FOCUS: Oversupply will continue to cast shadow on Chinese vanadium market in H2 2019, sources say

An oversupply that has been branded the leading cause of the persistent price weakness seen in China’s vanadium market during the first half of 2019 will likely continue to act as a headwind for the rest of the year, market sources told Fastmarkets.

Vanadium prices in China were on a general downward trajectory in the first six months of 2019, partly due to higher-than-expected supply and weaker-than-anticipated demand, market sources said.

Fastmarkets’ price assessment for ferro-vanadium 78% V min, fob China stood at $34.50-37 per kg on June 27, the last assessment in that month, marking a 48.4% drop from $68.50-70 per kg at the start of the year. The price was last assessed at $37-40 per kg on Thursday August 15, a decline of 6.1% from $40-42 per kg in the prior week.

Fastmarkets’ price assessment for vanadium pentoxide 98% V2O5 min, fob China exhibited similar weakness over January-June; at $7.90-8.10 per lb on June 27, the price declined by 46.7% from $14-16 at the beginning of the year. The price was most recently assessed at $8.40-9.10 per lb on August 15, down by 3.3% from $8.40-9.70 per lb a week earlier.

Growth of supply exceeds that of demand
Both supply and demand for vanadium products in China have seen obvious increases in the first half of 2019, but growth of supply has outpaced that of demand, weighing on Chinese vanadium prices as a result, market participants told Fastmarkets.

China produced around 57,000 tonnes of vanadium pentoxide (V2O5) in January-June of this year, a rise of 29.5% from approximately 44,000 tonnes over the same period of 2018, according to market participants.

On the demand side, China’s rebar production totaled 118.76 million tonnes in the first six months of 2019, an increase of 19.3% year on year, according to data from China’s National Bureau of Statistics (NBS).

The significant rise in supply was an inevitable result of the widespread production ramp-up among many Chinese V2O5 producers seen so far in 2019. The move was stimulated by handsome profits achieved last year, when vanadium prices hit record highs amid expectations of a substantial increase in demand for the material after China’s new rebar policy came into effect on November 1, 2018.

The rebar policy requires domestic Chinese mills to utilize greater volumes of alloys such as ferro-vanadium to meet the revised tensile strength requirements, and therefore was expected to generate greater demand for vanadium products as a result.

“After the new rebar policy took effect, we did notice there was some increase in demand [for vanadium products], but the problem is that a bigger increase has been observed on the supply side,” a producer source said.

“Despite the continuous decline seen since the final quarter of 2018, the profit margins [for vanadium producers] are still quite appealing, so many producers were lured into either resuming production or ramping up production but the more supply there is, the more pressure the price will face,” the producer added.

Reduced exports mean more spot cargoes are available at home

On the other hand, the increase in supply of Chinese vanadium products in the first half of this year has also stemmed from a notable reduction in the country’s exports of vanadium products over the period, market sources told Fastmarkets.

China exported 2,807 tonnes of ferro-vanadium (basis 75% vanadium) in January-June 2019, a drop of 17.9% from the 3,419 tonnes shipped in same period of 2018, according to official but unconfirmed data seen by Fastmarkets.

Upstream, China exported 2,780 tonnes of V2O5 in the first six months of this year, a drop of 27% from 3,808 tonnes over the corresponding period of last year, the data showed.

The considerable year-on-year decrease in exports of both ferro-vanadium and V2O5 in the first half of 2019 was partly because Chinese vanadium products exporters showed little interest in shipping their cargoes abroad upon noticing that the domestic price was more favorable than its European counterpart throughout most of that period.

“China’s exporting less volumes of vanadium products abroad, to some extent, meaning comparatively more spot cargoes are available in the domestic market,” a Chinese market source said.

“It’s easy for one to ignore the increased supply [of vanadium products] in this aspect, but when analyzing the supply and demand fundamentals in the domestic market, one needs to take the reduced exports into account to have a comprehensive picture of the whole market. Because the increased availability of domestic spot cargoes makes the competition among suppliers to secure business more fierce and therefore puts downward pressure on the price,” he added.

