US10 to $US13 a pound and get some stability there,” he says.
“We see that as being very good for new entrants.
“Existing [miners] will obviously be feeling the pinch a bit, but as an industry we are much better off with prices at reasonable levels that stay constant.
“Financiers feel safer, and it allows [partners] to look long term.
“So when we get into this period of price stability – and $US10 to $US13 a pound still represents a very profitable margin – we see those [Chinese] companies prepared to sign agreements much more freely.”
What I was waiting for. VRB’s are massive soakers of #V205 & at current prices we should see a real uptake. I never believed they were viable over $15/LB & not likely on large scale at+ $10. Now getting back to LT reality. We’ll see if we’re correct ,VRB put a floor in V prices pic.twitter.com/nDkk2EuadW
— Mastermines (@VanadiumWorld) April 14, 2019
Vanadium is the key commodity in what is known as a “flow” battery (or VRFBs), which are better suited to large scale applications (stationary storage) than lithium-ion in many ways.
The problem was high vanadium prices made them uneconomic. But that’s changing.
“We are getting to a point where some of these commercial jobs that have been sitting on ice will start to kick in,” Gillam says.
“Of course, the lower the vanadium price goes, the more we are going to see these big batteries kick off.”
How much supply could these batteries potentially soak up? A lot.
“Its enormous,” Gillam says, “VRFB’s use a lot of V2O5.”
“We worked out that the big Dalian battery [in China], which is one that had been on hold, would basically use roughly 80 per cent of Australian Vanadium’s (ASX:AVL) production for a year.
“That’s a huge battery the size of a city block.”
The size of this beast may be an outlier, but still – if vanadium prices stabilise around current prices then these big batteries could kick off in a big way.