Tungsten is one of those solid industrial metals that largely passed the media and investment communities right on by.
As we wrote back in June, it can be likened in some ways to the rare earth metals market, in that production and reserves are dominated by the Chinese; and like REEs, Chinese exports are strictly limited by way of export quotas, tariffs and support for downstream domestic consumers to “add value” to what the Chinese view as a key (and limited) strategic resource.
Unlike REs, tungsten’s uses are largely industrial applications that don’t tend to catch the public’s attention – prices or demand for the metal that goes into drill bits, cutting tools and abrasive powders are not usually the topic of the evening news or morning papers. (UNLESS, of course, if it’s about tungsten’s role in conflict minerals legislation – everything you need to know about that here.)
Nor is there a terminal or futures market on which daily price fluctuations can be tracked and positions taken; medium-term contracts are generally concluded between mine and refiner or refiner and consumer, rather than an active spot market.
It is, however, every bit as critical to modern economies – mature or emerging market – as rare earth elements are, with tungsten being required, for example, in wind turbines. Imagine how the North American shale gas revolution would have got on without ready access to sophisticated drill bits for fracking.
(Arguably, US shale gas has been more of an economic game-changer than every wind turbine in the world added together.) Not least because tungsten has been a positive force for reducing energy costs rather than pushing them up – but keep me off that soapbox.
A recent article in The Metals Report centered around an interview with Mark Seddon, a tungsten market expert, in which he stated that tungsten demand growth has consistently run ahead of GDP, even in advanced economies over time, and yet at 80,000 tons per annum, the market is too small to attract the Tier One mining companies.
Exploration and production are characterized by junior miners who have found raising funds since the financial crisis extremely challenging. As a result, serious new mine investment has been very limited. The largest projects in the tungsten market are up to $500 million in size, which is above realistic levels for a junior to raise on new greenfield sites.
In the context of an approximately 80,000-ton annual market with 3% growth, you need 2,400 tons of additional tungsten metal per year in supply, and with 5% growth you need 4,000 tons. That’s one new big tungsten project per year – as Seddon observed, it is difficult to see where that supply could come from.
UPCOMING: How an Australian tungsten mining operation has benefited from fracking and Dodd-Frank.