Long-term contracts for ferro-vanadium in Europe are usually settled against Fastmarkets' European benchmark price assessment with the parties agreeing a discount to the published price to take prevailing market fundamentals into account.
Preliminary negotiations for some contracts in ferro-vanadium have started at around 3-4% for 2020 on the midpoint of Fastmarkets quotation, according to several market sources.
Overall, long-term contract formula discounts are expected to widen on a year-to-year basis, according to several market sources.
Last year's discounts were agreed at 1-5% against third party ferro-vanadium prices, depending on credit terms, volumes and the timing of the negotiations, market sources said. The discount has been around 6% or even in double-digit percentages in recent years.
As negotiations for 2020 continue, suppliers may be more aggressive and widen their discounts to lock in business, market sources noted, on expectations of a weaker steel market in the coming year.
"It's still early on in negotiations and no one seems in a rush to sign. No one really knows how much material they are going to need for next year," a producer said.
Although 2020 contracts are mostly still to be negotiated, most market participants expect discounts to be higher than last year amid oversupply and uncertain demand outlook.
End users are generally showing low interest in long-term contracts, according to market sources, leading some suppliers to opt to commit more material to the spot market for 2020 and some customers are already delaying contract signings for next year, market sources added.
"The number of inquiries is lower compared with last year, with consumers still holding high stocks at the end of this year," a second producer said.
Market sources told Fastmarkets they expect slowing economic and steel production growth to continue to weaken the already sluggish ferro-vanadium demand, hurting sales of vanadium products. On the supply side, the absence of any significant production cuts means there is no shortage of vanadium in sight.
"Discounts are expected to increase to push and convince end users to commit to volumes for next year," a trader in Europe said. "It reflects struggles by sellers to lock in volumes while sentiment and demand are weak."
Ferro-vanadium has lost 67.8% of its value since the beginning of the year amid weak demand, oversupply and poor sentiment.
Fastmarkets assessed the ferro-vanadium basis 78% V min, 1st grade, ddp Western Europe price
at $22-23.75 per kg on Wednesday November 13, down from $70-72 per kg on January 2, and down from the all-time-high of $126-128 per kg in mid-November 2018.
A ramp-up in production in China since the start of 2019 has moved the market into oversupply. This was triggered by handsome profits achieved last year when vanadium prices hit record highs amid expectations of a substantial increase in demand for the material to meet China’s revised rebar policy that came into effect on November 1, 2018.
The policy requires Chinese steel mills to eliminate the original 335 megapascals (MPa)-tensile strength rebar and start producing 600MPa-tensile strength rebar, which has better earthquake resistance.
In doing so, the policy encourages domestic Chinese mills to utilize greater volumes of alloys to meet the revised strength requirements. The policy also seeks to restrict the production of rebar via the water-quenching process, which produces rebar that has lower durability because it rusts easily and therefore poses a risk to building safety.
But prices began to drop sharply late last year when market participants realized that enforcement of the revised rebar policy was not as stringent as had been expected and still mills increased their use of ferro-niobium to minimize their more costly vanadium consumption.
"Mills are only buying minimum quantities for their needs and it's looking like there will be more spot market activity next year with consumers trying to keep their stocks as low as possible," a second trader in Europe said.
At the same time, steel mills in Europe are showing more interest in committing to ferro-niobium instead, market sources said, because this alloy's prices are more stable than those of vanadium products, and do not have a history of price volatility.
"When ferro-vanadium prices were trading at all time-highs, some steel mills tried ferro-niobium instead, they liked it, and now they're deciding to use less ferro-vanadium next year. One customer is going from half a truck per month last year to almost zero for next year," a third trader said.
Ferro-niobium is used in steelmaking to increase the malleability and resistance of the metal.
The substitution of ferro-vanadium with ferro-niobium is product-dependent and can affect the quality of the steel, Fastmarkets understands. Ferro-niobium can work well in auto sheet applications and smaller rebar products, while it does not work as well as ferro-vanadium in large structural beams because it can cause brittleness, according to market sources.
Market participants expect mills to continue to conduct long-term contract negotiations until early December with contract discussions continuing next week at Fastmarkets International Ferro-alloys conference in Budapest.
The International Ferro-alloys conference kicks off in Budapest on November 17. For more details about the event, please click here.
INTL FERRO-ALLOYS CONF: Vanadium leads price declines fueled by slowing global growth, steel demand