FOCUS: Vanadium close to price bottom but market worries over weakness in China

Ferro-vanadium prices have been under pressure since August 18, Fastmarkets has heard, with traders taking profit and cutting their offers to encourage sales, which has led some producers to step out of the market.

Now, in mid-September, some market participants expect prices to stabilize with more demand from steel mills in Europe, while others remained pessimistic due to current market headwinds in China.

Fastmarkets’ latest price assessment for ferro-vanadium, basis 78% V min, 1st grade, ddp Western Europe, was $33.00-35.00 per kg V on Friday September 17. During the past month, the price has decreased by 15.2% from $39.50-40.70 per kg V on August 18.

Over that month, traders have been generally open to lower bids in their attempts to take profit on units bought earlier in the year, when prices were significantly lower. Despite the current downtrend, prices are still 27% higher than they were in September 2020.

“A correction [in the price] is not a surprise to anyone. August has been extremely quiet,” a trader in Europe said. “Many traders have cashflow problems, and they need to move material and lock-in a profit.”

Over the past three weeks, activity has started to pick up in Europe, with more buying interest from steelmakers. But steel mills have shown significant resistance to higher prices and were able to place orders at the low end of the price range, market sources said.

As an example, the latest tender from German steel producer Saarsrstahl was concluded at a price of $35 per kg.

There have also been sales reported around $33.00-33.50 per kg in the inter-trade.

“I did low bids to test the water, and I could buy at $33.50 per kg,” a trader in Europe said. “The market is divided. There are still four or five desperate sellers while others have decided not to offer, waiting for prices to stabilize in the near term.”

“I do believe we are at the very bottom [of the market],” a second trader said. “[A price of] $33 [per kg] is a psychological barrier for everyone. Big consumers do still need material, and there is not much inventory in Europe any more.”

Producers not selling into Europe
Amid the downtrend, some producers have preferred to retreat from the European spot market for the time being, confident that price levels will recover once traders have offloaded their stocks.

“We are going to step out of the spot market,” a vanadium producer, which usually commits 10-15% of its production to spot sales, told Fastmarkets. “We will continue selling on long-term contracts where we are not seeing any downtrend.”

A second producer told Fastmarkets that it is only taking orders from outside Europe, with big volumes sold into Turkey during the most recent pricing session.

“We are not worried [about the price drops],” the second producer said. “The market is very close to a bottom. Fundamentals are still strong and there is a good outlook from the steel sector in Europe and the United States. The downtrend is just temporary, and we expect prices to stabilize very soon, because there is not much stock in Europe to liquidate.”

China headwinds
The ferro-vanadium market is largely linked to China and to its infrastructure sector through rebar production. Market participants are monitoring the Asian market, aware that reduced consumption in China could trigger increased exports to Europe.

Beijing has implemented guidance instructions that production this year should not exceed the corresponding figures for 2020, in addition to imposing restrictions on energy consumption, to help achieve its goal of reducing carbon emissions to net-zero by 2060.

China’s crude steel production in August decreased by 13.2% year-on-year and was down by 4.1% from July, according to data released by the country’s National Bureau of Statistics on September 15.

All vanadium product prices fell in China in the week to September 16 amid declining steel mill tender prices and steel demand weakened by the crude steel production cuts.

Fastmarkets assessed the price of ferro-vanadium, 78% V min, fob China, at $32.48-32.89 per kg V on September 16, down from the previous week’s assessment at $33.35-34.36 per kg.

Fears of potential further restrictions on steel production continue to prompt some traders to liquidate their positions.

“I do want to sell my stocks,” a third trader told Fastmarkets. “China is the biggest market driver. Sure, there is good demand for chemicals and vanadium redox batteries, but more than 80% of the vanadium produced goes into the steel sector.”

Market participants are also monitoring the status of Chinese property developer Evergrande Group, which has warned of a possible default because of a spiralling liquidity crisis. The company has accumulated $300 billion in debts, and its cashflow is under “tremendous pressure,” it said.

“My concerns are headwinds in the Chinese real state sector… This could have a wide-reaching effect on the property and construction sectors, with vanadium going into rebar,” a fourth trader in Europe said. “[The outlook for steel] will depend a lot on the situation with Evergrande. If it becomes [insolvent], that will affect the construction industry in China, and steel demand there as a consequence.”

He also said that even talking about a potential insolvency has a negative effect on steel market sentiment. “I’m not saying how stressful for the [steel] market it will be if it really happens,” he said.

Freight issues could provide support
Other sources polled by Fastmarkets did not consider the situation in China to be urgent in the short term, expecting the market to be underpinned by logistics constraints.

“On paper, [the Evergrande situation] is a threat for Europe, but the freight chaos will continue well into next year, and that could support prices, or at least keep them at their current levels, for the time being,” a fifth trader said. “Material takes 75 days to arrive [in Europe from China] in the best-case scenario.”

The combination of fewer vessels on the water, an imbalance in trade flows to and from China, and competition for cargoes has been responsible for a rapid increase in container shipping costs since last year.

Vessel delays and longer shipping times mean the regional markets are not responding to one another and normalizing in the way they typically do, sources said.

Therefore, even if there are cheaper prices available in Asia, the congested freight market will prevent that material from coming to Europe in the near term, market sources said.

Vanadium pentoxide price drops
Meanwhile, the price of vanadium pentoxide also dropped on Friday, with some sellers reducing their offers amid limited buying interest.

Fastmarkets’ price assessment for vanadium pentoxide, 98% V2O5 min, in-whs Rotterdam, was $8.30-9.25 per lb V2O5 on September 17, down by 5.9% from the previous week.

The pentoxide price had remained stable during late August and early September, supported by good demand from the chemical sector and high prices in regions such as South Africa, market sources said.

But several market participants expect a further correction in prices because European demand is thin, and margins for conversion to ferro-vanadium are unavailable at current pentoxide prices.

Fastmarkets understands that, with prices at their current level, converters would typically hope to sell ferro-vanadium at $36-37 per kg.
Marina Shulga In Dnipro contributed to this report.