Evraz Highveld Files for Business Rescue: What Will Be the Impact on the Vanadium Market?

LONDON, April 16, 2015 /PRNewswire/ --

On Tuesday, Evraz Highveld Steel and Vanadium (Highveld) announced that it "...does not have adequate funding to meet its obligations for the short term", and that its board had filed for voluntary business rescue. Whilst there have been no details released about the likely impact on short-term production, the news could have a profound impact on the vanadium market.

Evraz is one of the largest entities in the vanadium industry, with operations in the Czech Republic, Russia, South Africa, the USA, and a joint venture in Austria. Evraz acquired its 85% stake in Highveld from Anglo American and Credit Suisse in 2007. Highveld is a vertically integrated steel and vanadium slag producer in South Africa. The company mines vanadiferous titanomagnetite ore at its Mapochs mine, and produces iron and steel products and vanadium-bearing slag at its steelworks in Mpumalanga province. Slag is then processed at Evraz's own facilities in Russia, at its Hochvanadium joint venture in Austria, and by third parties, to produce vanadium products.

Any disruption in the supply of feedstock would, therefore, impact vanadium production in a number of countries, and, in the short-term, reduce global output of a range of vanadium products made by Evraz including ferrovanadium, modified vanadium oxide, aluminum-vanadium, and vanadium chemicals. Roskill's new Vanadium: Market Outlook to 2025 report estimates that world production of vanadium feedstocks totaled 96.6kt contained vanadium in 2014. With production of feedstock at Highveld estimated at 7.1kt contained vanadium, the company, therefore, accounts for 7% of the world's vanadium feedstock. Total production of the Mapochs mine, majority-owned by Highveld, is estimated at 11.0kt contained vanadium, or 11% of world feedstock output.

Highveld's announcement attributed developments to historical operational difficulties and sustained financial losses within a capital constrained operating environment. Highveld had recently implemented an operational turnaround plan, in an effort to reinvigorate a company that has been impacted by weakened global steel and vanadium markets and, in particular, significantly reduced domestic demand for steel. Like many producers in South Africa, Highveld has suffered from on-going energy supply interruptions as well as rising energy costs that have impacted ferrovanadium export prices. South African ferrovanadium exports have gradually declined since 2009.

Owing to these issues, Evraz was known to want to dispose of its Highveld asset. In August 2014, it was announced that Macrovest 147 had entered into an agreement to acquire 34% of the shares in Highveld. This agreement has now lapsed.

The Highveld board hopes that business rescue proceedings will afford the company the opportunity to consider the continued implementation of its turnaround plan and re-establish the company. However, Highveld does not operate in a vacuum and the wider state of the market cannot be ignored.

The vanadium market remains in a state of oversupply. During the commodities boom of the 2000s, which saw prices of vanadium and iron ore increase significantly, Chinese producers (notably Chengde and Pangang) instigated extensive capacity expansion projects. Chinese expansion led to record global levels of vanadium production, which peaked in 2014. Whilst supply increased, demand has remained sluggish since the global financial crisis which impacted demand for steel and, therefore, for vanadium. This has, in turn, led to a drop in prices.

In spite of significant overcapacity, particularly in China, new feedstock continues to enter the market: Largo Resources has successfully brought its Maracás Menchen project in Brazil into production and is continuing its ramp-up to commercial production. Brazil is, therefore, expected to become a major producer of vanadium feedstocks.

As Largo is adding further to the vanadium oversupply situation, Roskill expects that its low-cost material will eventually push higher-cost producers out of the market. This is likely to be in China, but given rising costs in South Africa, the market will wait to see if Largo's emergence has a direct impact on Highveld's future.

Over the short-term, a spike in vanadium prices is possible - often the case when there is perceived supply shortage in the vanadium market. Prices rose sharply in 2008 in response to interruptions to production in South Africa (and China) but fell again once the effects of falling steel consumption were felt. There was no visible price impact earlier this year from the news that the owners of the Windimurra mine in Australia had entered administration, but given the relative importance of Highveld's feedstock to the supply chain, uncertainty over future production might drive prices upwards.

Roskill's NEW Vanadium: Market Outlook to 2025 report is essential reading for anyone who needs a thorough knowledge of supply, demand, end-use applications, trade and prices, and informed forecasts of future trends. In addition, a new quarterly vanadium report is now available from Roskill, which will keep market participants up-to-date with the latest market developments, and outline the short-term factors to help your organisation mitigate risks. For more detailed information on these new reports please contact Adam Smith [e-mail] tel [phone]

Notetoeditors

RoskillInformationServicesLtd. of London, UK is a leading provider of multi-client and bespoke market research services to the minerals and metals industry.

The vanadium report will provide a detailed review of the industry, with subsections on the activities of the leading producing companies, supply, demand and prices.

A new quarterly report will keep market participants up-to-date with market developments, and outline the short-term factors influencing pricing movements.

For further information on this report, please contact Adam Smith, at [e-mail] or tel [phone]