FOCUS: Why have Chinese vanadium prices remained rangebound since late July?
Domestic prices for vanadium products in China in mid-August were showing little change since mid- to late-July this year, with alloy suppliers struggling to hold prices firm amid comparatively stable prices for vanadium pentoxide (V2O5).
Steel mills were postponing their purchases of vanadium alloys because of narrow profit margins resulting from high production costs, sources told Fastmarkets on Wednesday August 19.
The transaction price for vanadium nitrogen, for example, was around 167,500 yuan ($24,215) per tonne this week, compared with 168,000 yuan per tonne in late July, with the price paid on acceptance and including value-added tax (VAT), according to market sources.
Previously, some market participants expected to see vanadium alloy prices go higher, with mills gradually returning to the market for stockpiling from late July, while some others expressed concerns over possible downswing risks, with a large volume of overseas-origin cargoes acting as a headwind to the domestic market.
Fastmarkets has summarized several factors that have jointly contributed to the comparative stability of the vanadium market in China since late July.
Mills’ cautious buying hinders prices rise
Many domestic steel mills have become much more cautious about building large positions for vanadium alloys in the round of monthly purchasing that started in late July, after their profit margins were squeezed by higher raw materials costs despite the rises in steel prices over the same period, market sources said.
Chinese mills usually re-enter the market to purchase vanadium alloy products in either the first week or the last week of a month, Fastmarkets understands.
Although steel prices have picked up amid improved demand since late July, the profit margin for mills did not grow because the rise in raw materials prices overtook that for steel products, market participants told Fastmarkets.
Fastmarkets’ index for iron ore 62% Fe fines, cfr Qingdao, was $129.09 per tonne on August 19, up by 16.7% from $110.58 per tonne on July 30.
Fastmarkets’ price assessment for steel reinforcing bar (rebar), domestic, ex-whs Eastern China, was 3,640-3,670 yuan ($526-531) per tonne on August 19, up by 1.1% from 3,600-3,630 yuan per tonne on July 31.
“We heard that some mills are on the brink of suffering losses,” a Chinese market source said, “while several others manage to make only 100-300 yuan profit per tonne on their steel products. With little room to make a profit, mills are generally more critical about the costs of raw materials, including vanadium alloys.”
Some domestic mills were heard to have become wary of purchasing significant volumes of vanadium alloy products each month, partly due to tight cash flow and partly in anticipation of possible price dips in the weeks ahead, market sources said.
“Some mills have problems with cash flow,” a second Chinese market source said.
“Also, we learned that some mills only buy volumes [of vanadium alloys] that will enable them to maintain normal production for around 7-10 days, or even only 3-4 days for a few mills. Normally, mills will restock with tonnages that could sustain production for more than half-a-month,” he added.
“This is also because mills feel that the current price is a bit high and they are expecting price falls,” he said. “If they do not buy much right now, when the price dips, they could source material more cheaply. There is no need to worry about supply at the moment.”
Although some vanadium alloy producers made note of reduced stockpiling activities from mills in the past few weeks, a number of others believed that the overall demand from mills remained largely stable.
“There is no significant change in demand [for vanadium alloy products] from mills this month, based on our actual transaction volumes. The only difference is that mills’ purchases are more scattered than before,” a vanadium alloy producer said.
“In the past, mills usually completed their restocking within two weeks, but now not all the mills choose to return to the market at the same time, so the overall procurement lasts longer,” he explained, adding that traders’ buying interest has waned recently.
Alloy producers attempt to hold prices steady
Although some mills have attempted to push alloy prices downward in an attempt to reduce costs, many domestic alloy producers were relatively united in holding prices steady and not making much compromise on offers, partly because of firm V2O5 prices, according to market sources.
China’s three major V2O5 producers - Tranvic, Desheng and Chengde Jianlong - maintained their monthly sales prices for cargoes delivered in July and August unchanged at 107,000 yuan per tonne. The price is paid on acceptance and includes VAT.
“The production costs are there, so one cannot expect alloy producers to lower their prices much, because no-one is willing to do business and suffer a loss,” a third Chinese market source said.
That said, some market participants were still concerned about possible price drops as a result of the collapse of alliances among dozens of alloy producers.
“It’s good to see that alloy producers are so united this time, and this definitely contributed to the recent price stability,” a fourth Chinese market source said.
“But we are not sure how long this will last, because the situation for different producers is different as well,” he added. “Some may be facing intense financial stress, and may eventually choose to lower their offers and try to sell off cargoes and generate cash to mitigate that stress.”
Larger-than-expected import volumes add supply
In addition, the large volumes of imports of vanadium products from overseas countries in the past few months - due to Chinese prices being much higher than in other regions - added further supply to the domestic market and therefore weighed on sentiment, market participants said.
China imported 210 tonnes of ferro-vanadium (vanadium content <75%) in June, up from only 20 tonnes in May. In the first six months of 2020, China’s imports of ferro-vanadium totaled 394 tonnes, compared with 92 tonnes imported over the corresponding period of 2019, according to customs data.
Meanwhile, China’s imports of V2O5 totaled around 779 tonnes in June, up from 60 tonnes in May. China imported around 2,140 tonnes of V2O5 in the first half of 2020, compared with only 21 tonnes over the corresponding period of 2019.
This additional supply, which was usually cheaper than domestic cargoes, provided mills with more choice and limited the room for the price rises that some expected to see, sources said.
Although some were still worrying about further downward pressure caused by these imported cargoes, a number of market participants played down the possible effects.
“Import volumes were surprisingly high in June but we do not think that will have a very big effect on the domestic market,” a fifth Chinese market source said. “Domestic demand is stable and may increase in the second half of the year. It’s not a big problem for the domestic market to absorb those volumes of imported cargoes.”
China produced 93.36 million tonnes of crude steel in July, a rise of 9.1% year-on-year, and the output totaled 593.17 million tonnes from January to July, an increase of 2.8% year-on-year, according to data from China’s National Bureau of Statistics.
Narrow China-Europe price gap may cool import interest
The price gap between the Chinese and European vanadium markets has narrowed, with the Chinese price relatively stable while the European price ticked upward against a backdrop of dwindling inventories, and this may damp some of the interest in imports, market sources said.
Fastmarkets’ price assessment for ferro-vanadium, 78% V min, fob China, was $29.50-30.50 per kg on August 13, flat week on week, while the corresponding assessment for ferro-vanadium, basis 78% V min, 1st grade, ddp Western Europe, was $24.00-24.60 per kg on August 14.
This meant there was a price gap of $5.50-5.90 per kg between the markets in mid-August, compared with $7.25-7.30 per kg in mid-July.
“With the price gap between the markets narrowing, some domestic traders [in China] may lose interest in importing [vanadium] cargoes because a narrower gap means more risk,” a sixth Chinese market source said.
“Meanwhile, some foreign suppliers may consider shipping cargoes to Europe instead of China,” he added, “because prices in Europe have been rising. And this makes the profit margin on sales of cargoes to China look less appealing.”