In-depth Analysis Of Tungsten Industry: From The Teeth Of Industry To The Backbone Of High-end Manufacturing
1. Tungsten - from the teeth of industry to the backbone of high-end manufacturing
1.1 Tungsten - the "fiery vajra" of small metals
Tungsten: steel gray or silvery white, hard, ductile, with a melting point of 3410°C. It is not subject to air erosion at room temperature and has good electrical and thermal conductivity, and is commonly used as a material for steel, alloys, lighting or chemical production. The largest downstream application is tungsten carbide, which is known as the "teeth of industry" for its super hardness and wear resistance, and can be used in various cutting tools, cutting tools, drilling tools and other components. Due to its scarcity and irreplaceability, tungsten has been classified as an important strategic metal by various countries and is known as the "backbone of high-end manufacturing".
1.2 The value of tungsten industry chain is "high at both ends and low in the middle".
The upstream of the tungsten industry is mainly wolframite exploration and extraction, the midstream is mainly "tungsten concentrate - ammonium paratungstate (APT) - tungsten powder" smelting, and the downstream includes tungsten material, tungsten wire, cemented carbide and other materials processing. From the perspective of the value chain, China's tungsten industry is characterized by "high at both ends and low in the middle": the profit level of upstream tungsten ore mining and downstream high-end tungsten carbide (especially high-precision, high-performance tools) is high, while the profit level of smelting, powder making, low-grade tungsten carbide and tungsten steel and tungsten material is low.
Industry pricing is based on a "cost-plus" model. Processing fees are at a stable level: The selling price of each product in the middle and lower reaches of the tungsten industry is mainly based on the market price of tungsten concentrate for the same period, which is converted into metal quantity, plus processing fees for different grades to set the industry processing fees at a stable level for a long time.
As the tungsten industry chain extends vertically downward and has fewer branches, the vertical correlation is high, as can be seen from the price differential of each link, and the subsequent product prices basically move in the same direction as the tungsten concentrate prices.
1.3 The current tungsten price has fallen below the cost line and industry profits are seriously squeezed
In 2013, the national tungsten concentrate storage and the massive acquisition of tungsten powder by Minmetals Non-ferrous Metals, the short-term supply tension in the market pushed the price up to a high of RMB 144,000/ton; in 2014-2015, the tungsten price fell to near the cost line due to the cancellation of export quotas and tariffs. In 2016-2017, tungsten prices returned to above 100,000 yuan/ton after the industry's unanimous production cut to protect prices, four national storage and severe regulation by environmental protection inspectors.
In 2019, tungsten prices will fall below the cost line again due to the imbalance between supply and demand in the industry: due to the relatively high tungsten prices in 18 years, the industry manufacturers are highly motivated to start production, and most APT smelters resume production at the end of the year, resulting in a large release of production capacity this year; while the back-end demand continues to be weak due to the sluggish domestic economy and receding end consumption capacity; exports are slowing down under the influence of trade frictions between China and the U.S., resulting in a combination of factors that lead to a significant supply surplus in 2019. China's tungsten market is in a state of significant oversupply, prices continue to fall, smelters are under pressure to invert, the industry's capital chain is tight, and tungsten enterprises are struggling to survive.
We estimate the cost and profit of tungsten industry chain.
The cost of tungsten concentrate fell below the average cost line of the industry: the cost of tungsten mines in China varies greatly depending on the grade of the resources and the nature of the enterprises to which they belong, on average, the full cost of a mature tungsten mine in production is about RMB 85,000/standard ton; the full cost of a new mine can reach more than RMB 130,000/standard ton due to amortization and depreciation and the decline in grade. Meanwhile, with the increase in labor costs, environmental requirements and declining resource grades in recent years, the cost of tungsten ore has been on the rise. The current price of tungsten concentrate is 74,000 yuan per standard ton, which has fallen below the industry average cost line.
