2017 PREVIEW: Chinese tungsten prices will continue journey of recovery as market reaches consensus on price floor

China’s tungsten concentrate prices are expected to average higher in 2017 thanks to improving demand, although oversupply – such as stocks held in the Fanya Metal Exchange – will continue to weigh on rises.

“Stock digestion is still the theme of the market for next year. [But] the range of price moves may be higher than this year as overall the market is in the process of recovery after it reached a historical low in 2015,” a major trader in China told Metal Bulletin.

China produced 108,596 tonnes of tungsten concentrate in the first ten months of 2016, down 5.35% year-on-year, data from the country’s National Bureau of Statistics showed. 

Metal Bulletin’s assessment for 65% content tungsten concentrate reached 72,000-75,000 yuan ($10,438-10,872) per tonne on Wednesday December 14, up by more than 15% in the year and up to 41% higher than its lowest level of 51,000-54,000 yuan per tonne on November 4, 2015. 

“The market price can’t stay below production costs for a long time; it’s not sustainable and is abnormal,” a source from a local miner said.

“Tungsten is an important strategic metal. I think its price is undervalued; the price increase this year is much smaller than those of other commodities,” a tungsten products producer said.

Average tungsten concentrate production costs in China are recognised at around 80,000 yuan per tonne, according to sources.

Improved demand, consumption will support prices
Tungsten concentrate market prices are expected to fluctuate between 75,000 and 80,000 yuan per tonne in 2017, higher than this year’s average of 68,000-70,000 yuan, thanks to consumption of low-priced inventory as well as improving demand, according to Zhu Xiusheng, chief adviser at Ganzhou Grand Sea W&Mo Group. 

Zhu also is the former deputy chief economist of Jiangxi Rare Metals Tungsten Holding Group (JXTC).

“The market still has a lot of inventory, like the stocks bought by the state-owned assets supervision and administration commission of the State Council (SASAC), as well as the stocks at Minmetals and Fanya; costs of all these cargoes are high, some even higher than 90,000 yuan [per tonne],” Zhu said.

Market participants expect the Chinese government to announce further plans to buy tungsten concentrate next year, after more than 30,500 tonnes of 65% content tungsten concentrate was purchased in 2016.

China’s State Reserve Bureau (SRB) issued five tenders to buy tungsten concentrate in 2016, four of which were successful at reported prices of about 75,000-82,500 yuan per tonne.

“I think price trend in next year will be similar to this year. Now the market-recognised price bottom for concentrate is about 65,000 yuan [per tonne] and APT [ammonium paratungstate] is around 105,000 yuan [per tonne], once prices reach this level, players will enter the market to buy,” a major trader said.

“Due to the weak market last year and this year, most users kept their stocks at low levels. Now with decreased miner production, SRB’s purchases, and the consumption of some [existing] inventory, the price should rise somewhat next year,” an APT smelter said.

A Jiangxi-based trader echoed these views, saying that the supply of the raw material in overseas markets, such as Russia and Canada, would also support this price projection for 2017.

Demand in China and overseas will keep improving in line with economic rallies, sources told Metal Bulletin.

In the first three quarters of this year, China’s tungsten products exports to Europe rose by 39.5% year-on-year, by 4.6% year-on-year to Japan and by 12.1% year-on-year to South Korea. Exports dropped 19.7% to the USA, according to data from China customs.

Conversely, APT stocks owned by the failed Fanya Metal Exchange was described as a time bomb by market players and is one of the main factors that could suppress price rises for years to come.

“I don’t think prices can increase much next year, because if prices rise too high it may draw Fanya’s 29,651 tonnes of APT stock into the market, as the country is still hoping to find a better way to return money to [Fanya] investors,” a second trader based in Jiangxi said.

“For now, no one knows [what will happen to] Fanya’s cargo, but it still is a big concern to the market,” the smelter source added.