https://www.argusmedia.com/en/news/2287359-viewpoint-tungsten-walking-a-supplydemand-tightrope
Global tungsten fundamentals hang in the balance for 2022 with supply chain disruptions, rising production costs and higher global infrastructure spending likely to support prices, but prolonged underperformance in the automotive and aerospace sectors threatening to suppress demand growth.
Consumers, producers and traders in Europe saw strong downstream demand for the first quarter of 2022, which encouraged buyers to build higher "safety" stocks this year.
Many automotive OEMs continued to produce parts this year to avoid another bottleneck when the expected semiconductor chip shortage eases. The auto sector accounts for around 28pc of total tungsten demand, with carbide cutting tools used in vehicle manufacturing and for producing mechanical parts.
Chinese tungsten producers continue to face depleted high-grade resources and increased production costs because of environmental laws, labour costs and safety guarantee costs, which have left ammonium paratungstate (APT) offers firm in December. As the world's largest tungsten exporter, China's production levels, ore grades and government policy give the wider market price signals, while as one of the world's largest tungsten consumers, domestic demand and consumer reference prices for tenders also support the market.
With China backing a "zero tolerance" stance on stemming the Covid-19 spread, global trade could witness a sudden and complete halt in imports and exports — such as with the closure of Ningbo port earlier this year — which could tighten tungsten spot supply and push up costs.
And this concern remains the primary factor underpinning higher prices in Europe and the US, market participants said, noting a "prompt premium" in these regions.
European prices for APT with 88.5pc tungsten trioxide content rose by nearly 39pc since the start of the year to $320-325/mtu in early December, which puts the year-to-date average at an increase of 68pc to $285/mtu compared with the 2020 average of $217.87/mtu, Argus data show. By comparison, Chinese export prices rose by 30pc from January 2021 to around $305/mtu fob in early December, which puts Europe at around a $10/mtu premium.
In the forward market, no APT shipments from China have reached European shores unsold for some time, one trader said, indicating that prompt supply remains tight and inventories are low — keeping European spot prices high.
Furthermore, the upcoming Chinese lunar new year and Beijing Winter Olympics in February could reduce production and the market could face supply disruptions, but also see lower domestic demand.
Demand uncertainty
Uncertainty hangs over tungsten demand outlooks for the second quarter and second half of 2022, largely because the global semiconductor shortage could curb consumption by the automotive sector and fresh waves of Covid-19 may further delay the recovery of aerospace demand.
The emergence of new, highly transmissible Covid-19 variants poses a major risk to global trade, supply and demand for tungsten. The new Omicron variant will weaken economic growth, the Organisation for Economic Co-operation and Development (OECD) said recently. It expects global GDP to grow 5.6pc in 2021 and at a slower pace of 4.5pc in 2022.
Meanwhile, the semiconductor shortage continues to dent global vehicle production, which has also been reduced despite better-than-expected auto demand in the immediate aftermath of the 2020 Covid lockdowns. Consultancy AutoForecast Solutions estimates that North America may fall 3mn vehicles short of its 2021 production plans, while consulting firm AlixPartners expects around 7.7mn fewer vehicles have been produced this year.
Further vehicle production cuts in 2022 could dampen tungsten demand and potentially push suppliers to destock, which would weigh on spot prices, market participants said.
Argus Analytics' outlook report published in December 2021 expects prices "to flatten out towards the end of the year before declining gradually into 2022" because of weaker or largely stable demand expectations.
By Anuradha Ramanathan
APT prices in Europe, China $/mtu
