Vanadium demand growth justifies higher prices, Pe https://www.metalbulletin.com/Article/2960514/Channel/197818/Vanadium-demand-growth-justifies-higher-prices-Perles-says.html
London16-Jan-2012 15:36:00
Terry Perles, president of consultancy firm TTP Squared, talks to Metal Bulletin about the outlook for vanadium and what factors will support higher prices from 2012 onwards.
Metal Bulletin: How would you describe the outlook for ferro-vanadium in 2012-13, and what are the positive factors?
Terry Perles: There are three variables that will affect vanadium demand growth in the next several years: the growth in global steel production, growth in specific vanadium consumption rates (kilogrammes of vanadium per metric ton of steel produced) and growth in titanium alloy production. Today, about 93% of global vanadium consumption is in the steel industry, so growth in global steel production is a primary driver in vanadium demand growth. Sources project global steel production to grow by a compound annual growth rate [CAGR] of 5-7% in the next several years. At the same time, the specific vanadium consumption rate will continue to increase as a result of growing pressure and economic incentives associated with the substitution of high-strength, low-alloy [HSLA] steels for lower strength carbon-manganese steels. The use of HSLA steel represents the most efficient solution to meeting the world's growing demand for steel while minimising the negative effects of growing steel production, including raw material depletion, energy and water consumption, pollution generation and capital deployment in steelmaking capacity. The replacement of carbon-manganese steel with HSLA steels containing vanadium, niobium, titanium or some combination of these three elements offers value through the entire supply chain. Steel producers can sell higher margin, value-added products; steel consumers can reduce total steel costs by consuming significantly lower quantities of steel; and minimisation of raw material and energy consumption, pollution generation and capital invested in steelmaking capacity brings corollary benefits to all. From 2007 to 2011, specific vanadium consumption rates increased by a CAGR of around 10% per year, and the forces at hand will continue to drive strong growth in specific vanadium consumption in the next few years. The third factor which will affect vanadium demand over the next few years is the upward trend in titanium alloy production. The workhorse titanium alloy used in aerospace applications contains 4% vanadium. Growing production of new, titanium-intensive passenger jets over the next few years is expected to result in a doubling of titanium alloy production. Today, titanium alloys consume about 4% of the global vanadium production, or about 3,000 tonnes of vanadium per year, and this figure is expected to double over the next four years. Vanadium supply growth is restricted by availability of vanadium-bearing raw materials. There are plans for significant growth over the next few years in vanadium, as a co-product from new steel mills in China processing vanadium bearing titaniferous magnetite deposits. The only other significant source of new vanadium production over the next few years will be the Windimurra primary vanadium mining project in Western Australia. The Windimurra project, which is owned by Atlantic Ltd, started production of ferro-vanadium in early January 2012 and is expected to reach full capacity of 6,300 tpy of vanadium by early 2013. Over 2012-13, vanadium supply is forecast to increase by a CAGR of 11%. Vanadium demand will also grow by a CAGR of at least 11%. As a result, we will have an environment where the market remains relatively balanced, with very high growth rates in both supply and demand, which creates the opportunity for market dislocations. There is some evidence that energy-storage applications for vanadium are beginning to mature to the point of becoming important in terms of vanadium consumption. This factor - combined with the continuing replacement of grade 2 rebar (containing no vanadium) with grade 3 rebar (containing on average 0.025% vanadium) in China - is a reason to believe that vanadium demand may surge in the next few years.
Metal Bulletin: What is a reasonable and sustainable price for ferro-vanadium?
Terry Perles: The reasonable and sustainable price range for ferro-vanadium is defined by a combination of vanadium production costs and value to the major users of vanadium. If we look at the cost of production, there are three major sections to the industry cost curve. The lowest cost production of vanadium is based on utilisation of co-product, vanadium-bearing slag from steel mills in China, Russia, South Africa and New Zealand. In these cases, where vanadium producers have captive vanadium slag from steelmaking operations, the raw material is essentially free, and the cash cost of ferro-vanadium production is limited to the cost of converting the slag to vanadium oxides and subsequently ferro-vanadium. The next segment of the industry cost curve is occupied by primary vanadium mines such as Rhovan (part of Xstrata) in South Africa and Windimurra (Atlantic) in Western Australia. In these cases, there are some cash costs associated with mining and delivering ore concentrate to the refinery, and then some conversion costs. The final segment of the industry cost curve represents secondary vanadium producers which process vanadium-bearing ash, slag and spent catalyst from the processing of vanadium-bearing oil, primarily from Venezuela and Mexico. These vanadium-bearing residues are purchased by secondary vanadium producers at prices ranging from 30% to 60% of V2O5 market prices, and then there are conversion costs associated with the processing of these materials into vanadium oxides and subsequently ferro-vanadium. These secondary producers of vanadium have a cost position that floats with the vanadium market, but represents the top of the industry cost curve in any normal market condition. Today, the demand for vanadium globally is well above the quantity of vanadium which can be supplied by co-product, slag-based and primary mined-based vanadium production. As a result, the market requires vanadium from relatively high-cost secondary producers. Therefore the cost of production from these sources defines the minimum sustainable vanadium market price. That figure today is estimated at about $29.00 per kg vanadium for ferro-vanadium. Today, prices are well below this level, on the back of selling pressure by traders facing credit and liquidity issues. The top of the sustainable and reasonable vanadium market price range is defined by the perceived value to the major consumers. In steelmaking, vanadium is used primarily to produce higher strength steel. In many cases, small additions of vanadium (0.05% on average) can double the yield strength of carbon-manganese steel. With today's market prices for vanadium and steel, this means in many cases that by increasing the cost of the steel by 2-3% we can double its strength. Theoretically, then, the value to the consumer could justify a very high price for ferro-vanadium. In practice, however, there is a limit to the price steel producers will pay for vanadium. Circumstantial evidence from the past indicates that, when ferro-vanadium rises above $60.00 per kg vanadium, it elicits a violent emotional reaction from steelmakers, and every possible effort is made to find a way to decrease or eliminate vanadium usage in steel. At this level, the addition of vanadium may represent more than 5% of the steel sales price, and this is significant enough to draw a focused effort to reduce vanadium in steel. In summary, then, we suggest the reasonable and sustainable ferro-vanadium price range is a lower boundary of $29.00 per kg vanadium based on production costs and an upper boundary of $60.00 per kg vanadium based on value to consumers. In the short run, prices can deviate from this range significantly, as other factors drive the market price. In the medium and longer terms, the market fundamentals will drive ferro-vanadium prices back to this range. In the future, changes in the industry cost curve due to new supply and demand growth will define the fundamental bottom of the rational price range. If global demand can be met by vanadium production from co-product vanadium slag and primary vanadium ore alone, then it is possible for the fundamental price range to drop below $29.00 per kg, but this situation is not expected to come about in the next few years.
Janie Davies
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