2. Strong production reduction and price protection will bring strong support to tungsten price
2.1 Tungsten Giants Strongly Reduce Production to Protect Price Industry Inventory Depletion
On May 17, 2019, China Tungsten Industry Association (CTIA) held a spontaneous industry symposium with ten presidium members, and the participating enterprises' tungsten concentrate output reached 86% of the national annual output, and resolved to jointly reduce tungsten concentrate production by no less than 10% this year. The production was reduced by no less than 30%. Within one month, the industry took the initiative to reduce production twice and unanimously called on upstream and downstream enterprises to strengthen cooperation and jointly resist vicious competition and malicious speculation in the industry, hoping to improve the current sluggishness of the tungsten market from the supply side and promote a reasonable price return for upstream and downstream tungsten products as a whole.
After this round of production reduction and price protection meeting, the domestic APT industry start-up rate dropped from 66.67% to 48.72%, proving the implementation efficiency and tough attitude of enterprises to reduce production and protect prices. Influenced by the better overall demand of the steel industry, the starting rate of ferrotungsten is still rising, proving that the downstream demand of tungsten is still at a relatively stable level. After two months of gradual digestion, the current tungsten inventory level is close to the historical low, and the industry is expected to shift from a "de-stocking cycle" to a short- to medium-term "inventory replenishment cycle".
2.2 Back in 15-16 years, the industry cut production three times with remarkable effect
In 2014-2015, large mines accelerated production per unit time in order to save costs, and the supply of tungsten concentrate increased significantly in some areas, while the recovery rate of tungsten scrap also gradually increased, resulting in the oversupply of tungsten concentrate prices in China continued to leak, falling below the cost line, and mainstream tungsten enterprises suffered serious losses.
In November 2015, domestic mainstream large tungsten mining enterprises gathered in Xiamen and resolved to limit tungsten concentrate production by 20%. (There were 27 mines under the eight major tungsten companies participating in the meeting, with tungsten concentrate production exceeding 50% of total domestic production.) The supply of tungsten concentrate basically stopped in the following two months, and the output dropped significantly from 2015.12 to 2016.03, and the tungsten price stopped falling and rebounded.
At the end of January 2016, after tungsten concentrate returned to 65,000 yuan/standard ton, the market confidence was again set back by the poor actual market demand before the Spring Festival and the circulation of low-priced backlog inventory, and the tungsten concentrate price increase was weak or even back down. The eight major tungsten enterprises once again jointly launched a plan to limit production and sales by 15% throughout the year, with key backbone enterprises reducing production by a total of 10,000 tons of main mining tungsten concentrate output and co-associated tungsten comprehensive utilization output, with a sales floor price of 75,000 yuan/standard ton in February, and actively organizing participation in the commercial storage of the State Reserve Bureau.
On June 7, 2016, the eight major tungsten enterprises held their third meeting in Chaozhou, where several major miners suspended shipments and agreed that the sales price of 65% wolframite concentrate would not be lower than RMB 75,000/tonne; the sales price of APT would not be lower than RMB 115,000/tonne. In 2016, tungsten concentrate output was 124,100 tons, down 3.87% year-on-year, effectively boosting market confidence and stabilizing tungsten prices.
The analysis of monthly production and price of tungsten concentrate in 15-16 years shows that the month following the meeting to reduce production and protect price, the production will contract significantly and the price will rise significantly, with an average increase of more than 11%.
2.3 Contrast species - aluminum: industry capacity concentration joint production reduction effect is significant
Aluminum industry chain is similar to tungsten: bauxite - alumina - electrolytic aluminum (primary aluminum) - aluminum processing - recycled aluminum, industry concentration are at a high level.
