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February 9, 2019 1

VANADIUM 2019 – Mastermines Expectations

Late in 2018 vanadium prices went on a wild ride to as high as $37/LB for V205 98% in China, only to fall dramatically to around $16/LB by year end. Investors worried that we were entering another boom and bust cycle and predictably, vanadium stocks pulled back. Throw in many new investors to vanadium that panicked as prices dropped and that’s about how we ended the year.

We believe that 2019 will be an entirely different story for vanadium and this article explores the possible drivers and future outcomes.

A stable beginning

Much of the late 2018 action in vanadium was driven by two factors. Hype surrounding the introduction of new re-bar standards, and the substantial seasonal reduction in steel output over the Chinese winter.

January has seen prices stabilise to around $17/LB. The end of winter and the Chinese New Year break should see demand increase sharply in March and we expect pricing to stabilise between $15/LB-$20/LB for V205 in H1.

Supply from stone coal

Our best estimate is that around 25% of the past maximum output from stone coal remains in the market. It would seem unlikely that more than 30% will ever find its way back into the supply chain. With the central government continuing to oversee strict environmental standards and the higher cost of stone coal production we will likely never return to the high production of the past.

Scrap metal imports

We assume that the Chinese ban on scrap metal imports has not had a major effect on supply. It is more likely that scrap is being processed outside China and simply bypassing China into major western markets. Therefore, we see little supply effect either way for vanadium from the scrap metal markets.

Re-bar changes

Our best estimate is that around 30% of China steel production was complying with the new re-bar standards by December 2018. Inspectors have been on-the-ground checking for compliance during January and we expect that to continue, and increase. While full compliance is likely by the end of 2019, we assume most will comply by mid-year adding to demand in Q1 and Q2.

Price stability needed

We have been adamant that prices above $20/LB are detrimental to the future vanadium market. Steel mills need to make production changes in order to move to alternate supply such as Niobium and Manganese. Some made the move in 2018 and prices of over $20/LB will encourage more to consider substitution. This has not been a major influence, however, any period of sustained high pricing could have consequences for new entrants hoping to join the vanadium supply chain.

The vanadium flow battery market

Once again, we continue to stress that prices of over $15/LB are likely to see limited future growth in the battery market. Our previous estimate was that a maximum of $10/LB was required for a viable industry. Economies of scale in manufacturing and the possible introduction of leasing models may see this figure rise to between $12 and $15/LB. We will cover the VRB market in detail in a future article.

Winners and losers

This year is going to prove difficult in sorting out the winners and those that face headwinds. We believe that existing producers should do very well while new projects face a number of obstacles whereby only the very best will find success. We’ll outline our thoughts on those that hope to join that elite group of producers in a detailed future article. Suffice to say there will be very few winners and many disappointments.

Conclusion


Last year was a crazy ride and 2019 is likely to be a more considered journey. Buyers will be less likely to follow rampant price increases knowing what happened in late 2018. If prices do move substantially up, this time around it’s likely to be caused by real supply shortages rather than hype and panic. Investors would do well to consider price stability in the ranges we suggested as more positive than upward spikes.

We expect 2019 to be another excellent year for existing producers. While our hope is that we find stability in the $12 to $15/LB range we also expect prices to spike higher on occasions, and perhaps much higher. Indications are that stock levels are low, and we remain in structural deficit. Exciting times for a select few, so let the games begin…

END.

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