Financial News Agency, December 23 (Reporter Liang Xiangcai) The price of tungsten has finally taken a small step. The increasingly tight mine end has broken through the 122,000 yuan/ton mark that had not been conquered for a long time.

A reporter from the Financial Association News Agency learned from an interview with the industry that although the current downstream demand in the tungsten industry falls short of expectations, tungsten prices are expected to continue to rise in the long run under the trend of tightening supply on the mining side. At the same time, the hard alloy sector in downstream tungsten consumption - the “replacement” process for high-end and CNC tools is accelerating, and it is expected that it will usher in new opportunities for development.

The supply at the mining end is getting tight and difficult to change

According to SMM data, as of December 21, the average price of black tungsten concentrate (grade greater than 65%) was 122,300 yuan/ton, a high of nearly three years.

“Looking at this year, the overall supply of tungsten concentrate is quite tight, and prices have fluctuated close to 120,000 yuan/ton for most of the time.” A financial news agency reporter learned from Zhang Yuan Tungsten Industry as an investor.

A person in the tungsten industry chain told reporters that the recent strong operation of the mine end is mainly due to the concentration of downstream stocks to boost demand before the New Year's Day holiday against the backdrop of environmental and safety inspections, declining ore grades, and insufficient mine operating rates. In addition, Chinatungsten Hi-Tech (000657.SZ) also supports the strength of the mining side to a certain extent by buying ore in bulk in the market.

In the past two years, after the price of tungsten concentrate hit a high level of about 120,000 yuan/ton several times, it has been under pressure. “The tungsten market began to pick up in 2021 and gradually emerged from the 'quagmire' of marginal profit or even loss. However, when the price of tungsten concentrate reached 122,000 yuan/ton recently, there was obvious resistance to the continuation of the upward trend. Take tungsten carbide as an example. At current prices, the corresponding downstream hard alloy is about 300,000 yuan per ton. At a time when demand is sluggish, it is difficult to further shift cost pressure downstream.” An industry analyst told reporters this.

In fact, China is rich in tungsten resources, and tungsten reserves and mine tungsten production rank first in the world all year round, yet its strategic significance as a rare metal is of great strategic importance, and mining is strictly controlled. In recent years, the mining end has basically been in a tight balance, so it is difficult to increase significantly. According to data from Minsheng Securities, it is estimated that the tungsten concentrate gap will expand from 2,250 tons to 5,331 tons from 2023-2025; prices of tungsten concentrate etc. may continue to rise due to the relationship between supply and demand.

Tungsten concentrate supply and demand balance calculation (data source: Minsheng Securities Research Institute)

It should be noted that although prices on the mining side are strong, judging from the recent demand side of the tungsten market, it still falls short of expectations. Some industry insiders told the reporter that at the beginning of the year, some official agencies predicted that the price of tungsten concentrate would exceed 140,000 yuan/ton this year, but they did not expect that downstream demand would be fulfilled at an ideal level, because tungsten is used as an “industrial tooth” in all kinds of machining, metal cutting, mining, and large-scale transportation equipment, and the demand side is greatly affected by the overall economic environment.

Production capacity is concentrated in these four companies

The concentration of the domestic tungsten ore mining industry is high. According to data from the China Tungsten Association, the top four tungsten concentrate production in China in 2022 were Chinatungsten Hi-Tech, Xiamen Tungsten (600549.SH), Luoyang Molybdenum (603993.SH), and Zhangyuan Tungsten (002378.SZ). The total output in 2022 was about 44,000 tons, and CR4 reached 34.57%.

According to the branch, Chinatungsten Hi-Tech currently hosts five mines of the Minmetals Group, with nearly 1.2 million tons of tungsten resources and an annual output of about 25,000 tons of tungsten concentrate. Minmetals Group, the majority shareholder of the company, has promised to inject trusteeship mining and smelting enterprises into the company when they meet the conditions in order to avoid competition issues in the same industry.

“There have always been plans for injection, and (the group) has made promises. It is necessary to meet conditions such as performance and compliance before it is possible to inject. The specific progress is that the group is advancing, and the company is not easy to grasp.” The reporter learned from Chinatungsten Hi-Tech as an investor.

As for the tungsten industry in Xiamen, according to data disclosed in the company's 2022 financial report, its own mine has tungsten resource reserves of about 375,400 tons. “The company produces about 78,000 tons of tungsten metal per year, and the self-sufficiency rate of tungsten ore is about 30%. Currently, the cost of mining is relatively one of the lowest in the world. There is a lawsuit involving the Dahutang tungsten mine. It is currently under the name of the majority shareholder of the company, but it will be injected into the company at an appropriate time in the future.” The reporter learned from the company as an investor.