In 2012-2015, China's aluminum prices continued to fall to new lows, aluminum smelting industry continuous losses, half of the enterprise funds on the verge of collapse. At the end of the road, the domestic electrolytic aluminum enterprises open group production reduction action. In that year, the total capacity of electrolytic aluminum was 38.94 million tons, and the cumulative shutdown of electrolytic aluminum capacity was 8.15 million tons (21%). As the restart cost of electrolytic aluminum capacity is very high, the possibility of restarting is very small once production is stopped, so this production cut constitutes a substantial and extensive reduction of electrolytic aluminum supply, and the production cut to protect the price measures strongly promote the aluminum price from 9,965 yuan/ton to a high of 13,680 yuan/ton.
We believe that the current tungsten market is similar to that of electrolytic aluminum in 2015: the industry has fallen below the average cost line, the willingness to cut production to protect prices is strong, and the concentration of production capacity in the production cut enterprises is high. Therefore, with the continuous consumption of tungsten inventories, the industry boom is expected to rebound.
3. Pan-Asian inventory landing, tungsten price rebound is imminent
3.1 Pan-Asian Inventory Auction: The Biggest Uncertainty of Tungsten Price is Coming to the Ground
The Kunming Pan Asia Non-Ferrous Metals Exchange was established in 2011 and accumulated 431.95 tons of tungsten, 29,700 tons of APT and 14 other rare metals in the name of "storage for the country". In 2018, the Pan Asia case entered public trial and market concerns were strong. As a result of the abortive auction of indium ingots by Pan Asia in January this year, the market was once worried that the short term pressure on tungsten prices would be greater after APT was sold off. This has also become a key factor in the delayed rise in tungsten prices after the production cut this year to protect prices.
On August 30, 2019, the Kunming Intermediate People's Court of Yunnan Province announced that a public judicial auction of ammonium paratungstate (APT) would be held on September 16, 2019 at 10:00 a.m. APT totaled 28,300 tons, with a deposit of 200 million yuan and a price increase of 5 million yuan, at a starting price of 2.448 billion yuan (unit price of 86,401 yuan/ton) and a market price of 3.06 billion yuan (unit price of 108,000 yuan/ton). The market price is 3.06 billion yuan (unit price 108,000 yuan per ton).
According to the current production situation, the amount of Pan Asia APT stock is equivalent to the production of China in one quarter, and the quantity is limited. At the same time, the starting price is significantly lower than the market price, while the current market price of APT is at the bottom of the historical price and has broken through the cost line. We expect the auction price to be close to the market price, and the short-term impact on APT prices will be limited.
We believe that after the auction of Pan-Asian tungsten product inventory, the biggest uncertainty that suppresses tungsten prices will be eliminated, and the rebound of tungsten prices is imminent.
3.2 The situation of over-mining has improved, and the backward production capacity has been cleared under the high pressure of environmental protection.
The over-mining situation has improved significantly and the development of tungsten ore will become more reasonable: historically, the illegal mining of tungsten concentrate has been serious and China's storage to mining ratio has been significantly lower than the global average, with the over-mining rate reaching 50% before 2017 and the actual supply of tungsten concentrate exceeding the national quota significantly. With the increase in resource mining verification by the regulatory authorities in the past two years, the over-mining phenomenon has been effectively alleviated in Jiangxi and Hunan, and the over-mining rate has dropped significantly.
The environmental protection inspectors have become stricter, and it is difficult to resume production: the environmental hazards of tungsten smelting such as wastewater, slag and exhaust gas far exceed those of other non-ferrous metals, with an average discharge of 100-150 cubic meters of wastewater and 0.7-1.1 tons of slag per ton of APT produced. With the tightening of environmental protection inspection, enterprises with outdated environmental protection equipment may be gradually cleared, and the industry supply will be further tightened.
We believe that under the background of strict environmental protection inspectors and the difficulty of resuming shutdown capacity, with "enterprises jointly reducing production to protect prices", "the industry continues to go to inventory" and "the Pan-Asian incident gradually landed", the rebound of tungsten prices will soon usher in a window period. The rebound of tungsten prices will soon usher in a window.
