Even as demand rises steadily, the world's largest non-Chinese tungsten mine will be exhausted by next year. So investors should be lining up to fund new mines, right? Not a bit of it, says analyst Mark Seddon of Tungsten Market Research. In this interview with The Mining Report, Seddon argues that a supply shortage could mean much higher prices, leading to handsome profits for those companies that get to market soonest.
The Mining Report: Tungsten is often called rare. Just how rare is it?
Mark Seddon: It's not that rare compared to a minor metal such as rhenium, which is used in superalloys. The total rhenium market is maybe 70 or 80 tons per year, whereas the tungsten market is currently around 80,000 tons per year of tungsten metal content. So tungsten's nothing like a rare earth element, but it is considered a strategic metal.
TMR: How is tungsten strategic or critical?
MS: It's strategic in that it has industrial uses. It's used in hard metals, cutting tools, etc. It has military applications, as well. The U.S. Defense Logistics Agency built up a stockpile of tungsten over a number of years, which it has pretty much sold off now. And tungsten is a critical metal due to China's dominance of the market. China accounts for 80% or more of supply in various forms.
TMR: Tungsten is often compared to rare earths, but the latter's price is highly dependent on high tech. This is not true of tungsten, correct?
MS: Yes. Tungsten's main uses are industrial; the largest end user is in cemented carbides, what are known as hard metals. Those can be used in things like cutting tools, mining tools, drill bits and wear parts. So tungsten's demand curve tends to follow gross domestic product growth quite closely, whereas rare earth elements demand growth is more volatile.
TMR: But tungsten prices are rising.
MS: Yes, tungsten has risen in price because of a change in Chinese policy. Some 10–15 years ago, you could buy as much tungsten as you wanted from China, and the price of ammonium paratungstate (APT) fell to about $100/metric ton unit ($100/mtu). APT rose to a peak of $470/mtu in 2011 and was above $400/mtu in 2013. Recently, the market has been a bit quiet. Today, APT sells for about $370/mtu.
TMR: So would it be reasonable to say that, as with rare earth metals and other metals, the Chinese have decided they want to keep production for internal use?
MS: China is now less interested in exporting natural resources and much more interested in adding value to them. Internal demand in China for tungsten, rare earth metals and so on has been increasing as its GDP has grown, recently about 7–10%/year. China has made very little investment in new tungsten mines, so it is really struggling to maintain production at current levels, which also would put pressure on exports because, obviously, it just doesn't have the material available for export.
TMR: Given the tightening of supply, where can we expect tungsten prices to go by 2020?
MS: In the short term, I expect that prices will end 2014 quite a bit higher than now and continue rising in 2015. The only significant new supplier that has entered the market recently is the Nui Phao project in Vietnam. This is owned by the Masan Group, which is privately held. It came onstream in 2013, and is, as far as I know, still ramping up to production capacity. In the longer term, major new tungsten supply will likely not enter the market until the second half of 2015. So the pressure on prices is really going to be upward, especially considering that Europe expects reasonable economic growth this year and slightly better than that in 2015. My feeling is that production shortages will result in rising prices at least until 2016–2017. Then, depending on how much new supply enters the market, a leveling off may occur.