Vanadium market eyes fresh demand on EU stimulus

The European Commission's unveiling of a €750bn ($872bn) "green" infrastructure investment package this week is fuelling hopes of a demand revival for vanadium, bringing with it the potential to boost ferro-vanadium prices and restore balance to converters' profitability measures.

Europe's vanadium market has faced turmoil lately as a disconnection emerged between the raw material and value-added products. Challenges were exacerbated by the uneven global recovery from the Covid-19 pandemic, with pentoxide prices following the lead of Chinese producers benefiting from an earlier demand recovery, as well as support from both domestic fiscal and monetary policies.

But the commission's stimulus package could right these unbalanced scales, allocating a major funding boost to promote green infrastructure and sustainable power. One of the main recipients of the stimulus was Italy, which has been allocated €200bn, and much of that will be allocated to 120 national infrastructure projects. Large bridges are to be built in Genoa and Romania, which are likely to involve construction by Fincantieri using vanadium-bearing steels also produced in Italy.

On 21 July — the day of the commission's announcement — short-term price signals suggested that the month-to-date average of European ferro-vanadium prices at $22.80/kg duty unpaid Rotterdam could still be low compared with pentoxide prices of over $5.50/lb. But the market responded quickly, with European ferro-vanadium prices gaining $1/kg to reach $23.00-23.50/kg on 23 July.

Vanadium pentoxide prices in Europe are still too high relative to the alloy for converters to achieve positive cash margins. This is mainly because of tighter raw material supply in Europe and China, coupled with ample supply of the ferro-alloy in a market that is suffering from limited demand, largely due to Covid-19 lockdown measures.

Chinese domestic pentoxide prices are raised on the world stage due to a 13pc value-added tax rate and an import tax of 5pc. After removing the China taxes, current assessments for European pentoxide are in line with their fob China equivalents. At current pentoxide prices, Chinese producers are estimated to make an average of $2/lb cash profit as the marginal producer, but converters outside China are struggling with shrinking margins.

New sources of long-term demand

Despite the current upheaval, vanadium suppliers are eyeing new emerging sources of demand, also spurred by the commission's recovery plan.

Further to the traditional uses of vanadium, the metal is attracting new purchasers for its use in vanadium redox flow batteries (VRFBs). Battery demand is likely to rise as the commission's focus remains on "green-ifying" the bloc's incumbent energy system and as its focus on battery materials intensifies.

VRFBs differ from other, more widely publicised batteries — such as nickel-manganese-cobalt (NMC) — in that their chemistry allows them to store and release larger amounts of energy over long periods, albeit at a higher cost. That said, the nickel-intensive NMC is still likely to be more widely used in the electric revolution, because of its more developed value chain and its more optimised levels of energy density.

The commission's stimulus measures and the emerging application of vanadium in batteries suggest that the pentoxide market might register successive annual supply deficits while the stock overhang in ferro-vanadium markets is worked through — potentially driving up prices in the longer-term, in part to incentivise the development of new supply.

By Maximilian Court

Europe vs China prices

ConsumptionvProduction.pdf

Vanadium pentoxide cost curve.pdf