Investigation brings US closer to vanadium premium

Market participants expect a decision on the Section 232 investigation regarding vanadium by 23 May, with most predicating an affirmative determination will make the US fully a premium market.

The US Commerce Department initiated the 232 investigation on 28 May 2020 in response to a petition filed by AMG Vanadium and US Vanadium. Section 232 investigations determine the effect of imports on national security. Previous 232 investigations on steel and aluminum products resulted in 25pc and 10pc tariffs, respectively. No action was taken after a 232 investigation on titanium sponge.

The petition proposed two courses of action regarding vanadium oxides, vanadium carbonitrides, ferro-vanadium, and vanadates if the request was granted. One proposal was that the US impose a 40pc tariff on vanadium imports ad valorem. The other proposed recommendation would impose separate quota volumes with a 20pc tariff placed on shipments below a specified annual import volume and a 40pc tariff on volumes above that specified volume, with the quota declining 10pc points each subsequent year for three years.

The US consumes about 94pc of its vanadium for metallurgical purposes, mostly an alloying agent in the steel and iron industry, according to the US Geological Survey.

Most market participants expect a decision one way or the other, even though its possible the US administration avoids a determination altogether. But a slight majority of participants surveyed by Argus expect tariffs to be put in place. Depending on the magnitude of tariffs placed on vanadium products, it will likely make the US a consistent premium market in the global trade, which in recent history was not always the case despite the country's heavy reliance on imports.

FeV supply

US consumers of ferro-vanadium would likely face the most issues in securing supplies. In the first quarter, the US imported 567 metric tons (t) of ferro-vanadium, almost exclusively from Canada and Austria. Currently, there is one domestic producer of 80pc grade alloy, normally operating under a tolling agreement, and a second domestic producer that manufactures 50pc grade alloy from secondary raw materials. It is still necessary to import feedstock to produce 80pc grade alloy, which would impact the cost of production if tariffs were placed on all vanadium products. If 80pc grade ferro-vanadium was scarce, steel mills would likely have to update melt mixes to consume more 50pc grade alloy, squeezing domestic supplies.

Market participants have also floated the possibility that sellers of imported feedstock may declare force majeure if contract volumes are based on a reference price outside of the US, which is often the case with vanadium pentoxide (V2O5). The US imported 1,738t of vanadium pentoxide by content in 2020, according to Commerce Department data. Although there is vanadium available through recycling spent catalysts, the mode of production that AMG Vanadium uses to produce ferro-vanadium, the US is still also heavily reliant on imports, sources said.

FeNb substitution

One typical avenue for steel mills to limit ferro-vanadium reliance is to switch to ferro-niobium. At high enough prices, ferro-niobium becomes cost-effective as a replacement in some grades of rebar. Still over a longer period, market participants doubt that substitution of ferro-vanadium with ferro-niobium would be utilized on a large scale. Consumers typically begin to consider substitution when ferro-vanadium is trading in the $25-27/lb range, sources said.

Several mills made just that switch to use more ferro-niobium in their melt mixes when vanadium prices rose sharply in 2018 and still utilize the alloy to this day. This has led many to estimate that those with the ability to convert to ferro-niobium consumption over ferro-vanadium already have, leaving little additional market share for ferro-niobium to scoop up should prices spike again.

Not all signs point higher

Although many market participants are concerned about the impact the 232 investigation would have on the flow of ferro-vanadium, most market participants are certain that a significant supplier — Canada — will be exempt from tariffs. If exempted, the US would be able to avoid at least the worst side-effects from an abrupt cut in imports.

At the same time, the US government began negotiations with the EU to address the effects steel and aluminum section 232 tariffs have had on allies. These discussions have raised doubts among market participants in the steel, aluminum and vanadium sectors that the current administration is keen to use the 232 option at all to impose tariffs again, diverging from the efforts made by former president Donald Trump.

That said, commerce secretary Gina Raimondo defended the use of section 232 in April during a discussion about trade action against China. Additionally, President Joe Biden issued an executive order in February on America's supply chains for a general review and recommendations on "federal incentives and any amendments to federal procurement regulations that may be necessary to attract and retain investments in [critical minerals]," which includes alloying, recycling, and reprocessing of minerals. Vanadium was deemed a critical mineral in 2018.

By Nicholas Bell