Ever since vanadium prices went vertical, I’ve been warning that the spike was not likely to be sustained. In my last update, in October, I said:
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 [long term] 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.
It now seems evident that I was right. Perhaps someone was listening, because the hot vanadium stocks of a couple months ago began correcting—hard—before the metal itself did. But that has now started as well.
An important point to make here is that if vanadium prices rebound in the immediate future, nothing changes. The 2008 price peak looks flat at the top at a certain scale, but in fact, vanadium prices fluctuated near the top for some months before heading down for almost 10 years. Don’t be fooled. I was right to suspect that the near-term catalyst (the new Chinese rebar standard) was already priced in in advance.
If I’m also right about $10/lb. being a good level for vanadium prices to settle at, those stocks have a very painful few months ahead of them.
What to do?
There’s absolutely no point in trying to catch a falling safe here. Let it smash. Plenty of time to pick over the wreckage then. We should be able to buy valuable, deeply oversold companies at stupid cheap prices when vanadium stabilizes.
Would I want to? Sure. The Chinese rebar thing is a flash in the pan. But I’m convinced that vanadium flow batteries are going to play an important role in the new energy paradigm.
Remember, “buy low, sell high” is the basis of rational speculation. “Buy high, hope to sell higher to a greater fool,” is just gambling.