I recently read about vanadium, a metal that has apparently increased more in price in recent years than others.
I have seen a few investment tips for that, but what is it, how do people invest and how risky is this?
Vanadium has become an important part of batteries that can store sustainable energy, such as sun and wind
Myron Jobson, from This is Money, answers: Some investors who are looking for investment beads to generate good returns have touched a lesser known type of metal vanadium.
The obscure silver-gray metal is usually used as a steel hardener, but has more recently become a key component in batteries that can store renewable energy sources such as solar and wind (also known as VRBs).
The metal has benefited from a number of tail winds, the price per kilo of which has increased by 960 percent in two years from $ 13.25 to $ 140.50 – until November 4, 2018.
To put this in the right context, the prices of gold, silver and platinum of precious metals grew about 10 percent, 30 percent and 20 percent in the same period.
But investing in vanadium is not easy. It is possible to buy vanadium physically online, but this is not advisable because it can be difficult to act, expensive to do transactions and impractical – you have to find a way to keep it safe.
But there is more than one way to invest in vanadium. The most common option is investing in companies that mine the metal, or companies that produce VRBs or develop VRB technology.
However, this is a big risk and such shares should only be a small part of a much wider diversified portfolio.
This is the low point on vanadium.
What is it?
Vanadium is a silver-gray metal that rarely occurs as a free element in nature, but can be found in about 65 different minerals and fossil fuel deposits such as oil.
China and Russia control the vast majority of known vanadium deposits in the world.
Here you can see how pure vanadium looks like:
Vanadium is mostly used as a steel hardener, but has more recently become a key component in batteries that can store renewable energy such as solar and wind energy.
It may not look so impressive, but the metal is quite valuable, especially in production because of its flexible, ductile and corrosion-resistant properties.
It is used in a range of economic purposes, such as titanium and chemicals, but the ability of steel to become stronger and its use in batteries to store renewable energy is what has made a lot of investors.
Explaining the hype
Vanadium has seen an astronomical increase in the price per kilogram in the past two years.
New Chinese rules to increase the vanadium content in steel reinforcement – which came into force in November – contributed to the wave surge.
Currently, about 92 percent of vanadium expenditure is linked to steel production – a raw material vital for global economic growth.
Without going too much into technical details, steel producers would need even more vanadium to meet the new standard.
Demand for the product has also been fueled by a breakthrough of vanadium batteries in the commercial market, according to fund manager Chi Chan, who is managing the euro zone strategy of Hermes Investment Management.
These batteries have a lifespan of more than 20 years, are not flammable and can work at any temperature.
The graph shows the increase in the price per kilogram vanadium in the past two years
They can also be charged and discharged at the same time, making them ideal for large-scale storage from renewable sources, such as solar and wind, when they are connected to an electricity grid.
The main drawback is low energy density, which means that relatively large installations are required. This can be costly.
Simon Moores, of Benchmark Mineral Intelligence consultancy, said: "When a vanadium battery manufacturer makes progress with daring plans to produce vanadium flow on a mass scale, giving the industry its Elon Musk or lithium ion moment, the potential for technology is the second. to become the most used ESS battery in the world there. & # 39;
But the supply of the metal did not keep up with demand. In 2017 there was a vanadium vanadium shortage, and this is expected to increase in the future with an expected revival in demand for steel and battery manufacturers.
This is good news from an investor's point of view, since the economy 101 teaches us that prices rise when demand exceeds supply to create a new equilibrium – and of course prices rise, as does the potential return on investment. investors.
How to invest in vanadium
As mentioned earlier, the most common way to invest in the vanadium is the shares of a listed company that is involved in the production and distribution of the metal.
Moore is an advocate of Advanced Metallurgical Group, commonly referred to as AGM, which is the sole supplier of vanadium recycling in North America.
He said: & # 39; It has announced plans to expand its facility in Cambridge, Ohio by the end of next year, which will increase its spent catalyst recycling capacity by about 30 percent.
The group also entered into exclusive negotiations with Criterion Catalyst and Technologies, a subsidiary of Oil Major Shell, for a joint venture to expand their operations, which would have a further upward effect on the forecasted expectations. & # 39; 39;
He added: "Each $ 1 move in the prize adds approximately $ 1.5 million to AMG's operating results."
The risk of investing in vanadium
Supporters claim that the price of the metal prepares to do something in a run. Vanadium is not a one trick pony. The performance does not only depend on the demand for steel or the inclusion of raster storage.
What is behind the name?
Vanadium is named after the Norwegian goddess of beauty and fertility Vanadís (Freyja).
This is attributed to the wide range of colors in the mineral vanadinite, which is an important source of the metal.
Demand for the metal currently exceeds supply without taking into account its application in new and growing markets such as nanotechnology and even electric vehicles.
The biggest risk to watch out for is that vanadium, like any metal, is a commodity, so that its price can peak and pull itself off with a drop of a hat.
Commodity prices are typically driven by both demand and sentiment and the latter can change rapidly.
And if commodity prices are volatile, the share price of companies that are connected to them can fluctuate even more.
Big bets on small mining companies have also dented many a portfolio in the past
Investing in small mining companies that rely heavily on the wealth of a small number of mines or obscure goods are not for the weakest, because the share price can fluctuate strongly daily, says Danny Cox of DIY investment platform Hargreaves Lansdown.
He added: "This is often the hunting ground of speculators, where they want to make a quick profit and move on, because shares are priced on the basis of optimism for future production and sentiment can move quickly in both directions.
& # 39; In itself, this is a high risk and not for the average portfolio.