Demand for vanadium products challenged by increased ferro-niobium imports
Demand for vanadium products has also been squeezed somewhat by domestic mills’ growing preference for ferro-niobium due to its relative price stability and competitiveness against vanadium products.

China’s imports of ferro-niobium soared by 86.9% year on year to 26,550 tonnes in the first half of 2019, from 14,204 tonnes in the corresponding period of 2018.

“A relatively stable price means mills can always know where their costs sit at while a volatile price makes it hard for mills to calculate their costs. In this case, for the sake of risk- aversion, mills will not completely depend on products whose prices change too quickly and significantly,” a second Chinese market participant said.

“The price surge seen last year [in vanadium products] was irrational and has dented mills’ trust in the utilization of the alloy’s products, prompting them to use more alternatives, and in most cases ferro-niobium,” he added.

The price of ferro-vanadium in China hit a record high of $130-140 per kg in October 2018 on expectations that demand would significantly increase due to China’s new rebar policy that encourage mills to utilize greater amounts of alloys to achieve the revised tensile strength requirements.

Market participants told Fastmarkets that they expect China to import around 50,000 tonnes of ferro-niobium in the whole of 2019.

Wide price gap between Chinese, European markets attracts more cargoes to China
Furthermore, despite the Chinese and European vanadium markets both experiencing similar degrees of weakness in the first six months of the year, prices in China remained higher than those in Europe, causing some European suppliers to ship their cargoes to China.

And this has become more obvious since June when the Chinese domestic ferro-vanadium price began to gain some upward momentum amid unconfirmed reports circulating the market that Chinese authorities would conduct a round of inspections on rebar quality from July, according to sources.

Since the beginning of the second half of the year, Chinese ferro-vanadium prices have continued to rise amid increased demand both mills and traders stimulated by the ongoing checks on rebar quality, further widening the price gap between China and foreign markets.

“There is almost not any official news about the inspections, but mills and traders know that the inspections are ongoing in some areas, so they all stockpile some volumes of cargoes, though for different purposes,” a third Chinese market source said.

The price differential between Chinese and European ferro-vanadium, for example, was as wide as $9-9.85 per kg in the week ended on August 9.

A few Chinese vanadium traders told Fastmarkets they had the thought of importing either ferro-vanadium or vanadium nitrogen from abroad to take advantage of Chinese prices’ being much higher than elsewhere.

Surplus in supply remains a headwind to vanadium prices in H2 2019

Despite the recent gains seen in July, many Chinese market participants told Fastmarkets they are not optimistic about the vanadium market for the rest of 2019, citing that the surplus in supply will continue to put the domestic vanadium market under downward pressure.

The price of ferro-vanadium, 78% V min, fob China has risen by around 8.5% since the beginning of July, Fastmarkets’ price archive showed.

Some market participants had already expressed concerns over a possible downswing risks when seeing the price climbed to as high as $40-42 per kg in late July, saying that price was being driven partly by speculation surrounding the rebar quality checks.

“I do not deny the fact that the inspections on rebar quality could lend some support to the vanadium market, but I do not think that will result in such a significant rise in the [vanadium products] price, because many mills have already turned to the utilization of alloy products since the new rebar policy was implemented,” a fourth market source said.

“Some mills, which had adopted the water-quenching process to produce rebar, were indeed observed to have placed orders for some tonnages of vanadium products since June, but the additional increase in demand is comparatively limited,” the source added.

The domestic ferro-vanadium price began to lose upward momentum in August after some traders chose to sell off their cargoes at hand on believing that the price has already hit its ceiling, and the mounting supply simply fueled the price weakness.

Most market participants spoken to by Fastmarkets maintain the belief that prices for vanadium products in China will not be able to reclaim the highs reached in July throughout the rest of the year, because once prices rise above 150,000 yuan ($21,323) per tonne, stone coal-fed V2O5 suppliers would be motivated to continue expanding their production and this in turn will act as a headwind to prices.

Jessica Zong, in Shanghai, contributed to this article.

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