Summary of China’s Tungsten Industry and Analysis on Market Situation in 2018 H1



Summary of China’s Tungsten Industry and Analysis on Market Situation in 2018 H1

In H1, China’s tungsten industry continued its steady and positive trend from last year. The yield of tungsten concentrate remained stable, and that of smelted and processed products grew steadily. Market demand continued to recover and export of tungsten products continued to grow. The price trend remained stable, entering steady period and the narrowing fluctuations. Business benefits continued to improve.

According to the statistics of China Tungsten Industry Association, in H1, 123 tungsten enterprises realized operating income with year-on-year growth of 26.01%; profits and taxes with year-on-year growth of 39.02%; profits with year-on-year growth of 55.94%; exported tungsten products of 17.37 thousand tons (converted to tungsten metal), representing a year-on-year growth of 14.94%, and earned export foreign exchange of USD 838 million, representing a year-on-year growth of 64.39%.

I. Economic Operation

(1) The yield of tungsten concentrate was stable and the yield of smelted and processed tungsten products generally increased.

The market price of tungsten maintained at a relatively high level, and the economic benefits of tungsten mine enterprises improved and the yield of some tungsten mine enterprises increased. Affected by technological transformation, safety and environmental protection, resource quality decline and rising costs, etc., the yield of some tungsten mine enterprises declined; trade enterprises’ processing yield of mineral products continued to shrink. The overall tungsten concentrate yield remained stable nationwide.

According to the statistics of China Tungsten Industry Association, 41 major tungsten mining enterprises produced 34,794-ton tungsten concentrates in H1 (converted to WO365%), presenting a year-on-year increase by 7.96%. Among them, the yield of 28 enterprises increased by 4,896 tons, and the yield of 13 enterprises decreased by 2,330 tons. By offsetting increase and decrease, the net increase was 2,566 tons. Among them, Hunan’s yield increased by 37.85% on a year-on-year basis. Due to the suspension of production of major tungsten mines last year, the base was low at the same period, resulting in a significant increase; Henan’s yield decreased by 9.71% due to the reduction of resource grade; Guangdong’s yield decreased by 10.74% due to the safety and environmental protection rectification; the yield of Guangxi and Yunnan increased significantly; the yield of Gansu and Fujian decreased; and Jiangxi’s yield remained unchanged basically.

The demand for tungsten market maintained the growth trend, and the exports maintained a high level in recent years. The yield of smelted and processed tungsten products generally increased.

According to the statistics of China Tungsten Industry Association, the yields of APT, tungsten powder, tungsten carbide, cemented carbide, tungsten rod, tungsten material, tungsten iron, tungsten electrode and tungsten crucible of major tungsten enterprises increased by 15.03%, 6.90%, 12.68%, 16.42%, 4.16%, 33.28%, 45.40%, 0.53% and 89.74% respectively on a year-on-year basis in H1. The yield growth of high-end cemented carbide products maintained a strong momentum. In the statistics of China Tungsten Industry Association, the yield of CNC blades of the cemented carbide enterprises increased by 34.81% on a year-on-year basis in H1. The yield of tungsten oxide, ammonium metatungstate (containing tungstic acid), crude tungsten filament and high gravity alloy decreased by 2.54%, 28.64%, 15.82% and 4.77%, respectively.

(2) The export of tungsten products maintained growth and the import of tungsten products remained stable.

The demand for tungsten abroad continued to recover, especially tungsten market in Europe and Asia that had a great demand. The export volume of tungsten continued to grow in H1. According to the statistics of China Tungsten Industry Association, 50 major tungsten enterprises exported 17370-ton tungsten products (including cemented carbide and hard materials) (converted to amount of metal), increased by 14.94% on a year-on-year basis, and exported amount was USD 838 million, representing a year-on-year growth of 64.39%. Among them, 3,995-ton cemented carbides were exported (physical quantity), representing a year-on-year growth of 20.84%, and the export amount was USD 244 million US, representing a year-on-year growth of 39.58%. In addition to tungstic acid, tungsten carbide and mixed materials, the export volume of smelted and processed tungsten products in H1 was increased significantly.