4. China's tungsten resources are the first in the world, and the future supply growth rate may slow down
4.1 China's tungsten resources have obvious advantages, but production is mainly concentrated in South China
China's tungsten resource reserves of 1.9 million tons, accounting for 57.58% of the world's first: the world's tungsten resources are mainly concentrated in the Alps-Himalayas, the Pacific Rim geological belt and the Mediterranean and European near-Atlantic regions, and China has a significant advantage in tungsten resource endowment because it is located between the first two belts. According to the U.S. Geological Service, the global tungsten ore reserves were 3.3 million tons (metal) in 2018, and China ranked first with 1.9 million tons, accounting for 57.58%.
In terms of global distribution, Russian tungsten resources are mainly concentrated in the middle section of the Sikhot-Alin Mountains in the North Caucasus, East Siberia and the Far East, and the larger mines are Verkhne-Kayrakty; the U.S. tungsten mines are mostly located in California and Colorado; Canada is mainly distributed in the Cassiar rock base extending to the junction of the Yukon and the Northwest Territories; and China is the largest tungsten mine in the world. Many large tungsten mines in China are concentrated in the South Ridge region, with reserves accounting for 70% of the country's total, so China's mines account for more than half of the world's top ten tungsten mines, including the Zhuxi deposit, which added 580,000 tons of resources (folded WO3) in 2017, topping the world's largest mines with 3.44 million tons (folded WO3) of resources across the region.
By the end of 2017, China's proven tungsten reserves stood at 10.3042 million tons (folded WO3), of which Jiangxi Province took the lead with 43%. In recent years, Zhuxi, Dahu Tang, Shadong scheelite deposit in Xinjiang, Dalong in Tibet, and Nuri tungsten deposits have been discovered, further widening the distribution pattern of large tungsten mines in China, driven by major tungsten enterprises actively seeking mines. According to the China Mineral Resources Report, China's current identification rate is only 30%, and the future tungsten resource potential is expected to be further released.
High-quality wolframite resources are on the verge of depletion, and the high cost and low grade of the ore increase the difficulty of mining: Although more than 20 kinds of tungsten-containing minerals have been discovered worldwide, only wolframite and scheelite have economic value for mining. Compared with scheelite, wolframite has the characteristics of simple composition, coarse grains and easy selection and metallurgy, but wolframite in China has experienced long-term mining, and the high-quality resources are close to depletion, so the current tungsten mines are mainly composed of scheelite, co-associated ore, poor ore and difficult to select ore, and the proportion of scheelite resources in China reached 70% in 2017. At the same time, as of the end of 2018, China has 10 tungsten mines that have been mined for 100 years or more, and the national average processing grade of raw ore has decreased from 0.42% in 2004 to 0.28% in 2017, with high cost and low grade mines adding difficulty to tungsten mining.
Industrial development drives tungsten mining, and China contributes 82% of global production: global tungsten mining developed rapidly, with production of only 0.17 million tons in 1904, and a small peak in output due to the massive use of tungsten in the U.S. during World War II, but rapidly fell back with the end of the war; in the 1960s, the industrialization process in Japan and Russia drove a rapid increase in tungsten consumption; after the mid-1980s, overseas tungsten production was on a downward trend, while China's industrial After the mid-1980s, overseas tungsten ore production showed a declining trend, while China's rapid industrial development significantly boosted global tungsten consumption growth, and since then, China's tungsten ore production has always maintained 60%-80% of global tungsten ore production. According to the U.S. Geological Service, global tungsten ore production in 2018 was 82,000 tons (metal), and China's production reached 67,000 tons, accounting for 81.71% of the world.
China's tungsten ore resources vary significantly geographically, with mines mainly concentrated in South China: as of 2017, China has a total of 1,538 tungsten ore production sites, of which South China: Jiangxi (520), Guangdong (339), Hunan (169), Guangxi (115) and Fujian (107), with the number of tungsten mines in the five provinces accounting for about 80% of the national total.
