Ann: Quarterly Activities Report and Appendix 5B Dec 2018, page-21

New stricter Chinese rebar standard as a demand catalyst

Steel sector consumes about 90% of globally produced vanadium because 1 kg of V added to steel will double its strength. China is responsible for half of the world's steel production. In 2018, the Standardization Administration for the PRC imposed new regulations regarding the concentration of V in steel, and Vanitec, a global vanadium organization, acclaimed it in the statement. The new standard requires 0.03% of V added in grade 3, while grade 5 rebar must contain 0.1% of this rare metal. Also, new regulation prohibited the production of popular HRB335 rebar grade, while introducing a new more tough HRB600 class, robust enough to withstand earthquakes. Meanwhile, the gist is that new regulations have not influenced the vanadium price significantly yet. A possible reason is that ~30-40% of Chinese smaller mills have not begun to use V in rebar production because of expensiveness of commodity that would wipe their operating profits and paint the bottom line red. Indeed, the good news for vanadium producers is that in January 2019 Chinese State Bureau of Quality and Technical Supervision (CSBTS) conducted a few quality inspections and visited mills and rebar producers in Jieyang in Guangdong province and Xuzhou city in east China's Jiangsu province. Hence, in 2019 the demand will likely increase as expected because zealous authorities control the standard implementation, making it impossible to ignore the regulation.