According to customs statistics, 1,535-ton tungsten concentrates were imported in Q1 representing a year-on-year growth of 178.02%. The import amount was USD 30.697 million, representing a year-on-year growth of 104.41%. It is estimated that 3,000-ton tungsten concentrates were imported in H1 and the import amount was USD 60 million. The imported tungsten products remained stable.

(3) Smooth operation of price

The supply of tungsten in the market has been steadily tightening, demand has maintained steady growth, supply and demand balance has continued to improve, safety and environmental protection supervision has been strengthened, and rising costs have effectively supported the stable operation of the tungsten market. According to the statistics of China Tungsten Industry Association, domestic tungsten concentrate price in H1 was in the range of 108 to 115 thousand yuan/ton. It was in the middle of the price level in the past 10 years, with a fluctuation range of 6.5%. It continued to maintain a stable and relatively stable range.

In Q1, the average price of domestic tungsten concentrate was 111.5 thousand yuan/ton, increasing by 52.04% year-on-year and 5.05% month-on-month. The average price of domestic tungsten concentrate in Q2 was 110.7 thousand yuan/ton, increasing by 35.52% year-on-year and dropping by 0.70% month-on-month; the average price of domestic tungsten concentrate was 111.1 thousand yuan / ton, up by 43.33% year-on-year.

Tungsten smelting enterprises were underemployed due to environmental protection. In Q2, APT spot shortages, prices rose, while tungsten concentrate consumption decreased, and prices fell. According to the statistics of China Tungsten Industry Association, the domestic APT price in H1 was in the range of 168 thousand-180 thousand yuan/ton, with a fluctuation range of 7.10%, which was generally stable. In Q1, the average domestic APT price was 172.6 thousand yuan/ton, up by 52.47% year-on-year and 5.00% month-on-month. The average domestic APT price in Q2 was 175.4 thousand yuan/ton, up by 40.27% year-on-year and 1.60% month-on-month; the average price of domestic APT in H1 was 174 thousand yuan / ton, up by 46.07%.

(4) Enterprise efficiency continues to improve

In H1 of the year, the tungsten industry continued its steady and positive trend from last year. With enhanced profitability and decline in loss scale, enterprises continued to improve their performance. However, enterprises still faced many difficulties and challenges in production and operation: First, with the deepening of the reform of “Decentralization, fair administration and service optimization”, the constantly deepening and promoting of the transformation of government functions and the reform of administrative examination and approval system, the implementation of market access, environmental protection tax, resource tax and other policies as well as the definition of red line of ecological protection and the strengthening of production safety and environmental protection supervision, the development of China’s tungsten industry was faced with the strengthened protection of tungsten resources and restrictions on rational development and utilization imposed by the laws and regulations and the pressure on safety and environmental protection was increased. Second, the alkali-boiled slag, molybdenum residue removal and wastewater treatment sludge generating from the alkali decomposition in the tungsten smelting process are classified as hazardous wastes, and the Ministry of Ecological Environment initiated the “Waste Removal Action 2018”, so the tungsten smelting pollution prevention and the reduced, resourced and harmless use and disposal of tungsten slag of tungsten smelting enterprises were facing unprecedented pressure. Third, the overall innovation capability was not strong, the coordinated development of the industrial chain was unbalanced, and the problems of low industrial concentration, poor overall competitiveness of the industry and the industrial structural contradictions were still serious. The quality and efficiency of the industry development were at a low level. According to the statistics of China Tungsten Industry Association, in H1 of the year, 123 major tungsten enterprises in the statistics of China Tungsten Industry Association realized operating income with year-on-year growth of 26.01%; main business income with year-on-year growth of 26.72%; profits and taxes with year-on-year growth of 39.02% and total profits with year-on-year growth of 55.94%. The profit rate of main business of the 123 tungsten enterprises was 5.98%, which was lower than the profit rate of main business income of the industrial enterprises above state designated scale.

