2016 Tungsten Concentrate: Stable But Slightly Tight Supply, Demand Gradually Recovers, Price Bottoms Up



2016 Tungsten Concentrate: Stable But Slightly Tight Supply, Demand Gradually Recovers, Price Bottoms Up

In 2016, China’s tungsten concentrate output declined, domestic and foreign downstream enterprises’ tungsten raw material stocks were at a historical low, and the current market supply is stable but slightly tight; output of carbide alloy and other downstream products increased, while that of some elementary and high-grade smelting products declined; exports of tungsten products maintained growth, reaching a high point in the recent 5 years, with market demand gradually recovering and supply and demand contradictions eased; the tungsten concentrate prices stabilized after more than two years of shocking down and has remained above 70,000 Yuan/ton for 4 consecutive months, assuming a rational return. Overall industry economic benefits tend to improve.

According to the National Bureau of Statistics data, tungsten concentrate production across China in 2016 was 139,700 tons (WO365%, the same below), down by 2.67% year on year.

According to the China Tungsten Industry Association statistics, in 2016, 40 major domestic tungsten mining enterprises produced tungsten concentrate 65583.60 tons, down by 12.67% year on year. Among them, 27 enterprises recorded a decline in output (2 shut down), or a reduction of 12499 tons, while 13 saw an increase, totaling to 2982 tons. Putting these figures together, the net reduction was 9517 tons. Upon comprehensive statistical analysis, excluding repeated statistics of output, the national tungsten concentrate production in 2016 was 124,078 tons, down by 3.88% year on year. Among them, Hunan, Guangdong and Henan saw a significant decline in tungsten concentrate output.

As the domestic tungsten market price was still low in 2016, production cut or stopped at tungsten mining and smelting enterprises, the output of tungsten smelting products declined generally. However, the production of processing products generally increased. According to the China Tungsten Industry Association statistics, main tungsten smelting and processing enterprises in 2016 recorded a decline of 1.62%, 2.24%, 17.42%, 8.95% and 0.92% year on year respectively in tungsten oxide, tungsten powder, coarse tungsten wire, fine tungsten wire and high specific gravity alloy production, and an increase of 10.25%, 3.68%, 1.82%, 2.80%, 6.43%, 3.35% and 136.18% year on year respectively in APT, tungsten carbide, ammonium tungstate, tungsten bar, carbide alloy, tungsten electrode and tungsten iron production.

According to customs statistics, China’s exported tungsten goods in 2016 was 22089.15 tons (excluding carbide alloy, metal, and the same below), a YoY increase of 10.97%. Among them, original export quota tungsten goods were 16017.95 tons, a YoY increase of 2799.48 tons, or up by 21.18%. That was 617.9 tons exceeding the quota of 2014, or exceeding by 4.01%; the export amount was 651 million US dollars, down by 8.18% over the same period last year.

After the long-term downturn in early 2004, the tungsten market prices experienced big shocks. According to the China Tungsten Industry Association statistics, the average monthly price of domestic tungsten concentrate increased from 26,000 yuan/ton in January 2004 to 132,000 yuan/ton in May 2005, or up by 408%; decreased from132,000 yuan/ton in May 2005 to 58,000 yuan/ton in December 2008, or down by 56%; then rebounded to 154,200 yuan/ton in May 2011 and 153,500 yuan/ton in July 2013; and fell from 153,500 yuan/ton in July 2013 to 54,600 yuan/ton in November 2015, or down by 64%. After more than two years of edging down, the price bottomed and now expects a steady rise.

Since November 2015, as tungsten mining enterprises reduced production capacity and due to the four state and corporate purchasing and storage efforts, the supply and demand contradictions in the tungsten market were eased, and market confidence boosted. Domestic tungsten market prices showed a positive change of rational return. The average monthly price of domestic tungsten concentrate rose from 62,800 yuan/ton in January 2016 to 72,400 yuan/ton in December 2016, or up by 15.29%. However, there is still a gap between the figure and our expected reasonable price.

