Tungsten: Value Regression Is Inevitable Trend

China boasts rich reserve of tungsten resources,which accounts for about 65% of proved global tungsten mineral resource reserve, ranking top in the world. Judging from global production in the past five years, China’s tungsten production also far outstrips those of other countries, about 85% global tungsten supply comes from China.In 2007, there was a sharp drop in tungsten production; despite slight increase afterwards,the increase margin is limited.

Since 2005, China’s tungsten reserve showed evident decline. According to statistics from the National Statistics Bureau, after many years of massive mining efforts, in 2009 China’s tungsten reserve dropped to only 2,287,000 tonnes, down by 21.57% from 2,916,000 tonnes in 2004.

National proven reserve is widely distributed in 21 provinces, whose reserves are relatively concentrated. The tungsten reserve of Hunan Province and Jiangxi Province accounts for about 56% of national total reserve, in which Hunan is rich in white tungsten, Jiangxi is rich in black tungsten, its black tungsten resource accounts for 42.40% of total national black tungsten reserve.

Tungsten mines in China are mainly distributed along eastern Guangdong coastal areas on both sides of the Nanling Mountains, most heavily in the southern part of Jiangxi Province, whose reserve accounts for about over half of global reserve. Furthermore, tungsten resources are also found in Dayu in Jiangxi, and Rucheng,Anhua, Linwu, Zixing, Chaling in Hunan, as well as Henan, Guangxi, Yunnan, Sichuan, and Fujian provinces.

Despite the continual decline in basic tungsten reserve, in recent years, tungsten mine prospecting work also has made certain progress. In 2010, Yunnan Malipo County newly discovered over 300,000 tonnes of tungsten mine.Dao County in Yongzhou City, Hunan, discovered an ultra large tungsten mine, according to preliminary estimate, its tungsten resource reserve reaches 260,000 tonnes based on 333+334 standard, making it an ultra large mine with potential economic value of 50 billion yuan. Prospecting department in Chizhou,Anhui, has discovered Huangshanling large molybdenum mine, Nanling Yaojialing large lead-zinc multiple metal mine and Qingyang Gaojiabang large tungsten mine, with tungsten reserve up to 107000 tonnes.

In view of the scarcity of tungsten resource, as early as on January 15, 1991, the State Council issued the “Notice from the State Council on Listing Tungsten, Tin, Antimony, and Ion Type Rare Earth Mineral Resources as National Special Mine Varieties for Protected Exploitation”,which listed tungsten as a protected mineral resource.

On October 23, 2000, the former Ministry of Foreign Trade and Economic Cooperation, the former State Economic and Trade Commission,and the Ministry of Land and Resources jointly issued “Notice on Relevant Problems in Strengthening Overall Regulation of Tungsten Industry”, which ordered overall sorting-out of tungsten mine exploitation, and stringent control of aggregate tungsten mining volume.

Beginning from 2002, the state government started to implement control over aggregate volume of tungsten mining, hoping to restrain the excessive mining problem of tungsten resources.

On March 20, 2006, nine ministries and commissions including Ministry of Land and Resources, the National Development and Reform Commission, and the Ministry of Public Security jointly issued “2006 Work Plan for Rectifying and Standardizing Development Order of Mineral Resources”, emphasizing the point to continue dedicated rectification on the mining of specific protected mineral varieties including tungsten.

In order to resolve the long standing problem of blind competition, in May 2010, the Ministry of Land and Resources convened a video conference on the special rectification campaign to ensure nationwide order in the development of rare earth and other mineral resources, and subsequently issued “Notice from the Ministry of Land and Resources on the Special Rectification Campaign to Ensure Order in Developing Rare Earth and Other Mineral Resources”. Between June and November in that year a special rectification campaign was carried out to rectify the order in the development of rare earth and other mineral resources, with the focus placed on cracking down on illegal and chaotic mining behaviors, rectifying key regions, completely reversing the chaotic situation in some areas, and building up lasting and effective mechanism for supervision of development order.

Judging from the existing policies of the Ministry of Land and Resources, before June 30,2012, the state government will continue to temporarily suspend the acceptance of registration & application for prospecting and mining tungsten, antinomy and rare earth mines. The existing production is still subject to quota mechanism under control on aggregate volume.

Judging from existing policies, according to the“2011 Mandatory Plan for Production of Rare Metals” published by the Ministry of Industry Information Technology, five rare metals including tungsten, antimony, tin, molybdenum and rare earth are placed under control on aggregate volume. The ceiling for planned production of tungsten concentrate in 2011(equivalent to 65% content of tungsten trioxide) is 87,000 tonnes, in which the main mining quota is 68,700 tonnes, up by 3.31% on yearon-year basis, the comprehensive usage quota is 16,200 tonnes, up by 19.8% on year-on-year basis. A pre-reserved volume of 2120 tonnes is temporarily withheld.

