If you’ve been following Capital 10X, you’ll know we identified vanadium some time ago as a key strategic metal essential to the energy transition. Vanadium increases the strength and efficiency of industrial metals and is also the main element in the manufacture of vanadium redox flow batteries (VRFBs). We believe in the long-term growth potential of the VRFB market as a green technology with lots of upside.
Capital 10X authorized a comprehensive guide comparing VRFB batteries to Lithium-ion batteries and exploring the role of both chemistries in the green industrial revolution.
In 2023, there are several additional factors to consider in the development of the VRFB market and overall vanadium demand outlook.
Vanadium Demand Drivers
The steel industry accounted for 92% of total vanadium demand in 2021 and remains the key source of demand. It is expected to continue to lead demand, with China demand for steel showing no signs of slowing while making up 60% of vanadium consumption globally. Wood Mackenzie forecasts that vanadium demand in the steel market will grow at a CAGR of about 3.1 percent until 2030.
Vanadium Prices On the Move Again, Is it a Signal?
In the first half of 2022 V2O5 prices (Vanadium Pentoxide) reached a high of US$ 13 per pound, driven by concerns over potential supply disruptions from the Ukraine/Russian conflict, but lowered over demand concerns from China with steel production slowdowns in preparation for the Winter Games as well as lockdowns due to the COVID-19 global pandemic.
Prices declines in the second half as economic growth concerns grabbed headlines, but in late 2022 and into the new year, Vanadium prices are showing signs of life, hitting around $9.80 per pound, approx. 26% above the lows of 2022.
The price increases are likely driven by two factors:
- A rebound in demand from the Aerospace industry as COVID lockdowns recede and international travel picks up. Aerospace grade vanadium is of the highest purity and only provided by specialized processors.
- The installation and interconnection of the world’s largest VRFB battery project China recently. Industrial demand for VRFB batteries is picking up steam and are expected have a significant impact on demand for Vanadium in the future.
Large Scale VRFB Installations: A New Driver of Demand
The word’s largest non-lithium or pumped hydro energy storage (PHES) project was commissioned recently in China and has set off a wave of ever larger projects across the world. In September of last year, Dalian Rongke Power, in partnership with Pangang Group Vanadium/Titanium Resources installed a 100MW/400MWh Vanadium Redox Flow Battery (VRFB) system in Dalian, China.
The system was developed with Dalian Institute of Chemical Physics and will eventually scale to over 200MW/800MWh, making it the largest VRFB system in the world to date. To put this battery system into perspective, it required ~4% of total annual global vanadium production (~8,000 tonnes of V2O5).
China has plans to build another 1,000 GW of solar and wind capacity by 2030 and as VRFB batteries demonstrate their effectiveness in long duration applications, there is a large opportunity for them to fill some of the energy storage needs generated by all the new wind and solar capacity.
The Pangang VRFB system is in Dalian City’s Shahekou District, which is in Liaoning Province in northeastern China. The system has the potential to lower the peak load on the local grid and improve the reliability of the overall power supply in the entire province, enhancing the opportunity to connect new generation sources (like renewable) energy to the grid.
The Dalian project is part of a multi-year Chinese plan for the nation to transition to lower-energy consumption, stimulate demand for renewable energy and energy storage products and achieve net zero emissions by 2060.
VRFBs are a relatively newer energy storage technology to reach commercial viability, creating a demand for the green metal beyond traditional uses.
According to S&P Global, new stationary storage deployments may hit approximately 100 GWh/year by 2027, while the World Bank had said vanadium was among the top five metals affected by the energy transition, with 189% of current vanadium production needed globally by 2050 to support the energy transition alone.
There are 3 global leaders in primary production for vanadium: Largo Inc. (TSX: LGO) (NASDAQ: LGO) which has a mine in Brazil; Bushveld Minerals (LSE: BMN), which has mines in South Africa and mining giant Glencore (LSE: GLEN), also in South Africa. Largo Inc. owns the largest producing primary Vanadium mine in the world and is more of a pure play on Vanadium while Bushveld and Glencore have exposure to the metal but are more diversified.
Primary production is where vanadium is produced as the primary product directly from processing vanadium bearing magnetite ores. Co-production is where vanadium-rich slag is produced during steelmaking or pig-iron production.
Co-production at 73 percent is the most significant global source of supply. 70 percent of annual vanadium supply is produced via the method of co-production in China and Russia – which are largely influenced by steel and iron prices and not by the vanadium market.
Market Share & Production
Two of these vanadium companies – Largo and Bushveld are involved in the manufacture of VRFBs. If one or both companies gain a combined 10% share of the stationary storage market, global vanadium production will increase by 50%.
As an example, let’s look at Bushveld Minerals production results. Bushveld Minerals owns two of the four world’s operating primary vanadium processing facilities. They produced about 3,600 metric tonnes of vanadium in 2021, constituting about 3% of global vanadium production with plans to grow their production by 40% to 50% next year. If funding and the appropriate market conditions prevail, they will increase their output to up to 8,000 tonnes per year.
Largo Inc. as a vanadium producer, is highly leveraged to vanadium spot prices and is well positioned in an environment with increasing demand for the green metal. According to its latest published NI 43-101 technical report, Largo has plans to increase its vanadium production from 11,500 tonnes to 15,900 tonnes by 2031, representing a 40% increase[i]. This of course is subject to a multitude of variables but represents its ability to expand production to meet increasing demand – essentially making it one of the faster alternatives to new supply. For instance, Largo is the last primary vanadium operation to come online in the last 30 years.
Largo is also one of the largest providers of the high purity vanadium used in the aerospace industry, which generates some of the highest margins of any vanadium product.
For more details on Largo’s growth plans please see our deep dive on the company and the overall vanadium market HERE
2023 is Shaping up to be a Compelling year for Vanadium
Vanadium demand is being revolutionized before our eyes and early success of VRFB projects in China are driving a step change in demand for the battery metal.
Recent Vanadium price increases signal that large battery storage projects are having an impact on the market. We think investors should watch the success of projects in China closely as they will likely spur further increases in vanadium prices in the months to come.
The vanadium market is still very illiquid with big, multi-year contracts dominating. Small increases to demand have historically always led to spikes in price. This time isn’t likely to be any different.
[i] Maracas Menchen Project, Bahia, Brazil, Independent Technical Report – An Updated Life Of Mine Plan (“LOMP”) For Campbell Pit and Pre-Feasibility Study for Gan And Nan Deposits. December 16th, 2021 (effective date October 10th, 2021). Read the full report here.
Largo Inc. is a market awareness client of Capital 10X.