4.2 Multiple policies to tightly control supply, total production may stabilize this year
In order to protect tungsten resources in the past 20 years, China has improved tungsten industry-related policies at many levels. Strategic orientation: the strategic position of tungsten has been emphasized several times to guide the healthy and green development of the tungsten industry; industry access: access conditions such as production scale, safe production, environmental protection and energy consumption and product quality have been improved to prevent blind expansion of production capacity; export quotas and taxes: tariffs and resource taxes have been revised several times to protect the cost advantage of tungsten products; total control: quotas have been set to control tungsten mining and combat indiscriminate mining.
From the recent mining quotas, the total production target issued by the state for tungsten concentrate from 2015-2017 has been continuously controlled at 91,300 tons (65% of WO3), and the first batch of tungsten mining target for 2019 is 49,800 tons, 25.99% less than the first batch in 2018, and the total amount of mining is expected to contract throughout this year.
According to the statistics of China Tungsten Association, the national tungsten concentrate output in 2018 was 12.60 million tons (65% of WO3), down 9.27% compared with last year, of which Jiangxi, Hunan and Henan provinces together accounted for 81.04% of the tungsten concentrate output. 2019, under the background of the depletion of high-quality domestic tungsten resources, the decline of comprehensive utilization of associated resources, safety and environmental protection supervision, and strict policy control, the national tungsten concentrate output will continue to trend. In 2019, the national tungsten concentrate production will continue to stabilize against the background of the depletion of high-quality domestic tungsten resources, declining utilization of associated resources, safety and environmental supervision, and strict policy control.
4.3 Storage to strengthen the market confidence Secondary recovery production has a lot of room for improvement
National and local storage bidding is a strong agent for the market: In 2015, the contradiction between supply and demand in the tungsten market deteriorated, and after several rounds of national storage due to low prices and abortive bids, the tungsten concentrate inventory of the National Storage Bureau has fallen to a low level, so in 2016, the country has conducted five rounds of storage bidding, of which four rounds were successful, and for the first time, scheelite was included in the storage. This storage played an important role in stabilizing the tungsten concentrate market price, making the market overall show a "wave" upward trend in that year, a significant improvement over 2015.
Tungsten mining is difficult and polluting, and "recycled tungsten" may become an important means of supply in the future: Although China is rich in tungsten resources, the advantages of resource endowment have been significantly weakened after decades of crude mining and utilization. It is understood that tungsten mining takes about five years from design to output, making it difficult to mine and causing not only partial waste of resources but also greater pollution to the environment in the process. As the pace of modernized industry continues to accelerate, recovery of tungsten may become an important means of tungsten supply in the future.
The proportion of tungsten recycling in China is only 20%, and there is a gap with the efficiency of secondary use abroad: At present, China's tungsten scrap recycling mainly comes from processing residues such as scrap drill bits, scrap inserts, high-speed steel and tungsten rods, accounting for about 20% of the total tungsten supply. In contrast, about 40% of the raw materials of tungsten carbide production of Sandvik in Sweden come from tungsten recycling resources, the secondary tungsten resource recycling in the United States accounts for about 59% of the apparent tungsten consumption, and Starco in Germany has a multinational tungsten scrap recycling network, and the recycled tungsten accounts for about 1/3 of the tungsten raw materials of the whole enterprise. there is a gap between China's tungsten recycling from quantity to technology and foreign countries, and from the tungsten recycling technology research patents, how to improve From the perspective of tungsten recycling technology research patents, how to improve environmental benefits, improve the recovery rate and increase economic benefits will be the focus of each technology development research. 5.
5. Industrial upgrading is gradually advancing and the export structure is improving
5.1 The technical difficulty of tungsten industry is mainly in the deep processing link China's cemented carbide is gradually upgrading to high precision and high grade products
From the industrial chain, tungsten ore is obtained from tungsten concentrate after coarse crushing, gravity beneficiation and selection; then tungsten crystals of ammonium paratungstate with high purity and complete grain varieties can be obtained through alkali pressure cooking, ion exchange, evaporation crystallization and other technologies; ammonium paratungstate calcination can be obtained from yellow, blue, purple and other colors of tungsten oxide; next, tungsten powder can be produced by hydrogen reduction method and tungsten carbide powder by carbonization method; finally, the molding process and extrusion process are used to prepare Cemented carbide.
