The Zhitong Finance App learned that China Merchants Securities released a research report stating that the application of tungsten in key fields such as CNC tools, PCBs, and photovoltaics all showed a broad market space. However, due to quota restrictions and the difficulty of increasing production in new global tungsten ore projects in the short term, tungsten ore supply may be tight in the future. It is likely that there will be a gap between tungsten ore supply and demand, which will drive the central rise in tungsten prices. Companies such as Chinatungsten Hi-Tech (000657.SZ), Zhangyuan Tungsten (002378.SZ), and Xiamen Tungsten (600549.SH) have an early layout and have cost and technical advantages throughout the entire industry chain.
The views of China Merchants Securities are as follows:
It is an important strategic metal, and our country has a resource advantage.
Similar to rare earths, tungsten is an important strategic metal, and it is also a type of resource advantage in China. Tungsten has the advantages of high melting point, high density, high hardness, strong corrosion resistance, and stable chemical properties. However, tungsten is extremely scarce and unevenly distributed in the earth's crust, making mining and purification difficult. With the advantage of resources and mining costs, China's tungsten industry is developing rapidly. It is the world's largest tungsten ore storage and mining country, accounting for 47% of the world's reserves and 84% of the world's production.
Mining is subject to a quota system, and future production growth rates are limited.
China has implemented a quota system for tungsten mining. In 2023, China's tungsten concentrate mining target is 111,000 tons (standard tons). Since 2015, the target has increased by 20,000 tons, an increase of about 21.58%, a compound annual growth rate of 2.47%, and a compound growth rate of about 1.40% in the past 5 years. However, in actual production, some mines have insufficient mining capacity and have wasted part of the quota; other mines have excessive quotas or even unlicensed mining, so there is still room for improvement in the quota system. In the future, the number of new tungsten ores added worldwide will be limited, and the mine will take a long time to build. According to estimates, the world will add about 29,000 tons (standard tons) of tungsten concentrate production capacity by 2028, an increase of about 18% compared with global production in '22, corresponding to a compound annual growth rate of 2.8%. Considering factors such as uncertainty about mine development and the decline in production from old mines, actual future production is expected to fall below 2.8%.
Demand for terminals is clearly cyclical, and photovoltaics and hard surface materials have great potential.
The direct downstream of tungsten is mainly in the fields of hard alloys, tungsten special steels, and tungsten materials. Terminal demand areas include transportation, mining, industrial manufacturing, durable parts, energy, military, etc. Terminal demand is closely related to the overall macroeconomy, so it is clearly cyclical. The fastest growing fields include hard surface materials and tungsten wire for diamond wire. Due to its relatively low cost, terminals are less sensitive to rising tungsten prices. According to our estimates, the global consumption of tungsten will be about 124,000 tons (tons of metal) in 2023, and the compound growth rate of demand is expected to be about 1.9% in the next 3 years. In response to 23 years of demand of about 124,000 tons, the supply gap is about 2,645 tons. The gap will be reduced in the next few years.
The industry is out of stock or has already been completed, and supply is facing the limit of production capacity.
283,000 tons of APT from the Pan Asia Exchange were judicially auctioned into the market in 2019, and were digested by the market over the next 2 years. This was accompanied by rising prices, or reflected that tungsten supply was already in short supply. In the current context of cyclical weakening demand, the supply of tungsten concentrate may already be at the limit of actual production capacity. Once demand improves, the shortage of tungsten concentrate will intensify.
An enterprise in the tungsten industry chain.
1) Leading companies with a complete tungsten industry chain: Chinatungsten Hi-Tech, Zhangyuan Tungsten, Xiamen Tungsten, and Xianglu Tungsten (002842.SZ). With the resource advantages of Minmetals Group, the majority shareholder, Chinatungsten Hi-Tech has sufficient tungsten resource guarantee. Zhangyuan Tungsten Industry and Xianglu Tungsten Industry have significant market share and technical advantages in the field of deep processing. The Xiamen tungsten industry has a diversified business. It is deeply involved in key products such as fine tungsten wire and cutting tools in the tungsten sector, and has a leading position in the segment.
2) Companies focusing on the development and sales of tungsten carbide CNC blades: Huarui Precision (688059.SH) and Eurocom (688308.SH). Both companies focus on R&D investment, and their business is growing rapidly.
Risk warning: risk of fluctuating raw material costs, risk in the business process, risk of industrial policy risk, financial risk, risk of technological and R&D uncertainty, risk of downstream consumption falling short of expectations.