Tungsten prices brighten, set for further surge on shortage

LONDON (Scrap monster): Tungsten prices continued to climb on global markets as participants reported increasing difficulty securing offers from China. Tungsten is also expected to have supply shortage issues in 2011 stemming from export restrictions from China as the country is biggest producer of the metal.

Tungsten is used in applications as diverse as pigments, electrical contacts, light bulbs, weaponry, and abrasion resistant tools. The lion's share of tungsten is produced in China, and it is Chinese economic activity that arguably has the greatest effect on tungsten metal prices. When China has flooded the market with tungsten export, prices have historically fallen, sometimes precipitously.

China, however, has recently been depressing tungsten exports, increasing domestic consumption, and switching focus towards producing more tungsten finished goods. With tungsten metal prices exceeding their previous historical highs, it's possible that producers in other areas of the world with tungsten reserves (such as Vietnam) will come online to take advantage of the current favorable economics.

Due to supply issues the metal has been placed on a list of critical strategic metals by the U.S. and the European Union. Recently, China's second largest tungsten producer, Jiangxi Tungsten announced that it will shut down their plant for 3 months for a regular overhaul of the facility. This decrease in supply will put further pressure on supply in the first half of this year and may affect prices that are already around record levels. The price of tungsten APT has risen 81 percent year over year, from US$185 per MTU to its current price of $335 per MTU.

Even with the possibility of increased production outside of China, however, tungsten buyers should be prepared for tungsten prices to remain high for the foreseeable future. Indeed, some economic forecasters feel upward price pressures on raw materials represent the new reality, and an increasing economic trend.

The decrease in supply from the Democratic Republic of Congo (DRC) due to the conflict minerals bill passed by the U.S. government is also another factor to consider for supply-demand fundamentals in this market.

In the meantime China has raised export quotas for silver, tungsten and antimony for 2011. China had earlier decreased export quotas for the metal since 2008. As of this year the quota stands at 15,700 tonnes, a reduction of 300 tonnes over 2010. The tight supply of the metal, as well as increased demand has sent prices through to all time highs. The price for ferrotungsten as of Feb. 23 is at $50 per kg, tungsten APT is quoted at $380 per mtu. These prices are well over the record highs reached last week of $45 per kg.

The biggest new market which is still yet to come is the composite market. This new technology allows to nano-coat tungsten particles with polymers to create a bendable product that replaces lead. While the technology has yet to get traction, but when it does it could comprise 5-10 percent of the market.