Tungsten Demand Growth vs. Global Supply

China is by far the most dominant tungsten producer in the world, accounting for about 84.5 percent of global output in 2014. What’s more, it holds the highest reserves, at 1.9 million MT.
However, the Asian nation’s supply dominance may be set to falter in the coming years. After removing export restrictions on tungsten earlier this year, China vowed to strengthen mining regulations for the metal.
Meanwhile, tungsten production outside of China is expected to increase in the next few years, according to a US Geological Survey report, and secondary production has become an important source of the metal. Impressively, it accounted for 22 percent of global supply in 2013.

But will non-Chinese tungsten producers be able to put out enough of the metal to satisfy growing demand? Here, the Investing News Network explores that question and what it may mean for investors.

Tungsten supply crunch

Speaking about tungsten supply from outside China, Almonty Industries (TSXV:AII) states on its website, “[w]estern world supply is tightly constrained and future production is limited to a small number of projects that have been delayed or put on hold due to technical or financing issues.”
It adds, “[r]ecent consolidation in the industry has also limited the amount of tungsten concentrate available for sale with most future production locked into off-take agreements with end users.”
Blackheath Resources (TSXV:BHR) CEO James Robertson also spoke on non-Chinese tungsten supply in an interview with Peter Epstein this past April, noting that there are limited sources of tungsten outside of the Asian nation. “There are very few companies pursuing production of tungsten and Portugal is one of the countries where tungsten is found,” he said in the interview.

Lack of exploration outside of China is not the only thing that’s constraining tungsten supply. Other countries that produce the metal are seeing their supply hampered by conflict minerals regulations. For instance, the Democratic Republic of the Congo and Rwanda were two of the 10 top tungsten-producing nations in the world in 2014, but as conflict minerals regulations intensify, they may see their output drop.

Tungsten demand shift

With Chinese tungsten output set to fall and supply from non-Chinese countries not yet up to snuff, it’s clear that production of the metal is precarious. Meanwhile, as mentioned, a shift in tungsten demand is also expected.
In previous years, tungsten demand has mainly been fueled by consumption from cemented carbide producers; they accounted for about 60 percent of total demand in 2013. Use of tungsten-bearing steels and alloys in aerospace manufacturing and energy industries has also supported demand.
However, moving forward, the electronics and electrical industries are expected to take a greater share of tungsten demand. Tungsten’s hardness, stability and ability to withstand extreme temperatures make it a perfect material to use in the manufacturing of electrodes and components used in touch screens.
In fact, according to Roskill, tungsten consumption from electronic and electrical applications, including electrical contacts, electron emitters and lead-in wires, is forecast to grow at 5.4 percent per year through to 2018 — that’s more than double the overall trend.
Meanwhile, tungsten demand for lighting products is expected to fade away and decrease by about 5 percent annually to 2018.

Investor takeaway

Summing up the tungsten supply and demand situation Roskill states in its report, “[t]rade in tungsten materials may be on the verge of significant changes, with multiple new projects expected to enter production and potential alterations to Chinese export controls.”
Overall, the firm expects China’s share of global tungsten production to fall to 78 percent in 2018.

Whether that will have an impact on the price of the metal remains to be seen. However, the long-term tungsten market situation appears to be bullish, and investors looking to cash in may want to start looking at companies working to bring non-Chinese projects into production.
 
Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article. 
Related reading:
10 Top Tungsten-producing Countries