What Retail Investors Need to Know About Vanadium

By
David Yeoman
·
October 28, 2021

In the past four decades, investors in vanadium have endured considerable volatility, particularly in the 1980s, mid-90s, and early 2000s.

Such unpredictability has left many understandably shy of exposing their portfolio to the commodity. Yet, there's increasing reason to believe that investing in vanadium is worth another look: given structural deficit predictions are driven by constrained production coupled with demand growth from emerging markets and increasing high-margin business from energy storage.

We recently spoke to three vanadium producers to better understand the industry changes behind a renewed interest and optimism in the chemical element. Before we get to industry specifics, let me introduce three companies heavily invested in Vanadium production.

Meet the experts

U.S. Vanadium

Headquartered in Hot Springs, Arkansas, USA, US Vanadium is a privately held company comprising investors and leaders in specialty chemicals and strategic materials, focusing on high-purity vanadium chemicals and vanadium-based alloys. Processing vanadium contained in industrial waste, US Vanadium claims production of the highest purity vanadium pentoxide (V2O5) globally, a product used in gas processing, batteries, alloys, and acid production. They make similar claims for vanadium trioxide, a high-purity electrolyte for the emerging technology of vanadium flow batteries and used in aerospace. Other products include ammonium metavanadate and vanadium for tool steels. The company recently purchased a materials processing facility in Benton, Arkansas, allowing them to 'grind and roast' vanadium feedstock before further processing into high-purity vanadium products.

Bushveld Minerals

One of three primary vanadium producers operating globally, Bushveld Minerals owns two of the world's four operating vanadium processing facilities. Headquartered in South Africa, the company produced 3,600 mtV last year, comprising approximately 3% of the global vanadium market. Serving the energy, chemical, and steel sectors, the vertically integrated company uses its subsidiary Bushveld Vanadium to mine and processes the ore, while another subsidiary, Bushveld Energy, focuses on electrolyte manufacture and investment in emerging vanadium-based energy storage systems. Looking to increase interim vanadium production to 5,400 mtVp.a by 2022, Bushveld Minerals targets longer-term expansion to 8,400 mtVp.a with pre-feasibility studies currently underway.

Neometals

An Australian-listed mining company, Neometals, has recently pivoted to focus on new minerals and advanced materials technologies, emphasizing energy storage and electric vehicles. While lithium recycling has been a key focus, vanadium is now center stage, with its first vanadium recovery project's final investment decision (FID) looming. A second project is underway with options to recover vanadium from steel slag. Emphasizing sustainable materials recovery and recycling, Neometals has recently signed agreements with major European companies to establish and grow its battery recycling capabilities.

The vanadium story to-date

If you're new to vanadium investing, you need to know that it's a chemical element, the 20th most abundant element in the earth. Rare in its metallic state, vanadium compounds exist in a wide array of minerals. They often form a secondary or by-product from mining other minerals, fossil fuels, or metallic compounds.

Historically, global vanadium production serviced the manufacture of steel alloys, where the addition of small quantities of vanadium greatly increases steel yield strength. With current global vanadium production of approximately 115,000 tons per annum, 85-90% of that tonnage services the steel industry. A further 5% is used for producing titanium and high-temperature or specialist alloys for the space, aviation, and defense industries. Residual tonnages are utilized in chemical catalysts, ceramic pigments, and medicines.

Of global consumption, 95% of production comes from either north-western China, eastern Russia, or South Africa, with China supplying over 50% of demand, Russia 35%, and South Africa approximately 10%. Much of this tonnage comprises secondary product from slag processing provided by steel mills in China and Russia.

What drives global demand for vanadium?

Three economic factors predicted to impact the global demand for vanadium positively are:

  • The enhanced steel requirements of developing countries.
  • A prediction of constrained vanadium supply from China.
  • Emerging energy storage technology.

Both International Monetary Fund (IMF) and The World Bank figures show more than a dozen developing countries whose average real growth rate has exceeded 6% in the last decade. This rate compares to the average 3.2% growth rate of high-income countries. Accompanying this economic growth is the population growth requiring increased and upgraded infrastructure. Terry Perles, Director at US Vanadium, states,

"Looking forward, we do see significant growth in consumption of vanadium occurring as a result of (an) ongoing increase in specific vanadium consumption in the steel industry... and we see this happening in the developing world primarily where the quality of the steel products is being upgraded as they develop their economies."

An example of the impact of this development occurred in 2004 when China mandated the use of a grade 3 reinforcing bar (rebar), which is a higher strength rebar requiring the inclusion of vanadium. Vanadium prices that had averaged $20 per kg to that point spiked to almost $120 in a matter of months as Chinese rebar producers raced to comply with the new Government requirements.