According to China Tungsten Association, in 2018, China's APT production is 120,000 tons (capacity 224,000 tons), tungsten powder production is 50,000 tons (capacity 80,000 tons), and ferrotungsten production is 7,200 tons (capacity 30,000 tons), of which 50%, 40%, and 60% of the shares are concentrated in Jiangxi Ganzhou, respectively, while there are 75 downstream cemented carbide manufacturers nationwide, mainly in Hunan (14) and Sichuan (11). The two provinces account for more than 50% of the national output.
From the perspective of the whole industry chain, China's tungsten products enterprises show "more, small, scattered" distribution, the middle and low-end overcapacity is more serious, deep processing product quality and prices are far from foreign, while high-performance, high-precision high-grade cemented carbide is still dependent on foreign imports, "the production of low-end smelting is the main, the export of middle-grade products is the main. The structural contradiction of "production is mainly middle and low-end smelting, export is mainly middle-grade products" still exists.
Only from the viewpoint of customs data, carbide products import and export prices contrast obviously, the domestic export price is about one-tenth of the domestic import price, the development of China's cemented carbide products still has a large space to move forward.
The technical and product quality barriers of the industry come from the high standards and high requirements of the downstream processing of raw materials such as powder morphology, particle size, chemical purity and other indicators. From the national tungsten industry development plan, the future of China's resource end will improve the utilization rate of minerals, especially the wolframite smelting process that determines the ability of enterprises to control costs; APT will focus on the development of new green smelting process; research and development of high-quality tungsten carbide powder technology to upgrade. Tungsten carbide, as one of the 12 iconic basic materials in China, will focus on breaking through the high-end product market and the development and application of special performance tungsten alloy deep processing products.
At present, some of China's tungsten products enterprises have been through the introduction of advanced technology and equipment, the implementation of technology absorption, transformation and independent research and development, in some key equipment such as spray drying, gas pressure sintering and other equipment to achieve localization. In the future, with the continuous improvement of the technology and equipment level of cemented carbide extrusion and gas pressure sintering, China's tungsten deep processing products will gradually move towards high performance, high precision and high value-added direction, and are expected to be among the ranks of the world's advanced tungsten industry.
5.2 Tungsten demand remains at a stable level, and the market for high-end cemented carbide is vast
The global tungsten consumption growth rate is stable: In the absence of breakthrough development in tungsten application field, the global tungsten demand shows a stable growth. 2012-2016 global tungsten metal consumption is maintained at about 65,000 tons, China is the world's top consumer country, accounting for 53%, other major consumer regions are Europe, the United States, Japan and Russia, etc. In 2018, China's tungsten concentrate consumption is 137,800 tons (65% of WO3). In 2018, China consumed 13.78 million tons of tungsten concentrate (65% of WO3).
Cemented carbide is the main downstream consumption area of tungsten, and there is still more room for growth in China's application segment: from the perspective of the consumption structure of tungsten products, tungsten downstream applications include tungsten steel, tungsten materials, tungsten chemicals and cemented carbide, among which cemented carbide is the most important area of tungsten consumption. Globally, cemented carbide accounts for more than half of tungsten consumption, and developed countries are in the lead in research and development of tungsten technology applications, so cemented carbide accounts for up to 72% of the demand structure. As a major tungsten resource country, China is lagging behind in tungsten applications, with the traditional steel smelting sector still accounting for a relatively large share, and cemented carbide accounting for only 45%, although it has been increasing year by year. With the continuous upgrading of China's high-end industry and manufacturing industry, the demand for tungsten carbide has more room for growth.
