THE EFFECT OF IMPORTS OF VANADIUM ON THE NATIONAL SECURITY AN INVESTIGATION CONDUCTED UNDER SECTION 232 OF THE TRADE EXPANSION ACT OF 1962, AS AMENDED U.S. Department of Commerce Bureau of Industry and Security Office of Technology Evaluation February 22, 2021 TABLE OF CONTENTS I. Executive Summary ............................................................................................................................... 6 A. Findings ........................................................................................................................................... 10 1. Vanadium is essential to U.S. national security .......................................................................... 10 2. Imports of vanadium have mixed effects on the economic welfare of the U.S. vanadium industry ............................................................................................................................................... 12 3. Displacement of domestically-produced vanadium by imports affects our internal economy, but is mitigated by ongoing actions .................................................................................................... 13 4. Increased global capacity and production of vanadium will further impact the long-term viability of U.S. vanadium production ................................................................................................. 15 5. Unilaterally increasing domestic prices of vanadium would harm critical U.S. industries ......... 16 B. Conclusion ....................................................................................................................................... 17 C. Recommendations .......................................................................................................................... 19 II. Legal Framework ................................................................................................................................. 28 A. Section 232 Requirements .............................................................................................................. 28 B. Discussion ........................................................................................................................................ 31 III. Investigative Process ....................................................................................................................... 35 A. Initiation of Investigation ................................................................................................................ 35 B. Public Comments ............................................................................................................................ 36 C. Information Gathering and Data Collection Activities .................................................................... 38 D. Interagency Consultation ................................................................................................................ 40 IV. Product Scope of Investigation ........................................................................................................... 40 V. Background on U.S. Vanadium Industry .............................................................................................. 42 A. Vanadium Production ...................................................................................................................... 42 B. Vanadium Uses ................................................................................................................................ 54 VI. Global Vanadium Industry Conditions ............................................................................................ 59 A. Overview ......................................................................................................................................... 59 B. Prior Trade Investigations ................................................................................................................ 69 C. U.S. Duties on Vanadium Imports ................................................................................................... 74 VII. Findings ........................................................................................................................................... 77 A. Vanadium is Essential to U.S. National Security .............................................................................. 77 1. Vanadium is Considered a Critical Mineral ................................................................................. 77 2. Vanadium is Required for National Defense Systems ................................................................. 79 3. Vanadium is Required for Critical Infrastructure ......................................................................... 81 4. Vanadium Has Significant Effects on Other Critical Industries .................................................... 84 B. Imports of Vanadium Have Mixed Effects on the Economic Welfare of the U.S. Vanadium Industry 88 1. The U.S. is Presently Reliant on Imports of Vanadium ................................................................ 88 2. U.S. Reliance on Imports of Vanadium is Not Increasing .......................................................... 104 3. Prices ......................................................................................................................................... 107 4. Employment .............................................................................................................................. 110 5. Financial Outlook ...................................................................................................................... 112 6. Exploration ................................................................................................................................ 117 7. Capital Expenditures ................................................................................................................. 119 8. Environmental Factors .............................................................................................................. 121 C. Displacement of Domestically-Produced Vanadium by Imports Affects Our Internal Economy, but is Mitigated by Ongoing Actions ........................................................................................................... 123 1. U.S. Production of Vanadium is Well Below Domestic Demand ............................................... 123 2. Domestic Production is Highly Concentrated and Limits Capacity Available for a National Emergency ......................................................................................................................................... 124 3. Domestic Vanadium Production Currently Requires Significant Imports of Vanadium Feedstock, Limiting Capacity Available for a National Emergency ...................................................................... 126 4. Trade Actions Have Been Successful in Mitigating Artificially Low-Priced Imports of Vanadium 128 5. Critical Minerals Agreements Will Help Ensure Reliable Supplies of Vanadium ....................... 128 D. Increased Global Capacity and Production of Vanadium Will Further Impact the Long-Term Viability of U.S. Vanadium Production .................................................................................................. 131 1. China Possesses an Outsized Role in the Global Price of Vanadium ......................................... 131 2. Expansion of Low-Cost Production in Several Countries Will Place Downward Pressure on Global Vanadium Prices .................................................................................................................... 133 3. Downward Price Pressure May Be Mitigated by Increased Demand for Steel, Titanium, and Energy Storage .................................................................................................................................. 134 4. Significant Price Swings Impair the Ability of Domestic Producers to Plan and Carry Out Capital Expenditures ..................................................................................................................................... 136 E. Unilaterally Increasing Domestic Prices of Vanadium Would Harm Critical U.S. Industries ......... 138 1. Domestic Vanadium Prices Significantly Exceeding World Prices Would Disadvantage the U.S. Steel Industry .................................................................................................................................... 138 2. Domestic Vanadium Prices Significantly Exceeding World Prices Would Harm the U.S. Titanium Industry, to the Benefit of Russian and Chinese Titanium Producers ............................................... 140 VIII. Conclusion ..................................................................................................................................... 142 A. Determination ............................................................................................................................... 142 B. Recommendations ........................................................................................................................ 143 APPENDICES APPENDIX A: Section 232 Investigation Notification Letter to Secretary of Defense Mark Esper, May 21, 2020 APPENDIX B: Federal Register Notice – Notice of Requests for Public Comments on Section 232 National Security Investigation of Imports of Vanadium, June 3, 2020 APPENDIX C: Federal Register Notice – Reopening of Comment Period for Section