The claim of a looming constraint on Chinese vanadium supply comes down to the methods of production employed. With approximately ten key co-producers in China processing steel slag as a byproduct of steel production, an increase in Chinese vanadium supply relies on a proportionate increase in steel production capacity. Fortune Mojapelo, CEO of Bushveld Minerals, believes that with steel demand growing strongly, coal production nearing capacity, and high iron ore prices, China is at capacity with vanadium production. He states,

" This means that coal producers and China are producing almost as much vanadium as they could produce. So what it means ... is ... we think there's a structural deficit in the market going forward."

Those two previous economic factors aside, arguably the greatest impact on future vanadium demand emerges from the explosion in mobile energy storage demand for electric vehicles and stationary energy storage batteries for reliable renewable supply baseload. Let's take a closer look at these energy storage opportunities.

Electric vehicle battery supply

In a white paper on electric vehicle battery supply-chain analysis, Ultima Media and Automotive Manufacturing solutions predict electrical vehicle sales to achieve 20% compound annual growth rates (CAGR) over the next decade. With battery production capacity needed in other industry sectors, the global forecast for battery demand will rise from 450 gigawatt-hours (GWh) in 2020 to exceed 2,850 GWh by 2030.

While this is good news for those exposed to minerals such as lithium, cobalt, manganese, and nickel, technologies are in trial with carmakers that involve either Lithium-Vanadium cathodes or Lithium-Vanadium anodes.

Christopher Reed, the Managing Director and CEO of Neometals, has this to say about the emerging technology,

"..we're now seeing that Lithium-Vanadium cathodes and indeed Lithium-Vanadium anodes for Lithium-ion batteries are (being) tested by carmakers. The guys at Volkswagen are even trialing a Nickel-Vanadium Manganese battery to replace cobalt. The Lithium-Vanadium battery has the highest conceivable energy density, and we're really, really excited."

Such a technological shift holds considerable promise for vanadium producers if the trials prove conclusive, as automotive manufacturers will seek to secure an economic advantage by locking in raw material supply via large-scale purchasing agreements or joint ventures.

Energy storage markets

One of the challenges in highly variable electricity generation systems such as wind or power is the provision of a reliable baseload to average out the variability. A nascent technology developed in 1980 and holding great promise is the vanadium redox flow battery (VRFB). This battery uses vanadium's unique ability to exist in four different oxidation states, greatly simplifying the battery construction.

The benefits of the VRFB include its ability to remain discharged for long periods without deterioration, zero emissions, a depth of discharge capability exceeding 90% against the 80% of lithium-based batteries, an extremely rapid response time as suits uninterruptible power supplies (UPS), and a cycle-life four to five-times that of other solid-state batteries. The battery electrolyte is also liquid, inert, and non-flammable. The main drawback is the current size and weight of the battery, making it suitable only for stationary power applications at this stage of development.

Bushveld Minerals is fielding inquiries from parties for vanadium supply suitable for conversion into the electrolyte, and Fortune Mojapelo notes he’s seen several parties announce plans to build electrolyte manufacturing facilities. To underscore the magnitude of the shift, the World Bank has announced a development program for 17,500Mw of battery storage in middle to low-income countries by 2025. To kickstart the initiative, they've committed a $1Bn spend to attract investment and are looking for a further $4Bn.

Similarly, global utilities are seeking to acquire battery energy storage, while national Government policies in some countries are moving to support greater self-generation opportunities. While there is no commitment that these initiatives will all utilize vanadium, Fortune Mojapelo believes that it's a game-changer for the industry if vanadium captures just 10% of that market. For that reason, Bushveld Minerals is focused on and investing heavily in developing and producing vanadium-based energy systems.

Christopher Reed of Neometals agrees that the future for VRFBs is positive, saying,

"..we believe that ... for stationary energy storage ... if you're unconstrained on size, the VFRB is the ultimate chemistry."

US Vanadium is actively participating in the development of high-purity vanadium electrolyte for flow batteries. It recently announced an order from an Austrian VRFB manufacturer for 580,000 liters of electrolyte. That order triggered an investment by US Vanadium of $2.1 million to expand its existing electrolyte production facility, increasing its annual capacity to 2.25 million liters per year.

Mark Smith, Chairman, and CEO of US Vanadium says,

"if the growth in the battery industry is what we think it's going to be, that's going to be a tremendous area for us to participate in as well. And that will actually become our number two sales outlet so to speak. So we're pretty excited about where the business is going right now."

