New reference prices for the tungsten industry? Addressing the debate on pricing – web seminar Q&A
Metal Bulletin provides answers to the key questions raised during our recent web seminar that discussed the feasibility of new reference prices for the tungsten industry, in light of a consultation opened in May 2017.
Full conclusions from the tungsten pricing consultation can be found here.
What are the benefits of using the index methodology over assessment methodology when it comes to the launch of the tungsten concentrates price?
When it comes to complex markets, such as tungsten concentrates, where the chemical composition varies from mine to mine, the index methodology has the benefit of allowing us to normalise data points to a base specification. This is done by looking at the historic price relationship between different grades of material, and subsequently implementing a form of regression analysis that enables us to develop coefficients. The index methodology is also intrinsically tied to the spot market by giving greater weighting to concluded transactions over bids, offers, deals heard second-hand and assessments.
This approach also allows us to normalise and account for other parameters that differ from our base specification, including freight and delivery terms. This means we can incorporate as much business as possible, rather than restricting ourselves to a minority of trades.
More information about our index methodology can be found here.
The majority of tungsten concentrates are contracted on long-term offtake agreements. How will you be able to maintain a price if there is limited spot liquidity?
Price discovery over the past six months has shown that there is sufficient liquidity in tungsten concentrates to support the launch of a new price. Feedback has also suggested this would be a welcome addition to our suite of prices. In terms of actual transaction data that we have captured – on average, two to three deals a week – we can create a robust and reliable index for tungsten concentrates. In cases where the market is moving very quickly, but traded volumes are limited, we can respond to clear moves by also taking account of bids, offers and assessments. The outlier filter ensures only reasonable indications will influence the price, while the inclusion of two sub-indices ensures equal weighting is given to the buy and sell sides of the market.
Current concentrates contracts include a discount of 22-31% to the APT price. Considering the current shortage in concentrates, would a spot price index show a tighter discount to the intermediates?
The concentrates index will allow us to quantify the discount, whether it be wider or tighter than those agreed in long-term contracts. The data collected over the past six months has shown that spot concentrates transactions have sometimes traded at a narrower discount than those agreed in long-term contracts. Ahead of the launch of the concentrates index in January, we will be collecting more data and refining our index model, so we can provide some more transparency on this trend in the coming months.
An increasing volume of tungsten is treated using the “zinc process”. APT is not produced as an intermediate in this case. Will you take this into account when developing new raw materials prices?
Part of the aim of the tungsten pricing consultation was to capture the spot raw material trade feeding into APT production specifically, in order to add transparency to the real cost of producing intermediates. While we continue to assess the feasibility of launching tungsten scrap prices, this will continue to be the case, though we will engage with the market to define the specification and gauge interest and demand relating to specific tungsten scrap markets.
There are very few buyers of tungsten scrap in Europe, but hundreds of sellers. How will you find the large-scale sellers when developing tungsten scrap prices?
As above, the aim of the consultation has been to capture the scrap feeding directly into the APT market. It is understood that many sellers in Europe trade small volumes, which are aggregated by other traders, before being sold to APT producers. We will be looking to capture these larger volume deals, and a minimum tonnage would be defined in any future specification for tungsten scrap price assessments.
There is a lot of tungsten scrap being shipped to Asia from Europe, but the trend is having a massive influence on European prices. How will you measure this?
When launching new prices we look at the most liquid markets, so this includes taking account of regions where the spot market is most active. If there was sufficient demand for a price for the tungsten scrap being bought by participants in Asia, we would look at the feasibility of launching a price to reflect this.
Metal Bulletin hosted a free web seminar discussing its next steps for tungsten pricing on Wednesday October 4. Click here to listen to a recording of the web seminar.