Viewpoint: China tungsten prices to rise in 2021

Chinese tungsten prices are expected to rise steadily in 2021 on expectations of a recovery in the global economy and as production cuts take effect.

The International Monetary Fund (IMF) predicts that global economic growth in 2020 will fall by 4.4pc from 2019 but will rebound by 5.2pc in this year. China's economic growth is forecasted to be 1.9pc in 2020, rising to 8.2pc this year.

The global economy is likely to recover from the 2020 slowdown if the Covid-19 pandemic is brought under control following the worldwide vaccine rollout. The US has already started distributing the Pfizer-BioNTech vaccine after receiving authorisation for its emergency use from the Food and Drug Administration.

This could support the tungsten market because consumption is closely linked to the global economy's development, as tungsten carbide, alloy and chemicals are widely used in the construction, electronics, mining, automotive and petrochemical industries.

China consumption on the rise

New infrastructure builds, security projects and 5G plans in China are expected to support the manufacturing industry, tungsten's key downstream sector, which is likely to see continued growth in 2021.

China's PMI index rose to 52.1pc in November 2020, up from 50.2pc a year earlier and by 0.7pc from 51.4pc in October, according to the national bureau of statistics. The index has been above 50pc — the critical point — for nine consecutive months, indicating that recovery in the manufacturing industry has accelerated.

In November, China sold 32,236 excavators, the main downstream device for tungsten carbide, up by 66.9pc from 2019. Of this, 28,833 excavators were sold in China, up by 68pc, with the remaining 3,403 exported, a rise of 28.8pc on the same period in 2019, according to statistics released by the country's construction machinery association.

A global economic rebound this year is likely to drive sales of excavators higher, underpinning tungsten demand.

Furthermore, China's vehicle sales and production rose for an eighth consecutive month in November on sustained demand, supported by government policies and a seasonal pick-up in sales during the mid-autumn and National Day holidays. This indicates steady use of tungsten in the automotive industry.

Total sales in 2020 are likely to reach 25mn, down by around 2pc on the year, but beating initial expectations, according to the association of automobile manufacturers. The government will take more measures to boost automotive sales as part of China's initiative to expand domestic demand after the pandemic.

Vaccination programmes are expected to support the reopening of borders and boost the demand for civil aerospace products, which could lift demand for high density tungsten alloys.

But consumption outside China remains under pressure. Combined exports of tungsten products in January-October dropped by 32pc to 12,979t (metal content) from a year earlier, as a second wave of Covid-19 restrained production and demand for metal feedstock across the rest of the world.

Shipments to major countries and regions, including the US, Japan, Europe and South Korea, fell by 36pc, 40pc, 36pc and 15pc, respectively. Demand from these countries in 2021 is likely to rebound as vaccine programmes bring the coronavirus under control.

High production costs, stable output

Tungsten concentrate production costs remained high as China's high-grade tungsten and easy-to-mine concentrate dried up after years of mining activity. Furthermore, anti-pollution policies required upgraded equipment, which increased costs.

The average production cost for concentrate is around 80,000 yuan/t, according to market participants. Slim profit margins pushed concentrate producers to scale back sales and hold offer prices firm throughout 2020.

China produced 111,831t of tungsten concentrate containing 65pc tungsten trioxide in January-October, down by 2.25pc from 114,407t in the same period of 2019, data from the China nonferrous metals industry association show.

Concentrate production this year is predicted to hold stable as the Chinese government requires large producers to arrange production in line with the mining quota policy.

Unprofitable prices for intermediate product ammonium paratungstate have pushed producers in Jiangxi and Hunan province to halve or halt production since August last year, relieving the oversupply situation and underpinning prices in the future.

By Beijing staff