Haywood Securities predicts tungsten prices will be stable for next five years
Although Chinese dominance in tungsten is expected to continue, an urgent need exists for alternative tungsten supplies in Western nations.
Author: Dorothy Kosich
Posted: Tuesday , 30 Sep 2008
RENO, NV -
Current market fundamentals, supported by strong growth in Chinese consumption, unlikely metal substitution, and the increasing costs of developing and operating tungsten mining "will likely backstop the price of tungsten at current levels for the next five years," Haywood Securities forecast Monday.
In its "Tungsten Industry Report," Haywood predicts that growth in tungsten consumption will require the development of 3 million metric ton units (mtu) of production, a 32% increase in current global production." Global consumption is expected to increase from 95,000 tonnes to 125,000 tonnes per year in 2013 with most of the growth expected to come from China.
"The future of tungsten is underpinned by China, a recent net importer of this minor metal," Haywood metals analyst Chris Thompson wrote. "The world's remaining primary tungsten supply, which is limited primarily to a small number of Western world producers, provides only feedstock for Western world consumers. Firm growth in Chinese consumption tungsten threatens to draw more product from Western world consumers unless new supply comes on line in the near term."
While Haywood is bullish on the metal-forecasting a price increase from US$254/mtu to US$300/mtu within three years, the analysts also noted that tungsten mining company stocks have declined an average 63%, 56% and 63% over the past three, six and twelve months as the metal's price remained firm.
"The dislocation between tungsten focused equities and prices has recently widened, prompted by the recent credit crisis which will compromise the ability of potential new primary suppliers of tungsten to finance new mine construction," Thompson warned.
The European free market tungsten price "has exhibited remarkable stability, remaining above US$250/mtu in seven straight months after breaching the US$255/mtu mark in late February 2008," Haywood noted. "However, in contrast, tungsten focused equities, in concert with recent board based weakness in mining/exploration equities, have demonstrated significant market weakness since early July 2008 spawned by uncertainty and a credit crisis."
"The inability of near-term primary Western world suppliers of tungsten from financing new mine construction will potentially exacerbate the already tight market fundamentals for tungsten," Thompson predicted.
While the high tungsten price and "buoyant fundamentals for the metal" have prompted more exploration and mine development activities outside of China, particularly in Australia and North and South America. Nonetheless, Haywood noted that "no new major production has been realized or is likely to occur before 2010 at the earliest."
A numbers of tungsten deposits in Australia, Canada, Germany, Vietnam and other nations are in various stages of development, Haywood said. "They can be divided into three groups, namely:
1. Near-term producers: companies advancing projects that could potentially deliver product before 2010
2. Medium-term producers: companies advancing projects that could deliver product after 2010
3. Wild-card producers: companies with no clear production timelines or with uncertain production outcomes.
Haywood identifies the key producer in the near-term group as Vital Metals' Watershed project in far north Queensland, Australia, which has production targeted for the second half of next year. Key mid-term producers are Dragon Capital's Nui Phao mine in Vietnam and North American Tungsten's MacTung deposit along the Northwest Territory/Yukon Territory border.
Production at Nui Phao was expected next year, but will be delayed "owing to the relocation of road, rail, and some villages," according to Haywood. North America's Tungsten MacTung project is expected to begin production in 2013.
"Assuming no falloff in existing tungsten production, which is highly unlikely, and a growth in tungsten demand in excess of 8% matching Chinese annual GDP growth projects, new near-term tungsten production will satisfy projected demand through to 2010," Thompson predicted, adding that supply of the metal will remain tight.
"New new major production will likely occur before 2013 at the earliest, causing a tungsten shortage that will support higher tungsten prices," Thompson said, forecasting that prices will increase to US$300 per mtu until new production is realized after 2013. "The suspension of production from the Cantung mine will further impede available tungsten supply."
"Caveats for our long-term price forecast for APT are continued robust growth in demand for tungsten in excess of 3%, specifically from China, and limited new high-grade supply, especially from current producing countries such as China, Russia, and Australia, all of which possibilities seem unlikely in the medium term."
Haywood asserted that the lack of new production has been noted by Asian tungsten mine operators, "promoting a spate of strategic agreements, offtake agreements, and acquisitions to support new development through an input of capital. The credit crisis and associated spate of market volatility makes the involvement of joint venture partners with the ability to finance projects a near necessity."
Meanwhile, Haywood also noted a problem with the U.S. Government tungsten stockpile. In January the U.S. Geological Survey estimated that the Defense National Stockpile Center had 21,300 tonnes of tungsten concentrate on hand or 46 million pounds, a reduction from the 30,000 tonnes reported in 2003. Year end estimates are 43 million pounds in 2008.
"Industry sources suggest that at least a third (14.2 million pounds) are either contaminated or of such poor quality rendering that portion un-saleable and unwanted which leaves some 28.6 million pounds available for industrial consumption," Thompson noted.
"The congressional mandate calls for 8 million pounds to be auctioned off each year, implying that the current stock pile will be exhausted in 3.5 years or 5.3 years if the entire stockpile was high quality," he concluded.
