Ferro-vanadium price rally brings mating season forward
Early negotiations of long-term contracts show that consumers of ferro-vanadium are trying to lock in deals slightly ahead of the usual price-mating season, in an effort to secure units in a tight market.
AMG Vanadium, a subsidiary of AMG Advanced Metalurgical Group, finalized a two-year contract for ferro-vanadium with a large steel mill in the United States this week, the company has said. It was the first significant deal of this year’s contract season.
The ferro-vanadium producer, which is based in Cambridge in the US state of Ohio, will supply a total of 7 million lb (about 3,175 tonnes) of vanadium contained over the length of the contract, which is set to begin on January 1, 2019.
“The two-year contract is telling,” a supplier source told Metal Bulletin on Friday September 21. “Consumers are a little scared. They want to lock up supply because the US market is not very liquid, and any [material] not committed will be directed to Europe or to [East Asia], where there are far more buyers.”
Multi-year contracts are very unusual in the noble alloys markets, and are not expected to become the norm, market sources added.
The AMG Vanadium contract has been booked on a formula basis, according to sources, but the discount element of the formula has yet to be confirmed.
Long-term contracts for ferro-vanadium in the US are typically tied to third-party price assessments, such as Metal Bulletin’s assessment for ferro-vanadium, in-warehouse Pittsburgh. The parties involved then agree a discount to the published price, to take prevailing market fundamentals into account.
Overall, long-term contract formula discounts are expected to shrink on a year-on-year basis, according to several sources.
Last year, formula discounts in both the US and European markets were predominantly agreed at 3-5%, with larger mills typically able to secure contracts on the high end of the range. Discounts of around 6% to third-party price references, or even in double-digit percentages, have often been seen in recent years.
But while 2019 discounts have mostly yet to be negotiated, market participants expect discounts to be slightly lower than last year, with suppliers leveraging expected global supply constraints against consumers.
“We are offering very low discount rates and some consumers look to be ready to go, because they don’t want to wait until the year-end and risk losing out on securing supplies,” a second supplier source explained.
Significant price increases over the month of September have fueled further concern about 2019 contract negotiations.
European ferro-vanadium prices reached $98.50-101.00 per kg on September 19, up by 5.56% from $93-96 per kg on September 14, according to Metal Bulletin’s latest assessment. This was their highest level since June 2005.
Global supply constraints have helped to elevate prices throughout the year, but the recent steep rises have put further pressure on buyers to act. Since the start of September, the ferro-vanadium market has risen rapidly, with prices up by 23.6% from $80.20-81.20 per kg on August 31.
As a result, several large mills have opened negotiations in an effort to get ahead of the market and ensure that they are fully supplied over the coming year. This is particularly true in the European market, with several traders and suppliers noting that large mills have entered the market to engage in long-term negotiations.
“Three large buyers are already in the market for their long-term contracts. They want to secure material before they lose even more leverage,” a European supplier source explained.
Meanwhile, US ferro-vanadium spot prices were largely stagnating due to a lack of liquidity in the domestic market in the first half of September.
But prices have begun to catch up, rising to $42.80-45.00 per lb on September 20, up by 9.75% from $39.75-40.25 per lb previously, according to American Metal Market’s latest assessment.
In addition to global supply constraints, the elevated prices have limited the restocking options available to most traders, leaving a much more consolidated picture of supply in both the European and US markets.
Market participants expect mills in both Europe and the US to continue to conduct long-term negotiations earlier than usual, to ensure supply coverage. Contract discussions are likely to continue next week at Metal Bulletin’s North American Ferro-alloys Conference in Chicago.