Tungsten carbide has high strength and good wear resistance, and is widely used in various manufacturing industries: global tungsten carbide downstream applications are mainly: cutting tools, wear-resistant parts, high-pressure tools, extraction tools and other fields. 2018 China's cemented carbide product structure is mainly bar (34%), cutting inserts (18%), mining alloy (20%), wear-resistant parts (26%), etc. In the future, with the steady growth of demand for high-performance cemented carbide in basic industrial industries such as cutting machine tool industry, mining extractive industry, automobile manufacturing industry, and oil drilling industry, as well as the continuous expansion of emerging manufacturing fields, the transformation and upgrading of China's tungsten industry continues to advance, and the cemented carbide market will achieve a rapid breakthrough.
Metal cutting machine tool CNC rate to enhance, carbide high-end tools are expected to drive demand: China's carbide product structure in cutting tools accounted for 18%, while its consumption output value accounted for 65%, is one of the highest value-added areas. At present, cutting tools mainly rely on machine tools to achieve, and the consumption of metal cutting machine tools in China remained above $18 billion in 2017-2018, and the export value was $2.66 billion in 2018, up 22% year-on-year. With the metal cutting machine tool CNC rate requirements to improve, with the diversification of the types of cutting tools, cutting tools in the field of carbide CNC inserts developed rapidly. According to the Tungsten Association, China's carbide CNC insert manufacturers have grown from 1 to 35 in 2010, and the output of CNC inserts reached 205.987 million pieces in 2018, 5.19 times higher than in 2010. The accelerated process of high-end manufacturing industry in the future is expected to drive the vigorous development of high-end carbide tools and steadily increase tungsten consumption.
Tungsten end-use applications are mainly concentrated in transportation, extractive equipment and industrial manufacturing: tungsten products end-use applications cover transportation, extractive equipment, industrial manufacturing, auto parts, energy consumption, defense and military industries. With the development of China's high-end manufacturing industry and the rebound of infrastructure, energy and other industries, the demand for high-end cemented carbide has increased, driving the sustained growth of tungsten consumption.
From the demand side, tungsten market demand will continue to maintain a low growth trend in 2019. With the easing of trade friction between China and the U.S. and the recovery of confidence in the international tungsten market, foreign tungsten demand is expected to maintain a stable level; in the medium to long term, as China's economy picks up and equipment manufacturing and infrastructure construction continue to grow, tungsten market demand is expected to maintain a boom upward.
5.3 The growth rate of tungsten exports has slowed down, but the structure has improved
Due to the impact of trade friction between China and the U.S., China's tungsten exports have been restricted to a certain extent, while the substantial consumption demand for tungsten products in the international market has also gradually weakened. The growth rate of China's tungsten exports has slowed down significantly since mid-2018, but last year's annual exports of 32,400 tons (excluding cemented carbide, discounted metal) increased by 9.8% year-on-year, and the total amount still hit a record high. Compared to 2011, the total export amount was relatively reduced by 8% in 2018 due to a 30% decline in the comprehensive price of tungsten products, thus increasing the total export amount by 18%.
From the perspective of tungsten industry export control, China gradually abolished the tungsten export tax rebate policy in 2004; tungsten products were included in the prohibited processing trade catalog in 2006; in 2015, China abolished the junior tungsten export quota license system that had been implemented for 22 years and the junior tungsten export provisional tariff that had been implemented for seven years, and tungsten exports were gradually liberalized.
China's tungsten exporters are mainly large state-owned enterprises, of which China Minmetals Corporation and its subsidiaries hold a large proportion.
The product structure of China's tungsten exports has improved: in 2018, China exported 39,200 tons of tungsten products (including cemented carbide, discounted metal), up 10.73% year-on-year, an increase of 16.61 percentage points slower than in 2017. Among them, exports of cemented carbide exported 7582.83 tons, up 22.38% year-on-year, accounting for 20.05% of the total exports, expanding 1.92 percentage points from 2017; exports of junior smelting products 23,700 tons, up 10.01% year-on-year, accounting for 60.63% of the total exports, narrowing 0.35 percentage points from 2017, the export product structure has improved.
