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Vanadium prices are now at their highest point since 2005, pushing through the magical $US20/lb mark on Friday amid ongoing supply concerns, according to Metal Bulletin data.

And with only three large scale primary vanadium producers globally – Bushveld Minerals, Glencore, and Largo Resources – this supply squeeze looks set to continue in the near term, even with planned expansions designed to increase annual production.

That’s good news for the 20-or so ASX stocks with exposure to vanadium.

Earlier this month investors piled into vanadium and oil shale play QEM which closed a $5 million initial public offer over-subscribed as it works towards an ASX listing.

But the big question for investors is whether the price is sustainable.

History shows us that vanadium prices are volatile, with pattern of long periods of low prices followed by a spike, then a fall.

In the first half of 2005 a spike in vanadium prices to over $25/lb — and subsequent drop — happened with such velocity that previous spikes seemed insignificant in comparison.

Vanadium (V2o5) prices from 2002 through to the present. Source: http://www.australianvanadium.com.au/wp-content/uploads/2018/09/AVL-Benchmark-presentation-September-2018.pdf
Vanadium (V2o5) prices from 2002 through to the present. Source: https://bit.ly/2xrXRVk

Is this time any different?

“Basically, right now the forecast is that there is going to be a large gap between supply and demand until new production come online,” says Technology Metals Australia boss Ian Prentice.

Technology Metals Australia (ASX:TMT) is progressing a final feasibility study on its Gabanintha project in WA.

Mr Prentice has just returned from a vanadium industry summit in China where the vanadium price was a hot topic.

“There is no near-term solution for that [vanadium supply] gap – demand is going to continue to grow.”

A different story this time

That differs from 2005, when the spike and subsequent fall in the vanadium price was timed with explosive growth in China’s steel industry, Mr Prentice said.

“We are not seeing that supply side response this time; we aren’t seeing a whole lot of new supply about to come onto the market,” he said.

The upshot is that the industry can see this price being sustained at elevated levels for quite some time to come, until new supply comes into the mix.

And this doesn’t consider the the new Chinese rebar standards — which require additional vanadium — and the extra supply required by the budding vanadium redox flow battery market, which could be powering 25 per cent of stationary battery storage by 2028.

“Once the new production comes online – and we like to think Technology Metals Australia is one of the leaders – and the market comes back into balance you’ll see the price settle back down at a level that works for both sides,” Mr Prentice said.

“But to encourage that new supply we need elevated pricing, and that’s what we are seeing at the moment.”