Vanadium prices just hit an all-time high, giving this flavor of the day story some real traction.

I’m bullish on vanadium. I agree that it’s becoming a new energy mineral. But I also think that market is going to take years to develop. For the near term, it’s important to remember that vanadium prices have a history of spiking and retreating. Look at the same price data charted above in a larger context, shown below.

The good news is that this tremendous surge in vanadium prices isn’t just based on hopes for much higher battery demand in the future. Chinese regulators increased the required vanadium content in structural steel, particularly rebar. That’s a huge source of increased demand that will not be reversed. This truly constitutes a game-changer.

The bad news is that vanadium has spiked before. The spike in 2005 was also caused by China. It flipped from being a net vanadium exporter to a net importer. That didn’t sustain higher prices for long, however. Another rally in 2008 fizzled pretty quickly as well.

Am I being too negative? Well, we call commodity surges like this “the flavor of the day” for a reason, but a “day” in this context is often more like a year or two. The fact that investor fascination with certain commodities can last a year or more is no reason to assume it will last that long this time. And it’s certainly no reason to ignore the fundamentals.

So yes, vanadium could keep going higher and higher for months to come, taking vanadium stocks with it. But it’s not my job to be a cheerleader.I’m not here to convince anyone to buy stocks in resource companies. I’m here to present the relevant facts as clearly as I can. I work for you, not the companies.

And the critical, relevant fact today is that China is the primary focus of Donald Trump’s aggressive moves to renegotiate trade agreements. This is already impacting the Chinese economy, which recently clocked in with its lowest GDP growth figure since the Great Recession. If that gets much worse, higher use of vanadium in Chinese rebar could get swamped by lower consumption of rebar in China. This could be happening already—or not. It will be a while before we have the data.

That makes it an open question whether the Great Rebar Rally of 2018 is justified or overdone.

I do think that even without new battery demand, vanadium prices will settle to a new average at a higher level than in recent years. But I’m skeptical that a 30% increase in use in Chinese rebar justifies a 500% increase over recent vanadium price lows. I’d still think this way, even if China were not in an escalating trade conflict with one of its biggest trading partners. With an average price in the above chart near $5/lb., I’d say that $10/lb. would be a reasonable level. But that’s less than half of today’s prices—closer to a third.

Bottom line: I don’t know if vanadium prices have already risen too high too fast, or if they will remain on a tear. I’m skeptical that anyone else really knows either, regardless of how sure they sound.

But I am pretty sure that until Friedland’s battery prophecy comes true, current prices are not sustainable. This is why I haven’t bought any pure play vanadium stocks yet.

Fortunately, vanadium often occurs in nature alongside other metals. That means there may be a way to gain exposure to possible near-term upside in vanadium without much risk if vanadium prices plunge instead (as they have before).

I think the best way to play this would be to buy one of the uranium stocks with a vanadium credit. If most of the value is in the uranium (which I’m confident must and will go higher, albeit subject to near-term fluctuations), such stocks won’t tank if vanadium does. It’s free upside if vanadium keeps going higher, with no downside if it doesn’t. I like trades with such asymmetrical risk and reward.

As for pure vanadium plays, the two vanadium companies I interviewed recently have much more going for them than just a good story. (If you missed either, here’s the First Vanadium interview, and here’s the Prophecy Development Corp interview.) However, both are up sharply in recent weeks. I could wish I had bought both stocks when they first came up on my radar. Prophecy tripled after my interview… but that would be chasing momentum, which is not how I do things.

I want to see the metal correct first—without crashing—before I start buying pure vanadium plays. When the metal establishes a new and credibly sustainable level, I’ll look for bargains. If I’m right about some correction being in order, I could get in at significantly lower prices than today.

Caveat emptor.

Monday, October 22, 2:19pm, EST, 2018