Tungsten didn’t have the best year in 2015, as was the case for most metals. Indeed, as China accounts for nearly 85 percent of global tungsten output, the Asian country’s slide into economic turmoil has been rough.
The most prevalent trend for the tungsten market this year was a sharp price decline. The tungsten price has fallen about $200 since the beginning of the year to trade at $180 to $190 per MTU. That’s down from the comfortable trading range of $350 to $450 per MTU seen between 2012 and 2014.
When asked what he expected from 2015, Lewis Black, president, CEO and director of Almonty Industries (TSXV:AII), told the Investing News Network that like the rest of the industry, he “expected prices to remain around $320 MTU.” Tungsten’s big price drop was thus extremely challenging — as Black noted, “less than 2 percent of business conducted on spot,” and the market saw high levels of illiquidity.
Tungsten outlook 2016
Against that backdrop, 2016 brings with it the hope that at least some stability will return to the tungsten market. For his part, Black expects to see demand continue in line with 2015 levels. “Prices should stabilize around $250 toward the end of [next year],” he said.
Similarly, in an October interview, Chris Ecclestone, an analyst at Hallgarten & Company, suggested, “[the tungsten price] is probably bottoming out at this price level.”
Still, investors would do well to exercise caution, at least initially. “It will be a tough year to start, but should start the traditional five-year cycle toward the end of 2016,” Black explained. Eccelstone also doesn’t see a tungsten price recovery coming quickly.
Part of the reason for their cautiousness is the unknown of China and how long it will take the country to pull itself together. That said, if early reports are any indication, China’s economy is showing signs of improvement as government support policies start gaining traction.
On that note, Black said that his advice to investors is, “don’t panic!” He added, “demand has been consistent for over 20 years. Pricing mechanisms have exaggerated the pricing drop due to illiquidity. But investors need to really understand a company’s real cost per MTU to produce to assess if the project can compete with the Chinese. This cost is opex including waste — waste is often a large cost center, but bizarrely is omitted in companies showing how cheaply they produce.”
For Almonty Industries, 2016 has the potential to be quite exciting. Despite the many setbacks in the market in 2015, the company managed to reach a major milestone with the successful acquisition of Woulfe Mining, whose South Korea-based Sangdong project is touted as one of the best tungsten projects around.
Though Black played his cards very close to the chest, he did hint at some exciting news on the horizon for 2016. “Exciting news regarding Almonty Korea Tungsten and Valtraxial will be out in 2016, and as a major shareholder myself I have a big smile given what I know!” he concluded.
For their part, investors will just have to wait and see.
Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned.