Coronavirus hits tungsten supply, demand outlook

The coronavirus outbreak has inflated spot prices for tungsten as producers in China — the world's biggest supplier — delay post-holiday restarts of their plants because of logistical bottlenecks. And the same weakening economic growth prospects are expected to hit the demand outlook for tungsten, which correlates closely with GDP.

The world's reliance on China for tungsten — it supplies 80-85pc of this critical raw material — will continue. Chinese output of tungsten concentrate containing 65pc WO3 (tungsten trioxide) rose by 26pc to 146,380t in 2019, according to the country's non-ferrous metals industry association.

Vietnam — the world's second-largest producer — and Russia might have scope to raise output, but most material is likely to be locked into long-term contracts, with limited spot tonnes available.

With average prices falling by 32pc in the second half of the previous decade, new projects have struggled to get off the ground and remain profitable, further restricting production capacity to Asia-Pacific. In 2010-14, European ammonium paratungstate (APT) prices averaged $360/mtu. But in 2015-19, this fell to $242/mtu, Argus data show.

Despite the looming supply shortfall, global economic growth will probably be checked in the near term as the coronavirus outbreak disrupts the flow of goods and services in China.

Short-term supply concerns

Doubts over the resumption of production in China and a lack of clarity regarding delivery times have prompted firms to reconsider inventory levels.

The transportation of workers, and raw and auxiliary materials — such as acid, coal, gas and alkali — to plants in China, and exports of tungsten APT and other related products, have been restricted by logistical bottlenecks. Some of China's customs and freight forwarders, including at the ports of Xiamen, Guangzhou and Shanghai, have returned to work, but goods cannot reach them for export.

As a result, some sellers in Europe could re-enter the spot market to lock in material in anticipation of rising prices triggered by supply tightness, or hedge against late-running Chinese shipments.

These worries have already resulted in higher spot prices in China and Europe in February. European prices rose after nearly two months of stability and weak spot trading.

Chinese domestic APT prices rose by 1.5pc to Yn137,000-139,000/t ($19,635-$19,922), while European APT prices rose by more than 5pc week on week to $240-245/mtu on 12 February, according to Argus data. Chinese 75pc grade ferro-tungsten prices rose by more than 2pc to Yn150,000-152,000/t, while ex-China works prices for minimum 65pc concentrate were also up by more than 2pc, hitting Yn89,000-91,000/t on 11 February.

More supply tightness could be ahead as environmental inspections at mines are typically conducted during the second and third quarters, although this year's schedules could be different because of the coronavirus outbreak.

Weaker GDP growth to hit demand

Tungsten consumption is closely correlated to global GDP, especially in China, which consumes half of the metal produced. Since the outbreak, travel restrictions and curbs on the flow of goods have lowered expectations for global economic growth.

Hubei in central China — cradle of the outbreak — is an industrial province and accounts for around 5pc of China's GDP.

The impact was already visible at the start of 2020. In January, the Caixin China manufacturing purchasing managers' index fell to a five-month low of 51.1, down from 51.5 in December, with exports down for the first time since August. New orders and output growth slowed in January.

UK-based Oxford Economics expects the virus to hit China's growth hard in the short term, with first-quarter growth falling by 3.8pc on the year. And although it sees a recovery in the second half of 2020, global growth is projected to slow to the weakest since 2009, at just 2.3pc.

Tungsten carbide, metal and chemicals are used in the mining, construction and automotive industries, as well as the defence sector. They also have industrial uses. The automotive industry now faces a shortfall in components, with many production facilities either shut or bracing for imminent closure.

By Anuradha Ramanathan