In 2016, the annual average price of domestic tungsten concentrate was 68,700 yuan/ton, down by 6.5% year on year; the annual average price of APT was 106,600 yuan/ton, down by 4.05% year on year. Tungsten concentrate prices have been below the cost of mining for 18 consecutive months.

In 2016, the overall economic benefits of China’s tungsten industry tended to improve; however, business was still difficult as the market price did not rise to a reasonable level. Tungsten mining enterprises are still suffering from losses. Smelting, carbide alloy and processing enterprises achieved profit growth, while corporate profitability differentiation intensified and industry profits moved towards the industry chain back-end.

According to the China Tungsten Industry Association statistics, in the year 2016, 109 domestic enterprises achieved revenue of 54.257 billion yuan, a YoY increase of 8.05%; profits and taxes were 2.326 billion yuan, up by 107.92% year on year; profits were 48.64 million yuan, a turnaround year on year. Among them, 34 tungsten mining enterprises suffered a loss of 435 million yuan. Excluding non-comparable data from one mining enterprise, among the 108 enterprises, 57 were profitable, including 4 mining enterprises, 19 smelting enterprises, 26 carbide alloy companies, 7 tungsten enterprises and 1 tungsten iron enterprise; 51 suffered loss, including 30 mining enterprises (the loss-incurring percentage: 88.25%); 9 smelting enterprises (the loss-incurring percentage: 32.14%); 8 carbide alloy enterprises (the loss-incurring percentage: 23.53%); 2 tungsten enterprises (the loss-incurring percentage: 22.22%).

China’s tungsten industry policy, output and prices are still key factors affecting the international tungsten market. After more than two years of de-stocking effects, the market supply and demand contradiction in the tungsten industry has been eased. Firstly, the global tungsten concentrate output was steady with slight decline, and supply and demand are basically balanced; due to commercial and national strategic purchasing and storage, the tungsten raw materials supply was steady and tight, which significantly eased the supply and demand contradiction. Secondly, the production and sales of carbide alloy remained a growing trend. The China Manufacturing Purchasing Managers Index (PMI) in December 2016 was 51.4%. Continuing an upward trend, it remained on top of 50% for 5 consecutive months. Carbide alloy cutting tools characterized by “high efficiency, high precision, high reliability and professionalism” as required by car manufacturing, aerospace, precision molds, nuclear energy and other high-end manufacturing areas maintained steady growth, with broad market prospects and huge potential. Thirdly, emerging economies’ economy maintained high-speed growth, which will continue to stimulate the international tungsten market demand recovery. Domestic and foreign downstream enterprises have a very low level of tungsten raw material stocks, where refilled supplies will help stimulate demand growth.

Judging from the domestic supply, tungsten ore resources degraded year by year, production capacity shrank naturally, and production decline became a trend. Black tungsten concentrate output declined, while white tungsten concentrate output grew. Trade enterprises saw a shrinking output year by year. In the future, tungsten concentrate output will remain steady and downward, and supply tends to be stable.

The proportion of white tungsten concentrate output in total output increased from 32% in 2002 to 61% in 2015, while proportion of iron ore content in ore processed decreased from 0.42% in 2004 to 0.28% in 2015. Beneficiation recovery rate dropped to below 80%.

Over the years the mining industry has been under rectification, resource integration and total control. Those chaotic mining areas with large tungsten concentrate output witnessed a substantial decline in the output. For example, Chenzhou and Yongzhou, Hunan, Ganzhou and Jiujiang, Jiangxi, Wenshan and Honghe, Yunnan, and Hezhou and Guilin, Guangxi saw a huge decline in tungsten concentrate output and some tungsten mining areas have been shut down for years. Only Heilongjiang, Xinjiang, Henan and Gansu provinces (regions) featured comprehensive utilization of tungsten concentrate, keeping a growing trend in the output.