Among the enterprises in the statistics, the scale of losses was 17.65% and continued to narrow. Wherein, the loss scale of mining enterprises was 21.21%; that of smelting enterprises was 20.68% and that of cemented carbide enterprises was 11.36%. The scale of losses of 11 tungsten enterprises was 27.27%. The profit and loss differentiation and market competition of enterprises are intensifying, and the industry’s economy stabilizing and positive trend should be further strengthened.

II. Market Analysis and Outlook

With regards to domestic market, in H1 of the year, the national economy continued to remain the stable and positive trend generally. With the further implementation of structural adjustments and the continued transformation of new and old kinetic energy, the quality and efficiency improved steadily and the economy development towards high quality commenced well. GDP grew by 6.8% on a year-on-year basis and remained in the range of 6.7%-6.9% for 12 consecutive quarters. The industrial added value of industrial enterprises above state designated scale increased by 6.7% on a year-on-year basis, and the growth rate dropped by 0.1 percentage point from Q1. In respect of three major categories, the added value of the mining industry increased by 1.6% on a year-on-year basis, the manufacturing industry increased by 6.9%, and electricity, heat, gas and water production & supply industries increased by 10.5%. The added value of high-tech industry and equipment manufacturing industry increased by 11.6% and 9.2% on a year-on-year basis respectively, which were faster than the industrial enterprises above state designated scale by 4.9 and 2.5 percentage point, respectively. In June, China’s manufacturing industry Purchasing Managers Index (PMI) was 51.5%, which was above the 50% threshold for 23 consecutive months. The overall manufacturing industry maintained expansion situation. With adjustment of manufacturing structure and continuous promotion of product upgrading and updates, the growth of strategic emerging industries and the continuous release of infrastructure construction demand will continue to drive the demand in the tungsten market, and the demand in domestic tungsten market will keep growing. With the definition of the red line of ecological protection and the strengthening of safety and environmental protection supervision, the collection of the environmental protection tax and the implementation of resource tax laws and other policies, the development and management of tungsten ores are continuously getting strengthened. Affected by the increase in rigidity cost of tungsten mining, the decline in grade of tungsten ore resources and the tungsten mining selection and capacity expansion as well as the control of mining rights, etc., domestic tungsten concentrate yield will continue to remain generally stable, the supply in tungsten raw materials market is still tight, and the contradictions between market supply and demand of tungsten raw materials are constantly getting mitigated.

Tungsten Ores

From the perspective of foreign markets, the global economy continues to show a good recovery situation, but the risk factors have increased. The International Monetary Fund (IMF) released the World Economic Outlook report on July 16, indicating that global growth rate in 2018 and 2019 are expected to reach 3.9%, but the balance of economic expansion has declined. USA recently announced and expected tariff enhancement policies and retaliatory measures on trading partners and very likely, there will be escalating and sustained trade actions, which may slow the economic recovery process and suppress the medium-term growth prospects. However, the demand for tungsten in Europe remains strong, and the Sino-US trade war will not have a direct impact on the tungsten market. The mines with production suspended in foreign countries have not resumed production, the construction of new projects is slow, the release of new capacity is not expected to be high, the overall yield of foreign tungsten concentrates remains stable, the stock of raw materials is still low, and the situation of tight supply in the market has not changed fundamentally.

In general, current downstream demand for tungsten at home and abroad is stable, the yield of tungsten concentrates is growing steadily, the contradiction between supply and demand is further alleviated, the safety and environmental protection supervision is strengthened, and the cost is rising. All these have effectively supported the stable operation of price in tungsten market. The tungsten market price is expected to fluctuate in a narrow range and continue to operate smoothly.