China's tungsten products are mainly exported to countries/regions with developed manufacturing industries, such as Europe, the United States, Japan and South Korea, and the tungsten exports from these four countries/regions accounted for 89.17% of the total in 2018, a decrease of 1.59 percentage points compared with 2017. Affected by the trade friction between China and the U.S., the volume of tungsten exports to the U.S. decreased by 11.29% year-on-year, accounting for a decrease of 2.96 percentage points from 13.96%.
In terms of tungsten imports, China stopped decreasing and increased in 2018: In 2018, China imported 4,573 tons of tungsten products (excluding cemented carbide, discounted metal), up 57.28% year-on-year, changing the trend of four consecutive years of decline. Among them, 3,429 tons of tungsten concentrate were imported, up 68.76% year-on-year, accounting for 74.98% of total imports.
China's imports of tungsten concentrate mainly came from North Korea, Vietnam, Russia and Rwanda, with 2,916 tons of tungsten concentrate imported from these four countries in 2018, up 160.59% year-on-year and accounting for 85.04% of the total imports. Among them, North Korea increased its share by 26 percentage points and Vietnam by 18 percentage points.
According to Russian news reports, the Russian Ministry of Industry and Trade plans to ban the export of non-ferrous metal ores, concentrates and precious metal scrap from Russia from May 1 to October 31, 2019. 2018 China imported a total of 913.5 tons of tungsten concentrate from Russia, accounting for 13.72% of the total tungsten concentrate imports in 2018. So far this year, China's import of tungsten concentrate from Russia has dropped to 0.
6. Investment Reference
In the first half of 2019, the tungsten industry had serious overcapacity, combined with weak downstream demand and hindered exports, tungsten prices plummeted and fell below the industry average cost line, and some SMEs suffered profit losses. In particular, midstream tungsten smelters have serious price inversions and production difficulties. We believe that the current tungsten price is already at the bottom of the historical price, and industry losses are forcing capacity contraction, so the future tungsten price decline is extremely limited.
On May 17, 2019, the China Tungsten Industry Association (CTIA), together with ten presidium members, resolved to jointly reduce tungsten concentrate production by no less than 10% this year. on June 5, 17 smelters in Ganzhou unanimously agreed to suspend production for no less than 15 days and reduce production by no less than 30%. In a short span of one month, the industry took two initiatives to reduce production and stop production, with a strong will to protect prices. Referring to the effect of three production cuts in 15-16 years, we believe that the strength and attitude of this production cut will support the upward price of tungsten. At the same time, after this round of production reduction and price protection meeting, the domestic APT industry start-up rate dropped from 66.67% to 48.72%, proving the implementation efficiency of enterprise production reduction and price protection. We believe that in the context of no significant weakening of demand, the effect of production reduction and price protection will soon be seen as the industry's inventory digestion comes to an end.
On August 30, 2019, the Kunming Intermediate People's Court in Yunnan Province announced that a public judicial auction of ammonium paratungstate (APT) will be held at 10:00 on September 16, with a total of 28,300 tons, a starting price of 2.448 billion yuan (unit price of 86,401 yuan/ton) and a market price of 3.06 billion yuan (unit price of 108,000 yuan/ton). Domestic APT annual production of 120,000 tons, the auction volume is equivalent to China's production in one quarter. With the end of the auction, the Pan-Asian inventory issue that has plagued the industry for years is gradually coming to the ground, and the rebound in tungsten prices is approaching a window.
We believe that in the context of strict upstream environmental protection inspectors, the difficulty of resuming shutdown capacity, and stable downstream demand, "enterprises jointly reduce production to protect prices", "the industry continues to de-stocking", and "the Pan-Asian incident gradually fall into place ", tungsten prices are expected to rebound to a reasonable range.
