Tungsten – Getting cornered in China

According to the US Geological Survey (USGS), China currently accounts for approximately 85% of the world’s primary tungsten (mine production) and approximately 65% of the world reserve base.

Tungsten has been an important aspect of our every day life and has a wide range of applications. Apart from the filament of the humble light bulb, tungsten is incorporated into wear-resistant materials used in metal working, mining, petroleum & construction industries, stainless and full alloy steels, manufacturing including jet engines, strategic applications in the defense sector and high temperature resistant alloys.

Compared to “glittering matter” such as gold, a steel-gray to tin-white colored tungsten invokes little enthusiasm amongst resource investors. But what make tungsten interesting are its chemical properties which contribute to the diversity of its applications. Tungsten has the highest melting point, lowest coefficient of thermal expansion and lowest vapor pressure of any metal. It is also corrosion resistant, stands up well to mineral acids, and alloys well with steel thus increasing its toughness. Clearly, tungsten is a metal we use and rely upon in our everyday lives so it’s hardly surprising that the Chinese consider it to be strategic.

Unlike many other metals, there are no significant close substitutes for tungsten; those that do exist involve considerable cost increase and compromise of product performance. Industries such as jet engine manufacture, defense and construction, where product performance is important, have studiously avoided experimenting with substitutes. The closest to a substitute, molybdenum, is even more expensive and has nothing like the range of characteristics tungsten offers as a metal. As such, it is safe, literally, to assume that tungsten is unlikely to be replaced.

The dynamics for tungsten are the same as those for other metals. The world economic growth underpins demand for tungsten and much of this demand come from industrial nations. Demand is particularly high from the US due to tungsten’s military and defense applications. Interestingly, the US has no domestic tungsten source and is entirely dependent on imports. US and other industrial nations are keen to secure alternative, more reliable supply sources. Canada naturally assumes prominence on the list of limited alternative supply sources.

Meanwhile, supply remains tight with China controlling 66% of world reserves. Of the total estimated reserves of 630,000 million tones, Canada and Russia account for just 8% and 7% respectively. China’s ability to influence the tungsten market becomes evident if one goes back to the past tungsten price movements. When China unexpectedly curtailed its exports in 1963, tungsten saw a three-fold price increase.

This strengthens the investment case of companies with exposure to tungsten, particularly those that are in close proximity to industrial nations.

Despite its own tungsten reserves, Russia is yet to emerge as a reliable potential supplier. This makes Canadian tungsten companies particularly attractive due to their proximity to the key US market and the availability of advanced stage projects.

The investment cases of these companies rest on the growing world demand for specialist metals in the wake of emerging economic giants such as China and India. There appear to be metals other than “glittering matter” that are equally attractive. – Resource Investor