Mark feels that vanadium demand provides a perfect balance for their company, with the steel industry supplying financial liquidity. At the same time, they can exploit the high-end, high-margin business provided by high-purity chemicals and the recent growth in battery technologies.

Dangers of substitution?

There must be a recognition in any economic discussion regarding vanadium that constrained supply, and high demand will activate a search for suitable substitutes. Given that Terry Perles of US Vanadium has more than 30 years of experience in the vanadium industry in roles including sales, marketing, and strategic planning, we asked him for his insights.

His answer revolved around high-strength low-alloy steels (HSLA) and the importance of vanadium to the production of HSLA. While substitutes exist in niobium and titanium, there are technical complexities in substituting these for vanadium.

Terry's observations from his years in the industry are,

"When Vanadium prices are through the roof, some people are going to try and put that square peg in the round hole. And then what you see is typically, as soon as prices come back (to) normal ... you see these people rushing back, (they're) using vanadium because it's predictable, and it's easy, and it works."

He adds,

"If I'm a steelmaker, I'll gladly pay for a third of a kilo of vanadium to go into my (tonne of) steel because if I double the yield strength, I'm going to sell that steel at a 20 or 25% premium. If I'm building the infrastructure project, I'll gladly pay 20 or 25% more for each tonne if I have to use 50% fewer tonnes of steel; there's economic value there. And there's value through the whole chain in terms of minimization of energy consumption and pollution generation to get the job done."

Will vanadium price volatility endure?

The vanadium market has seen price volatility ranging from below $20 per kg to $120 per kg in the past decade. Triggered by specific events affecting supply, one such event was the previously mentioned new grade of rebar enforced within China, requiring vanadium to produce the new high-strength product. The other was the load shedding in South Africa due to electrical power production, impacting vanadium production. While measured only in months, the price fluctuation has understandably dissuaded some investors from backing the commodity.

We asked our industry representatives to comment on the historical volatility and whether they expect a more stable future. While all accept there will be continued volatility going forward, the consensus is on energy storage increasing and diversifying the demand profile, mitigating price peaks and troughs.

Mark Smith of US Vanadium feels that the volatility in the market may provide additional business opportunities through financial innovation by pushing people to embrace chemical leasing to smooth prices while lowering their front-end costs. Large utilities are one user segment showing an interest in the lease model, keeping the electrolyte off their books and allowing others the ownership and end-of-life management.

All agree that for a producer to survive the price fluctuations, they need to be operating in the first quartile of the cost curve with capital structuring that doesn't rely on a specific vanadium price. With that caveat, the outlook for vanadium is very positive.

Greenfield capacity

With 80% of current vanadium capacity coming from co-processors like US Vanadium and Neometals, what is the trigger to broaden the base of primary producers? Fortune Mojapelo has an answer to that question.

"..the key question ... around supplies (is) what is the right incentive price for vanadium to support the development of new capacity. There is a lot of vanadium in the ground, but once we start to see price levels on a more consistent level, above a certain flow, ... we will start to see more capital become available for developing new capacity. Until then, we think that we will see a lot of brownfield type of expansions."

He adds,  

"I think that the good thing ... is that it is not as capital intensive as putting up an entirely greenfield facility even with some decent grades... so I think ... as we see demand come through, not only from the steel sector ... when these ... energy storage applications come through, and we start to see ... higher flow prices for Vanadium, ... we'll definitely see a good response from the supply side."

In Summary

As in all investment decisions, much hinges on your view of the solidity of the projections. While enhanced steel quality demand from developing countries will undoubtedly affect vanadium, on its own, will it will move the needle for most investors in the near term? Similarly, in the absence of further data, although one can accept the arguments articulated for China steel manufacture, iron-ore prices will have a say in that.

Where vanadium begins to get interesting is in the momentum that appears to be developing in electric vehicle battery technology and stationary storage. A year ago, it was very much a nascent technology. Yet, with the construction of VRFB pilot plants and carmakers trialing lithium-vanadium anodes and vanadium cathodes, it will only require one or other development to gain legs. If that occurs, it will seriously impact demand, creating considerable growth in commodity prices.

When we asked Mark Smith for the last word on why investors should be considering vanadium, he had this to say:

"What we really got to get ourselves prepared for is the demand that the VRFB business could potentially bring to our industry. It could (increase demand) by 30, 40, 50% if the battery takes off the way we think it can take off. We have to be ready for that... So it's a great business to be in; vanadium is used everywhere but this battery business, if it takes off, is going to be a phenomenal game-changer for the industry, and we as suppliers have to be ready for that."

Perhaps there's just enough reason in all those arguments to believe that vanadium is worth another look?

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