According to reports, the Dahutang tungsten mine is owned by Jutong, Jiangxi, and Fujian Rare Earth Group, the largest shareholder of the Xiamen tungsten industry, is also the actual controller of Jiangxi Jutong. According to Tianyan survey data, Fujian Rare Earth Group's final beneficiary shares in Jutong, Jiangxi were 55.89059%. A research report from CaiTong Securities mentioned that the Dahutang tungsten mine is the second largest tungsten mine in the world, with reserves of 932,300 tons. Currently, Xiamen Tungsten Industry, Jiangtung Group, and the Jiujiang Municipal Government are jointly developing this tungsten mine, and the company has priority purchasing rights.

The Luoyang molybdenum industry has grown into a comprehensive non-ferrous metal mining enterprise. Although tungsten does not account for a high share of the company's performance, it still has great influence in the industry. The company is one of the world's largest producers of white tungsten, with tungsten resources of about 120,000 tons, and tungsten production of 7509 tons in 2022.

Zhang Yuan tungsten industry staff told reporters consulting as investors that the company currently has 94,600 tons of tungsten resource reserves under its jurisdiction, and the self-sufficiency rate of tungsten ore is about 20%, and the shortfall needs to be mined externally.

The tool “replacement” process is speeding up

According to industry data, the current basic consumption of downstream tungsten is hard alloy, which accounts for nearly 60%; among hard alloys, cutting tool alloys account for the largest share of about 45%.

As the “teeth” of industrial mother machines, cutting tools are one of the most important core components of various machine tools. With the transformation and upgrading of China's manufacturing industry, demand for high-end, CNC machine tools and supporting high-end tools continues to grow.

Chinatungsten Hi-Tech is a leading domestic blade manufacturer. According to the company's announcement, the production of CNC blades in 2022 exceeded 130 million pieces, accounting for about 23% of the country's total blade output. The staff of Chinatungsten Hi-Tech told reporters, “In the future, the main focus will be on imported substitution, and efforts will be made in the direction of high-value-added tools and other products. The company has also stepped up research and development efforts in this regard.”

“Our CNC blade products are positioned in the middle and high-end markets and have good technical reserves. After the pending additional project is delivered, the company's total planned production capacity of CNC blades will reach 90 million pieces.” The reporter learned from Xiamen Tungsten Industry as an investor.

According to reports, the proposed plan for the tungsten industry in Xiamen to increase by about 4 billion dollars has been accepted by the Shanghai Stock Exchange, of which 1.05 billion yuan is planned to add an annual production capacity of 30 million rotatable blades, 2 million overall tools, and 1.7 million pieces of superhard tools.

Another leading company in the industry is 688308.SH (), which sold about 100 million CNC blades in 2022. According to the minutes of the investor exchange meeting disclosed a few days ago, the theoretical production capacity of the company's CNC blades is expected to reach 130 million pieces in the future, and there is still room for flexibility of about 20% on this basis.

Huarui Precision (688059.SH), which appeared on the Science and Technology Innovation Board in 2021, should not be underestimated. Currently, about 99% of the company's performance comes from CNC tools and related products. According to public information, the total sales volume of the company's tools in 2022 was about 90 million pieces, with a gross profit of 48.65%. After the company's IPO fund-raising project is implemented, it will add 30 million tungsten carbide CNC blades, 5 million metal-ceramic CNC blades, and 2 million carbide tools overall production capacity.

“Currently, the original production line is basically at full production. The IPO project was completed in April of this year, and production capacity is being released one after another. According to the previous plan, production will be achieved within three years. The company's production of CNC tools in the past three years has been in the top three in the industry.” The reporter learned from Huarui Precision as an investor.

Some industry insiders told reporters that domestic knives are gradually replacing imports in recent years. In particular, during the previous outbreak of the epidemic, global cargo transportation was blocked, and the pace of localization accelerated. Currently, the Xiamen tungsten industry and Chinatungsten high-tech products can replace Japanese and Korean products, but there is still a gap compared to some high-end European and American tools.

Data source: Shenwan Hongyuan Research

According to Shenwan Hongyuan's research report, in 2022, China's tool market was about 46.4 billion yuan, of which 12.6 billion yuan was imported. In 2016-2022, the dependence on imported tools fell from 37% to 27%, and import substitution for some tools has been gradually realized. However, at present, domestic substitution is mainly concentrated in the middle and low end. In high-end fields such as aerospace, where added value is high, international brands account for more than 70%, and there is still plenty of room for import substitution of high-end tools in the future.