Since 2002, China started to implement control over the aggregate mining volume of tungsten mines; the aggregate volume quota of tungsten has been increased from 44,000 tonnes to 87,000 tonnes, showing a slight increase year by year. However, judging from control results,the actual production volume each year exceeded the aggregate control volume planned by the state government by 55%, the control result is inadequate. Given the low concentration degree in China’s tungsten industry, despite rich tungsten resources, ore deposits are loosely scattered, which poses difficulty to management. Widespread wanton mining phenomenon leads to poor result in the control of aggregate volume.

As the largest producer of tungsten in the world, China’s production of tungsten concentrate maintained relatively stable growth.In2010 China’s total production of tungsten was 129,700 tonnes, up by 20.47% on year-onyear basis. The state government’s policy on protection of tungsten resources is expected to continue. In the future, efforts will be further intensified to bring about integration of resources. Based on such assumption, there is little chance that the production of tungsten concentrate will continue fast growth.

Judging from production volumes of all provinces, Jiangxi, Hunan, Henan are big producers of tungsten concentrate. These three provinces produce 79% of the national total output, and therefore occupy a dominant position on the market. Specifically speaking, Hunan mainly produces white tungsten, Jiangxi mainly produces black tungsten, and Henan mainly recycles white tungsten ore from molybdenum tailings, its output is relatively unstable.

China is a net exporter of tungsten, it exports huge quantity of tungsten resources to countries in Asia, Europe and South and North America, its annual export volume always tops export quota.

In 2010, China exported 26,000 tonnes of tungsten (metal quantity, excluding hard alloy), up by 66.39% on year-on-year basis, in which export tungsten product quota is 17,000 tonnes,accounting for 100.18% of whole year export quota (including quota of foreign invested enterprises), up by 80.07% on year-on-year basis.Import tungsten was 4159.63 tonnes (metal volume, including tungsten concentrate), down by 22.24% on year-on-year basis, in which import tungsten concentrate is 3164.74 tonnes,down by 32.65% on year-on-year basis. Excluding hard alloy, China’s net export of tungsten is 218,000 tonnes, up by 112.5% on yearon-year basis.

Judging from data of recent years, tungsten export structure is still concentrated on tungsten intermediate products; in 2010, the export percentage of tungsten intermediate products is 77.30%, up by 3.22% on year-on-year basis.Export tungsten products, tungsten wire and hard alloy accounts for 22.7% of total export volume. Overall speaking, no fundamental change has occurred to the pattern of focusing on tungsten intermediate products. Judging from imported tungsten products, the import is dominated by import tungsten concentrate, followed by imported tungsten waste scrap materials. Whole year import of tungsten concentrate accounts for 76.09% of total import volume, down by 11.75% on year-on-year basis;import tungsten waste scrap material accounts for 6.34% of total import volume, up by 1.24%on year-on-year basis.

In 2010 China’s import of tungsten concentrate is 3164.74 tonnes, down by 32.65%, imported tungsten concentrate mainly comes from Russia, Canada, and Rwanda, in which tungsten concentrate from Russia accounts for 41.46%of total import of tungsten concentrate. From September 2009 till October 2010, North American Tungsten Corporation, the largest tungsten producer outside China, remained closed. In October 2010, Cantung Mine under North American Tungsten Corporation resumed production, but another MacTung Mine is still closed.

China’s production capacity in tungsten smelting has already become surplus, but enterprises are still expanding capacity to seek economic benefits. Since 2008, there is at least 25,000 tonnes of newly opened capacity, in 2010 Jinxing Mining & Smelting Company invested 50 million yuan to add 2 1000t/a Ammonium Paratungstate production lines, the exact time to start production is unclear. According to preliminary estimate, China’s API output will reach 130,000 tonnes in 2010.

China’s tungsten resources are not only relatively concentrated in regional distribution, but also in terms of ownership. China’s major tungsten resource companies include Hunan Nonferrous Metals Holdings Group under China Minmetals Corporation, Jiagnwu Group(Jiangxi Rare Earth & Rare Metals Tungsten Group Holding Co. Ltd), Xiamen Tungsten Co., Ltd and Zhangyuan Tungsten Co., Ltd.

China Minmetals Corporation controls over 50% of domestic tungsten resources, accounting for nearly 35% of global total reserve.Minmetals owns two largest domestic hard alloy manufacturers (Zhuzhou Hard Alloy Plant and Zigong Hard Alloy Plant), Xiushui Xianglushan Tungsten Mine in Jiangxi, Jiangwu Group and Nanchang Hard Alloys Plant, as well as 20.58% stake of Xiamen Tungsten In-dustry, the largest tungsten smelting company in China. Since 2009, China Minmetals Corporation started the integration of tungsten resources in Jiangxi and Hunan, the two major tungsten producing regions in China, and increased its stake in Hunan Nonferrous Metals Holdings Group. In the future its efforts to integrate tungsten and other resources will continue.

The concern of the state government over tungsten resources will ultimately be reflected in the integration of tungsten resources, which will be seen in the continual efforts to intensify integration of resources, so as to generate increasingly strengthened ability in resource control. Given this trend, in the future the integration of tungsten resources will continue to become the inevitable route for the development of tungsten industry.