U.S. needs more tungsten. China is a major supplier of the critical metal

0
48
Commerce Secretary Gina Raimondo on competition with China: They can't have our AI chips

Pictured here is a rock containing tungsten ore at a mine operated by Saxony Minerals and Exploration in Germany.

Image Allianz | Image Allianz |

BEIJING — China dominates the supply chain for many of the world's most important minerals, but has so far refrained from imposing comprehensive restrictions on at least one of those minerals: tungsten.

The metal is almost as hard as diamond and has a high energy density. This has made tungsten an important material for weapons, cars, batteries for electric cars, semiconductors and industrial cutting machines. Chip manufacturers such as Taiwanese semiconductor manufacturing company And NVIDIA both use metal.

“I don't expect any saber-rattling over tungsten,” said Lewis Black, CEO of Canadian company Almonty Industries. The company said it plans to spend at least $125 million this year to reopen a tungsten mine in South Korea.

“If you become too aggressive in diversification, [it becomes a situation that’s] you bite the hand that feeds you,” he said, adding that “tungsten has always been a diplomatic metal.”

While the Biden administration raised tariffs on tungsten imports in May, China did not include the metal in new regulations last weekend to tighten controls on domestic rare earth production.

But China may not be too worried because the Chinese government has ignored the new tariffs. It has ignored them completely because the Chinese do not want escalating tensions.

Lewis Black

CEO of Almonty

“The tariffs were more of a warning shot, as Biden only imposed tariffs on three of the 25 strategic metals that China exports,” Black said.

“But China may not be too worried because the Chinese government is ignoring the new tariffs, unlike in the past when it restricted the export of certain rare earths. They have completely ignored them because the Chinese do not want escalating tensions.”

When asked last month whether China would respond to recent US tariffs on tungsten, Chinese Ministry of Commerce spokesman He Yadong did not announce any countermeasures, instead urging the US to lift the additional tariffs.

Fastmarkets, an analysis and reporting firm specializing in commodity prices, pointed out earlier this year that China had reduced national production quotas for its tungsten mines due to environmental protection regulations.

Diversification away from China

Still, Black expects his company to benefit from growing efforts to diversify away from China. Almonty claims the future mine in South Korea has the potential to produce 50% of the world's tungsten supply outside of China.

Demand for tungsten of non-Chinese origin is already increasing.

“We see in the U.S. and Europe that they are demanding a China-free supply chain from their suppliers,” said Michael Dornhofer, founder of metals consulting firm Independent Supply Business Partner.

The US REEShore Act (Restoring Essential Energy and Security Holdings Onshore for Rare Earths Act of 2022) bans the use of Chinese tungsten in military equipment from 2026, while the European Commission last year extended tariffs on imported Chinese tungsten carbide for another five years, Almonty Industries highlighted in a report.

The House Select Committee on Strategic Competition Between the United States and the Communist Party of China announced last month the creation of a new working group on U.S. policy on critical minerals.

Rising tungsten prices

Expectations of higher demand and limited supply for tungsten have pushed prices to multi-year highs, although their decline has slowed in recent weeks.

Dornhofer said in an interview in late May that he also observed that Chinese buyers were increasing their tungsten purchases.

“Since the beginning of this year, they have not only been asking for Western concentrate, but also buying significant quantities of it and even paying more than Western companies are willing to pay,” he said. “In any case [going to be] a turning point.”

How China's control of rare earths threatens the US

Back in January, US research firm Macro Ops stated: “We are approaching a tipping point in tungsten supply. The US will quickly deplete tungsten stocks and over the next 12 to 18 months it will go from being a net seller to a net buyer.”

The U.S. Bureau of Industry and Security at the Commerce Department did not immediately respond to CNBC's request for comment for this article.

Brandon Beylo, head of investment research at Macro Ops, told CNBC in an email that there are only six companies in the U.S. with the capacity to produce tungsten. He added that the U.S. has not produced tungsten domestically since 2015, meaning the U.S.'s future supply will have to come from abroad.

He said the company does not own any tungsten stock, but he is personally looking for ways to get his hands on the physical asset. There are no futures for trading tungsten.

Other Wolfram players go to South Korea

China dominates over 80 percent of the tungsten supply chain, but local production costs rise as mines age, according to Argus, with China importing the metal from North Korea, Central Africa and Myanmar.

“This presents an opportunity for projects outside of China,” said Mark Seddon, principal, consulting and analytics at Argus, in a webinar on June 28.

Other non-Chinese companies in the tungsten supply chain are going to South Korea.

In February, IMC Endmill, a subsidiary of Warren Buffett-owned IMC Group, signed an agreement with the Daegu city government to invest 130 billion Korean won ($93.6 million) in a tungsten powder manufacturing plant, according to a local news report.

IMC Group did not immediately respond to CNBC's request for comment.

China will not be able to supply the world with rare earths forever, says a mineral exploration company

China's dominance in global supply chains for critical minerals has been built over several decades.

Dornhofer pointed out that efforts to produce tungsten outside China have stalled for years. This included plans for a mine in New Brunswick, Canada, which would have significantly increased global tungsten capacity.

All these projects have been on the table for 20 years, he said. “When people tell you that they will be operational in two or three years, it is a question of whether you believe them. On the other hand, [hand]the tungsten is in the ground. It's still there.”

Almonty claims to be the largest tungsten producer outside China and currently operates mainly in Portugal and Spain. The planned mine in Sangdong, South Korea, was closed in the 1990s.

Black expects that after the mine reopens later this year, his company will only supply seven to eight percent of the world's tungsten supply.

“We are not displacing Chinese,” he said. “We have no intention of doing so.”

“If we now produce 30 to 40 percent, I will go to war with China and that would not be wise.”

Clarification: Almonty clarified that the investment to reopen the tungsten mine in South Korea is currently $125 million.