In addition, sentiment in China’s domestic tungsten market remains decidedly pessimistic owing to the country’s continued trade tensions with the United States and the threat of overhanging ammonium paratungstate (APT) stocks from the failed Fanya Metal Exchange.

“There was fairly thin trading in December with the expectation that the APT export price could move down at the beginning of January. Now that the expectation has come true, buyers are taking a more cautious approach,” a China-based APT producer said.

Fastmarkets MB assessed the export price for APT, min 88.5% WO 3, basis fob China, at $258-273 per metric tonne unit (mtu) on Wednesday January 23, down by $12-14 per mtu from $272-285 per mtu on January 2 – the first assessment of 2019. The price was assessed at $275-287 per mtu on December 5, 2018.

The Chinese APT price averaged $311.64 per mtu in 2018, up by $67.01 per mtu from an average price of $244.63 per mtu in 2017.

Market participants attributed the higher average annual price last year to a round of environmental inspections in China’s Jiangxi province – the country’s APT production hub – which led to smelter shutdowns and thus tightened supply of the material. This supply tightness caused the Chinese APT price to reach a peak of $343-350 per mtu in late May 2018, its highest level since December 2014.

A new round of environmental inspections due to take place across China from 2019 is not expected to have a similar impact on minor metals markets as they did in previous years because most non-compliant minor metal producers have already permanently withdrawn from their respective markets, participants told Fastmarkets MB earlier this month.

Therefore the impact of these latest inspections on Chinese and global APT prices is expected to be minimal, they added.

Yet other factors, such as a slowdown in liquidity ahead of the Chinese New Year holidays (February 4-10) and the implications of the ongoing trade spat between China and the US, are much more pressing at least in the near term and are the main factors that are driving the current weakness in the Chinese APT price, according to participants.

“I expect the slower market activity will persist throughout the first quarter of 2019 because that period is interspersed with the seasonally low demand associated with the Chinese New Year holidays,” the producer said, adding that the uncertainty surrounding a trade agreement between China and the US will also keep market participants wary.

Trade concerns ‘overblown’
Yet other participants were of the opinion that the concerns over the ongoing trade dispute between China and the US were overstated and that even in the worst case scenario - US buyers completely withdrawing from key Chinese tungsten markets - the effect would be minimal.

In September 2018, the US imposed import tariffs on $200 billion worth of Chinese goods, including tungsten products. One such tungsten product affected by the tariffs was cemented carbide – a key downstream APT product used to manufacture industrial machinery, tools and abrasives.

Currently, China-origin cemented carbide cargoes bound for US shores face a 10% levy, which participants fear will push US consumers out of the Chinese market to seek out cheaper material elsewhere.

“The import tariff will be added to the purchase cost of US buyers, they could then seek material from outside of China to avoid import tariffs,” a Chinese cemented carbide producer said.

Yet even in this scenario, the impact to China’s tungsten market would be minimal owing to the relatively small share of the market that US buyers hold. Approximately 20% of Chinese cemented carbide production is shipped to buyers outside of the country, with US consumers accounting for a third of this volume, market sources told Fastmarkets MB.

“In the worst case scenario, only about 6% of APT demand [total Chinese APT] could be cut if all US cemented carbide buyers exit the Chinese market,” a second China-based APT producer said.

In general, around 1.3 tonnes of APT is used to produce 1 tonne of cemented carbide, according to market sources. This means that 6% demand cut represents only 3,400 tonnes of China’s approximate annual total APT production of 120,000 tonnes.

The impact to other key Chinese tungsten markets, such as ferro-tungsten, is similarly expected to be minimal despite the ferro-alloy also being hit with US tariffs.

In 2018, China shipped only 210 tonnes of ferro-tungsten to US shores, accounting for around 8% of total Chinese exports last year. Therefore, Chinese market participants told Fastmarkets MB that US buyers make up too small a market share to have a significant impact should these consumers exit the Chinese export market.

Macro-related volatility a key threat

But the volatility associated with these wider geopolitical and economic factors continue to be a key threat to China’s tungsten markets but more so due to their impact on market sentiment rather than actual fundamentals, market sources told Fastmarkets MB.

Signs that trade negotiations between the US and China are not progressing as well as previously hoped have fueled bearishness across global markets in recent days. The ongoing trade spat continues to draw market focus as participants becoming increasingly worried about how damaging a prolonged dispute can be to economic growth.

“Although US buyers play a small role in the Chinese APT export market, there are more concerns about the risk of volatility from a slowing global economy caused by the China-US trade tension that could affect overall demand and market sentiment for 2019," a third China-based APT producer said.

In China, recent data points to an economic downswing as the impact of the trade war begins to make itself felt. In a release on January 22, China’s annual gross domestic product (GDP) growth stood at 6.4% for 2018 – the weakest annual growth since 1990.

Additionally, adding further fuel to the fire was China’s official manufacturing purchasing managers’ index (PMI) falling into contractionary territory in December 2018. It marked the first time that the country’s manufacturing sector had recorded a contraction since March 2016.

But recent stimulus measures by China’s central bank may increase liquidity in the domestic market, stimulate the domestic economy and improve the weak demand, thus offsetting some negative effects of China-US trade tensions, market sources agreed.

From January 15, the People’s Bank of China has cut the reserve requirement ratio, the minimum level of reserves banks must hold, by 100 basis points. The 100-basis-point reduction was expected to free up to $116 billion for new lending. A further 50 basis point cut will be enforced on January 25.

Unresolved Fanya APT stocks cloud outlook for Chinese domestic market
APT stocks owned by the failed Fanya Metal Exchange also continue to overhang China’s domestic tungsten market, participants told Fastmarkets MB.

“Fanya's inventory is still a big concern for the domestic tungsten market. Meanwhile, the country is still hoping to find a better way to deal with those 29,651 tonnes of APT,” a Chinese trader said.

"Despite news that some of Fanya’s indium stock is to be auctioned off on January 28, there is no information about Fanya’s APT stock. Yet the bearish sentiment in the domestic tungsten market [has been fueled by the announcement of the indium auction]," he added.

The Fanya Exchange will auction 34.64 tonnes of indium stocks it holds in its warehouse at the end of the month, market sources told Fastmarkets MB on January 22.

The Kunming, China-based bourse was initially a boon to China’s domestic market, providing another outlet for producers to sell their material and giving a group of new investors the opportunity to step into the often-complicated financial markets.

However, cracks began to show at the end of 2014, with some investors becoming wary as metal stocks continued to pile up thanks to new production coming on to feed demand for the exchange’s products. As sentiment soured, the exchange found itself exposed to metals prices that were continuously falling, while also being accused of failing to pay suppliers.