Vanadium Outlook 2019: After the “Year of Vanadium,” What’s Next?

2018 has been an excellent year for vanadium. The metal is used as an alloy in steel production, but is gaining interest as word spreads of its energy storage potential.

Like lithium and cobalt, which have become vital to the small-scale battery manufacturing sector, vanadium is proving instrumental in large-scale energy storage systems, particularly the vanadium redox flow battery (VRFB).

The metal saw significant price growth in 2018 and even reached highs not seen in over a decade.

“Really, 2018 was the year of vanadium,” said Jack Bedder, director at Roskill. “Prices increased considerably in 2017, but in 2018 the price rise intensified.”

“Q1 prices averaged US$62 per kilogram, Q2 prices US$69 and Q3 prices US$86,” he explained. “In October, prices reached an average of US$115 and US$120 in November. This put prices at 13-year highs.”

Vanadium trends 2018: The little energy metal that could

In early January, the price of vanadium was steady on its upward trajectory, up more than 130 percent from its 2016 level. Increased demand and reduced global supply spurred on the dramatic price growth, which was also bolstered by the growing use of vanadium in energy storage.

2018 also saw rapidly depleting vanadium stocks as the impact of project closures in 2015 and 2016 was finally felt. In late 2015, vanadium producer Evraz Highveld shut down, removing 10 to 15 percent of global feedstock when it closed its Mapochs mine.

“When Highveld closed, global inventories were considerable and, as such, there was little price reaction to the closure of a significant producer,” pointed out Bedder. “However, as of Q4 2018, inventories have been drawn down to nearly nothing.”

Production concerns were further exacerbated when Chinese supply became precarious due to ongoing environmental inspections and subsequent production disruptions. Output from China in 2017 was 2,000 tonnes smaller than 2016 at 45,000 tonnes despite steady growth in the global vanadium sector.

The market is expected to get tighter for the steel alloy in the new year, as China has implemented new regulations around the strength of rebar, calling for higher measures of vanadium.

“The standard eliminates low-strength Grade 2 rebar and sets out specifications for three different high-strength standards: Grade 3 (400MPa), Grade 4 (500MPa) and Grade 5 (600MPa),” pointed out Bedder.

“The confirmation of these new regulations, while expected, has certainly helped to support vanadium price levels, with rebar producers in China having stocked up on ferroalloy materials over the summer months (where possible) in preparation.”

Vanadium trends 2018: Powering the future

The steady growth in the vanadium price was also good news for producers outside of China. In fact, the positive momentum even enticed some North American companies to invest in exploration or refocus on vanadium mining.

Uranium-focused Energy Fuels (TSX:EFR,NYSEAMERICAN:UUUU) announced plans to restart vanadium production at its White Mesa project, a site that had been previously shuttered when prices were lower.

Steady price growth was somewhat expected by the company; however, how quickly it moved was not.

“But honestly, the surge in vanadium prices in 2018 surprised us,” said Energy Fuels’ vice president of marketing, Curtis Moore. “Our White Mesa mill has produced about 45 million pounds of V2O5 during its operating history, having last produced about 1.5 million pounds in 2013. So the market strength we’ve seen in 2018 has been the catalyst to get us back into production in Q4 2018 at the White Mesa mill.”

The strategic move not only helped Energy Fuels optimize its current project load, but also allowed the company to jump ahead of the competition as well.

“The most important milestone in 2018 was our announcement that we would begin vanadium production in Q4 2018,” added Moore. “We are very excited about this, because this will make Energy Fuels the only primary vanadium producer in North America.”

He continued, “secondarily, we have begun test mining at our La Sal complex of uranium/vanadium mines in Utah for the purpose of targeting vanadium resources.”

While producers are thrilled that prices have essentially doubled since January 2018, end users are less excited because higher prices mean greater sourcing costs.

One end user that is an especially interesting position is CellCube Energy Solutions (CSE:CUBE,OTCQB:CECBF). In addition to developing VRFB systems for energy storage use, the company is leveraging itself to be a fully integrated producer, supplier and manufacturer.

In the last quarter of 2018, CellCube began spinning out its Bisoni McKay and Bisoni Rio vanadium properties in Nevada through the establishment of a wholly owned subsidiary, V23 Resource.

The energy solutions company also began developing new VRFB technology in 2018.

“The new battery technology being developed by CellCube will increase battery efficiency and indirectly reduce the impact of more expensive vanadium,” said CellCube CEO Mike Neylan. “In addition, CellCube is funding research into electrolyte formulations that is being undertaken at the University of Calgary.”

Despite the emergence of North American vanadium projects in the last calendar year, there is still concern about future supply.

“With the market entering structural deficit there are questions regarding how adequately supply will meet demand in the short term,” added Roskill’s Bedder. “With an estimated three-quarters of feedstock supply accounted for by co-production, a large amount of vanadium feedstock supply is made available because of iron/steel market dynamics rather than in response to vanadium demand.”

Vanadium outlook 2019: Higher prices, smaller supply

After spiking to its 13-year high in November, the price of V2O5 flake used in energy storage has come down from roughly US$33 per pound to US$23.90. Ferrovanadium used in steel manufacturing also experienced a price drop and now sits at US$98 per kilogram.

However, insiders see the price decrease as a momentary hiccup, and expect the positive trajectory experienced in 2018 to continue.

“The expectation is that vanadium prices will continue to rise and the development of new mineral properties previously uneconomically viable will grow,” said CellCube’s Neylan. “Companies with high vanadium production costs will have difficulty if prices moderate or decline.”

This positive outlook was reiterated by Moore of Energy Fuels.

“We believe vanadium markets will remain strong in 2019 and 2020,” said Moore. “Today’s market strength is caused by significant production cuts, primarily in China, for environmental, health and safety reasons, along with significant increased demand, primarily due to new rebar standards in China that can only be met through increased use of vanadium.”

While producers remain optimistic that the price growth will stay the course, Roskill gave a more subdued outlook.

In fact, according to Bedder, price growth could negatively impact the VRFB sector.

“Roskill’s baseline forecasts suggest that demand from this sector may plateau for some years until vanadium supply increases and prices retreat,” he said.

While there are a number of vanadium projects at various levels of development around the world, meeting increased demand could prove harder than many anticipate.

“The key question for the market is how will supply increase to meet demand,” added Bedder. “There is only so much more material that can come from co-production in China, especially during a period of environmental inspections and steel industry consolidations.”

“We expect prices to remain high for some time — so it’s the perfect time to finance and develop a project,” he said.

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

Editorial Disclosure: Energy Fuels is a client of the Investing News Network. This article is not paid-for content.

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