The cautious thoughts about the future price of tungsten
The following are extracts from an article in Investing News and provides thoughts regarding Tungsten prices in 2016.
Tungsten didn’t have the best year in 2015, as was the case for most metals. Indeed, as China accounts for nearly 85 percent of global tungsten output, the Asian country’s slide into economic turmoil has been rough.
The most prevalent trend for the tungsten market this year was a sharp price decline. The tungsten price has fallen about $200 since the beginning of the year to trade at $180 to $190 per MTU. That’s down from the comfortable trading range of $350 to $450 per MTU seen between 2012 and 2014.
Against that backdrop, 2016 brings with it the hope that at least some stability will return to the tungsten market. One researcher expects to see demand continue in line with 2015 levels. “Prices should stabilize around $250 toward the end of [next year],”
Chris Ecclestone, an analyst at Hallgarten & Company, suggested, “[the tungsten price] is probably bottoming out at this price level.”
Investors would do well to exercise caution, at least initially. “It will be a tough year to start, but should start the traditional five-year cycle toward the end of 2016,” Eccelstone also doesn’t see a tungsten price recovery coming quickly.
The advice to investors is don’t panic as demand has been consistent for over 20 years. Pricing mechanisms have exaggerated the pricing drop due to illiquidity. Investors need to understand a company’s real cost per MTU to produce to assess if the project can compete.
So based on the above you would believe the cheapest tungsten will be in 2016 is $180 MTU and more likely to have moved towards $250 MTU when Parrilla mine in production.
The implications for WRES are:
1. WRES will be producing tungsten later in the year in a rising market.
2.The following chart indicates operating costs at Parrilla are lower than $180 making mine viable at this level.
3. Any movement in the price of tungsten above $180 MTU will have a significant impact on profit levels.
Whilst this highlights the cautious side it also shows that WRES mine will be profitable at current tungsten price levels (and even lower) and also that production will be starting at the beginning of the normal 5 year upward price cycle.
The optimistic thoughts about the future price of tungsten
China is desperate to reduce the amount of tungsten being exported. This is why China imposed tungsten export restrictions to ensure they had a longterm internal supply of tungsten.
In January 2015 China had to stop imposing export quotas as violated World Trade Organisation rules. This had an impact on the availability of tungsten and the price fell.
To get around this the Chinese in May 2015 imposed an environmental tax of 6.5% on tungsten production. This is still in place and is anticipated to increase by 3% in 2016 and 3% in future years.
This is important for WRES for the following reasons.
1. China will probably keep increasing the environmental tax every year to keep the cost of China tungsten high thereby reducing the amount exported. They are doing this for political reasons.
2. Chinese media have reported they expect Chinese production of tungsten to fall by almost 50% due to the tax.
3. If China production does fall, as they produce 84% of the world’s supply this will have a dramatic impact on tungsten prices.
When the China actions take hold the price of European tungsten should rise significantly.
Only Europe and Vietnam have tungsten mines coming on-line in 2016 / 2017 to take up some of the slack. These mines however if production does fall by 50% will only be able to replace a fraction of the reduced Chinese output.
This is a key reason why the tungsten price has probably reached its floor and is due to start climbing.
In the past the price trend of tungsten has closely followed economic growth. This is another reason why you would assume tungsten prices are about to increase.
It’s easy to see why the WRES Chairman has been increasing his share holding throughout 2015 and now holds over 25% of the stock.
The icing on the cake for all investors will be when tungsten prices get back to the range of $350 – $450 MTU.