Trade circulation enterprises saw shrinking tungsten concentrate trading volume year by year. Since 2004, tungsten concentrate trading volume has been calculated as output, which has remained above 40,000 tons in recent years, accounting for about 1/3 of the national tungsten concentrate output. Excluding repeated statistical output of about 10,000 tons, the actual output was more than 30,000 tons, accounting for about 30% of the national tungsten concentrate output. In recent years, as affected by market price and increasingly stringent supervision over tungsten ore mining, the trading volume of tungsten concentrates at trade circulation enterprises has shrunk year by year. The main sources of tungsten concentrates in the trade circulation enterprises were: normal trade volume accounts for about 30% of the total trade volume, which includes repeated statistics (1 or more times); acquisition & processing volume accounts for about 55% of the total trade volume; border trade volume accounts for about 15% of the total trade volume, mainly tungsten concentrate imports from Vietnam, North Korea, Mongolia, Malaysia and Russia and other border trade areas. The fact that the output figures of trade circulation enterprises stays beyond the total amount of tungsten ore mining indicators makes supervision hard to carry out. Also the irrational market speculation and arbitrage led to vicious competition and price fluctuations, which constitute the uncertainty factors in the tungsten raw materials market.

With the extended depth of tungsten mining, decline of tungsten resource grade, as well as the rise in labor costs, tungsten mining costs saw a rigid rise. Meanwhile, mining safety and environmental pressure increased, so were financial difficulties. Although the tungsten mining enterprises took extraordinary measures such as “downsizing, output reduction, pay cuts” in order to reduce cost and improve efficiency, the full cost of tungsten concentrate stayed high, while the cost advantage vanished year by year. According to incomplete statistics, the average full cost of tungsten concentrate across China in 2015 was around 85,000 yuan/ton. The tungsten companies included in the 2016 China Association statistics downsized by 5.76%, or laid off 3495 workers for a slight cost reduction.

Although the identified reserves of tungsten resources increased in recent years: during 2007 – 2014, the accumulated newly identified tungsten resources reserves were 2.783 million tons (WO3) and large-scale white tungsten deposits were discovered in Jiangxi Province, such newly discovered resources were mostly scheelite of low quality and costly, difficult to explore also due to industrial policy, economic and technical restrictions.

Judging from domestic demand, there is growing stability in China’s economic growth, and the overall national economy is stable with progress. According to China Nonferrous Metals Industry Association’s non-ferrous metal industry prosperity index report, in December 2016, the prosperity index is 31.1, up by 1.3 points from the index in November, rising from “cold” to “normal”; the leading indicator of non-ferrous metals industry is 86.3, up by 1.7 points from the index in November; consistent index is 79.7, slightly up by 1.1 points from the index in November. So it’s preliminarily judged that the non-ferrous metal industry prosperity index has risen to “normal” with obvious signs of rebound. A highly correlated industry, tungsten industry in China has great potential and enjoys a large space for high-end development. With the coordinated progress of our “Three Strategies”, construction of major strategic projects such as transportation, energy and communications along “The Belt and Road” will speed up. Big projects such as Beijing-Tianjin-Hebei coordination and the revitalization of the old industrial base in Northeast will also accelerate; the Beijing Sub-City Center and other functional platforms are under planning and construction; Yangtze River economic zone further strengthens the ecological protection, and accelerates the step of building an integrated three-dimensional transport system; Made in China 2025 planning outline is advancing; 100 major projects specified in the “13th Five-Year Plan” are carried out; a “three-year rolling plan” is developed for old industrial bases revitalization in the northeast and other regions, proposing 127 major projects to be launched in 2016 – 2018, involving an investment of 1.6 trillion yuan. Implementation of industrial upgrading plans regarding CNC machine tools, robots, automobile manufacturing, aircraft manufacturing are also quickened, which will continue to pull and maintain steady growth of domestic tungsten consumption.

Prices lower than the production costs in long run are unsustainable. As tungsten concentrate costs play a supporting role to raw material prices, the global supply of tungsten raw materials tends to be stable, and the stock is low. With the recovery of global economy and supplies refilled at downstream tungsten enterprises, the market demand will further recover. In 2017, the overall prices in the tungsten market are expected to further rationalize to a reasonable level.