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Tech|3/14/2012 @ 7:46PM |6,092 views
The World Is Running Low On Tungsten; Why You Should Care
Eric Savitz, Forbes Staff
Guest post written by Pierre Monet
Pierre Monet is CEO of Malaga Inc., a Montreal-based mining company with operations in Peru.
Last month, Warren Buffett and Berkshire Hathaway unit IMC International Metalworkingagreed to invest $80 million in a tungsten mining project in South Korea, which was once the world’s biggest tungsten producer.
While the deal may come as a surprise to the outside world, those with knowledge of tungsten understand that it’s a crucial but disappearing resource that continues to affect all of us.
A Hard Metal That’s Hard To Get
Tungsten (W) is among the the world’s hardest materials. The metal’s ability to withstand extreme temperatures – particularly high heat – makes it irreplaceable in applications such as cemented carbide tools (which accounts for 50% of its use), “hard steel” drill bits for oil and gas exploration, rocket engine nozzles, cathode-ray tubes as well as vacuum tube filaments, and (for the time being, anyway) filaments in incandescent light bulbs. (The latter only accounts for 3% of its use.)
Increasingly, tungsten is finding its way into new technologies. Its hardness, stability and ability to withstand extreme temperatures make it desirable in the manufacturing of electrodes and components used in touch screens. With the explosion of touch screen technology in smart phones and tablet devices, demand for tungsten, which already was growing six percent annually, is increasing dramatically.
Trouble is, supply is not keeping up.
China, which has more than 80% of the world’s supply of tungsten, has sharply curtailed its exports and as of now is a net importer of this precious element. China also shows no signs of loosening the reins on tungsten exports, preferring instead to use its supply for its own manufacturing applications. Ergo for the foreseeable future, the rest of the world has to look elsewhere for supply.
Russia has some, but keeps 70% of what it has for domestic use. Tungsten has also been harvested and recycled from existing devices and components, but even those sources have now reached their limits and there’s no new significant supply on the horizon.
Currently, that leaves no more than five mines supplying most of the world’s tungsten outside of China and Russia. Consequently, in a recent British Geological Survey report on metals of economic value on the “endangered list,” tungsten was at the very top.
Why There’s Limited Supply
Prior to 2001, Tungsten miners looked for new sources even as they harvested existing ore in order to guarantee a continuous supply. But in the early 2000s, China flooded the market with inexpensive tungsten. That, coupled with the recession in 2008-2009, drove the price of tungsten down to the point where many mines went out of business and others found it too expensive to continue exploration. Consequently, from 2009-2011 the search for new sources of tungsten dried up.
With China recently deciding to restrict exports and buy up as much tungsten as it can, demand has exploded and the search is on again. Unfortunately, the timetable – from exploration to building a new mine or reopening an existing one to the actual production of tungsten concentrate – is typically a two-to-three year process for those mines currently extracting tungsten for export. In the case of companies that are drilling for (and find) new supplies of tungsten “from scratch,” the cycle to production is at least three to five years. Bottom line: there is no new significant supply of tungsten expected on the market before 2013.
That may explain Berkshire’s move, and why, when the price of most commodities plunged during the second half of 2011 – some by as much as 60 percent – tungsten prices remained stable at $430-$445 per MTU (metric ton unit) – nearly double what they were in 2009. Some analysts predict the price could reach even higher levels in 2012, which is not unrealistic when you consider that some producers state that demand is so high they could ship tungsten at a rate of one container per day – versus the current rate of one per week – if they had the capacity.
Given the short supply of available tungsten on the world market, industries that are depending on it more and more (such as technology) appear to have limited options. In fact, if you view a Warren Buffet type of move – where a company acquires a tungsten operation/mine for its own private use –as unrealistic for most businesses, then there’s really only one other viable possibility: working with and encouraging those companies (outside of China) that are currently supplying tungsten to increase supply and meet demand.
The risk of not doing so could result in China choosing to repeat its earlier policy of flooding the market, which would not only drive some suppliers out of business – but potentially create a virtual, worldwide monopoly with prices and supply dictated by China. Recent rises in the price of oil – again – and the effect it has had on the worldwide economy should tell us that’s not the way to go.
Clearly, working with current suppliers to meet new demand is the better choice, and the only option that would allow for the opportunity to not only increase supply but keep prices within bounds. With so many industries dependent on this irreplaceable metal, in 2012 and for the foreseeable future this is the only way to go.
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