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LONDON – Last year it was cobalt. The year before that it was lithium.
This year it is vanadium, another esoteric element of the periodic table that is on a wild bull rampage.
Vanadium prices in China have more than tripled over the course of 2018, albeit with some recent softening from their early-November peaks.
The share price of South Africa’s Bushveld Minerals , one of only a handful of primary producers, has soared from less than 10 pence per share at the start of the year to 42 pence currently.
Vanadium is the latest exotic metal to feel the new energy heat. The vanadium redox flow battery (VRFB) is a breakthrough technology in energy storage, a fast-growing component of the infrastructure needed to accommodate the global shift to renewable energy.
Vanadium’s problem, however, is that there is already a structural shortage of the stuff rooted in its historical co-dependence on the steel sector.
Supply scarcity and the resulting price volatility are the two biggest hurdles to vanadium’s potential bright electric future.
Vanadium, named after the Norse god of beauty Vanadis, was only isolated in metallic form in the second half of the 19th century.
But its properties, particularly its capacity to strengthen steel, were quickly appreciated. Henry Ford’s Model T car used the metal in its steel alloy chassis.
Adding just one kilogramme of vanadium to a tonne of steel has the effect of doubling the strength of the steel. That explains why the steel sector accounts for just over 90 percent of global usage, according to analysts at SP Angel. (“Commodity Research Note: Vanadium”, Q1 2018)
Given China’s dominance of global steel production, it’s no great surprise that the country is the single largest user of vanadium.
And it’s China that has laid the foundations for vanadium’s spectacular price rally this year.
The country has changed the specifications of high-strength rebar construction steel to improve earthquake resistance.
If vanadium is going to play a starring role in the coming green power revolution, it will need to find a way of breaking its circular dependency on the steel industry.
The changes, just implemented, will drive higher use of vanadium and although the amounts involved are tiny, the cumulative impact will be to increase Chinese consumption by around 10,000 tonnes per year, according to SP Angel, citing China’s Iron and Steel Research Institute.
That’s the equivalent of around 12 percent of global vanadium production in 2016.
This one-off demand boost is happening just as China is weakening its own supply capacity as part of its drive to introduce more environmentally friendly policies.
Vanadium is a very elusive metal. It took two “discoveries”, one by a Spanish-Mexican mineralogist and a later one by a Swede before everyone accepted it was indeed a new element.
It is largely produced through the processing of magnetite iron ore, with around 73 percent of output coming in the form of a slag generated in the steel production process.
The steel mills that produce it are not the same ones that consume it. Rather, they have historically been the higher-cost, lower-quality operators feeding low-grade magnetite iron ore into their alloy mix.
Precisely the sort of material that is being used less by China’s steel producers as they favour higher-grade ore to maximise efficiencies and reduce environmental emissions.
The gap between high-grade and low-grade pricing has been a defining feature of the iron ore market this year but one that simultaneously reduces vanadium slag production.
Just to compound this evolving supply challenge, Beijing has also banned the import of four types of vanadium slag, cutting off around 4,500-5,000 tonnes of annual supply from Russia, according to SP Angel.
Another potential source of supply, stone coal, is also being restricted by China’s war on smog.
Chinese regulators are refusing to issue permits to existing stone coal producers and although there is a collective attempt to upgrade processes to achieve lower emissions, the short-term effect is to reduce even further China’s vanadium production capacity.
China’s moves both to boost demand and limit supply have created a perfect bull storm for the tiny vanadium market.
Exports from the country have dried up, stocks everywhere are falling and prices have been on a super-charged rally.
The market was already in an 8,000-tonne supply deficit last year and SP Angel expects demand to continue exceeding supply through 2020.
Indeed, “we are struggling to see how the market may supply demand vanadium in the next two years and we feel vanadium prices should settle at a higher price level than previously envisaged for the longer term.” (“Mining Flash Note: Bushveld Minerals”, Nov. 9, 2018)
Unless there is a technical breakthrough in either stone coal or by-product slag processing, the slack will have to be made up by primary producers such as Bushveld and Largo Resources, which operates the Maracas Menchen mine in Brazil.
There is no shortage of vanadium wannabes but as ever with new projects, lead times are long and susceptible to delays, meaning forecast new supply “is not expected until at least 2021,” SP Angel notes.
It’s a problematic backdrop for a metal that could play a key role in the build-out of energy infrastructure, particularly in developing countries.
Storage systems accounted for only around 2 percent of global demand last year, according to Bushveld Minerals.
But future usage is potentially huge.
“Current forecasts estimate that VRFBs will account for 20 percent of vanadium consumption by 2030 but with significant upside of as much as 50,000 tonnes if they capture 25 percent of the energy storage market within the next 10 years.” Bushveld says on its website.
That’s around half of current global output, even before factoring in the likelihood of falling production in China.
As Bushveld concedes, “the ability to guarantee supply of vanadium for VRFBs will be key to the success of these systems”.
The company is looking at the option of never actually selling its production, but rather leasing it over the life of an energy storage project.
It’s an innovative solution to the twin problems of availability and price volatility.
However, it’s also an admission that if vanadium is going to play a starring role in the coming green power revolution, it will need to find a way of breaking its circular dependency on the steel industry.
(The opinions expressed here are those of the author, a columnist for Reuters.)
(By Andy Home; Editing by Susan Fenton)
