The Chinese vanadium market is extremely strong at the moment. Chinese production of vanadium nitride (VN), the alloy primarily used in rebar, is flying at the moment, up 67% y/y in August... a clear indication that rebar standards are being adhered to. Supply of V2O5 as a raw material is tight and according to FerroAlloyNet numbers, there has been a monthly deficit of >1,000MTV V2O5 in each of June, July and August. That being said, the price isn’t responding as would be expected given the fundamentals, and this is because the Western market is much much weaker. As we all know, the European V2O5 price has been trading at a large discount for the past few months and Chinese producers have been reluctant to export material to these markets, which has added material to the Chinese domestic market that would have previously been exported. The Western market is weak for a number of reasons, namely because of FeNb substitution which has displaced 8% of the Western vanadium market according to year-to-date trade figures as well as the industrial slowdown forcing European steel mills to close. Glencore are also likely to be playing games now that they have lost the Largo contract, keeping prices down while they adjust themselves. Glencore have only previously played in the Western market, but now they are setting up deals to export material from Brazil to Tianjin (200mt V2O5/month from March 2020). The major positive takeaway here for me is that China are consuming a lot more material, and the vast majority of V2O5 producers from slag are operating at full capacity, which will force many Chinese VN producers to have to begin importing raw material (V2O5). Looking at the history books, previously when China has moved from net exporter to net importer of any given commodity, in most occurrences, the underlying price saw a well supported upward price swing. Given Chinese V2O5 exports have now dropped to just ~400mt per month (from ~650mt this time last year), the Glencore deal alone will cut that number in half and with the current international price dynamic, it wouldn’t surprise me if more Western producers follow suit. Stone coal producers may come online when prices improve, but environmental controls will no doubt keep a lid on it.
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