How the US Section 232 Probe Could Impact the Vanadium Market

- June 3rd, 2020

The investigation was launched after US vanadium producers AMG Vanadium and US Vanadium presented the petition last November. 

The US Department of Commerce has launched a Section 232 investigation into vanadium imports to determine if they pose a risk to national security.

Designated a strategic and critical material, vanadium is a key element used for national defense and critical infrastructure applications.

“Vanadium is utilized in our national defense and critical infrastructure, and is integral to certain aerospace applications,” Secretary of Commerce Wilbur Ross said in a statement on Tuesday (June 3). “We will conduct a thorough, fair, and transparent investigation to determine whether vanadium imports threaten to impair US national security.”

 

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The probe was launched after US vanadium producers AMG Vanadium and US Vanadium presented the petition in November of last year.

“The petitioners assert that domestic industry is adversely impacted by unfairly traded low-priced imports, limited export markets due to value-added tax regimes in other vanadium producing countries and the distortionary effect of Chinese and Russian industrial policies,” said the Department of Commerce in its release.

Commenting on the news, CRU Group Senior Consultant Willis Thomas said the appetite for this type of investigation is relatively good.

“Recent success of other Section 232 cases in steel and aluminum provide a roadmap to possibly bringing a successful tariff case by the affected domestic producers, so this is seen as a viable alternative to AD/CVD cases being brought,” he told the Investing News Network (INN).

The Antidumping and Countervailing Duty Operations Unit is responsible for enforcing US antidumping duty (AD) and countervailing duty (CVD) laws. The unit conducts investigations in response to petitions received by the Department of Commerce from domestic industries and/or labor unions.

According to the Department of Commerce, the supply of high-purity vanadium oxide for use in aerospace alloys is all imported.

“The vanadium market in the US relies on two main domestic producers of vanadium units currently — AMG and US Vanadium,” Thomas said. “These two producers do not produce enough vanadium for consumption in the steel, aerospace, chemical and battery industries — thus, imports fill the gap.”

Depending on what direction is taken by the Department of Commerce, sectors such as steel, aerospace, chemicals and vanadium redox flow batteries could all be affected, CRU’s Thomas said.

“For all of these industries, save batteries, vanadium represents a small share of the final price of the finished good or even of the intermediate product,” he said. “For batteries, the cost of the vanadium electrolyte has been estimated to be about 30 percent, but can rise rapidly on vanadium price increases.”

Whether the resolution of the Section 232 investigation could potentially help the country build up its domestic supply chain is still to be seen.

“This is highly dependent on the outcome. The devil will be in the details of the support/assistance, if provided, to come from the US federal government for domestic vanadium producers,” he said. “Vanadium consumption is multi-faceted and is substitutable in the core application of steel alloying (subject to some technical limitations).”

Thomas added that broadly higher prices for vanadium across all points of US consumption could potentially destroy some demand.

Developing its own domestic vanadium production would also pose challenges for the US — namely the fact that the current reality is the heavy use of imports, and that the domestic vanadium industry has shrunk significantly over time.

“With only consistent two US producers, there is limited scope to support existing producers or raise current utilization,” Thomas said. “There is an idle facility, owned by Gladieux, which looks to re-enter the market shortly; even so, there is not enough vanadium capacity to be fully self-sufficient.”

John Meyer, SP Angel’s head of research, told INN that there are very few primary vanadium miners, but there are more hopefuls.

“Tariffs might benefit one or two new mines in the US or Canada, but it won’t change the world and these mines are unlikely to compare with primary producers in South Africa and Brazil, such as Glencore (LSE:GLEN), Bushveld Minerals (LSE:BMN) and Largo Resources (TSX:LGO),” he said.

For Meyer, the US is going to need more vanadium for vanadium redox flow batteries in California, but he doesn’t see raising tariffs as helping the supply chain.

The Department of Commerce’s Bureau of Industry and Security will conduct the investigation and will provide the opportunity for public comment through July 20.

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

 

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