The US needs more tungsten. China is a major supplier of the critical metal

BEIJING – China dominates the supply chain for many of the world’s crucial minerals, but so far the country has refrained from imposing sweeping restrictions on at least one of them: tungsten.

The metal is almost as hard as diamond and has a high energy density. That has made tungsten an important material in weapons, cars, electric car batteries, semiconductors and industrial cutting machines. Chip makers such as Taiwanese semiconductor manufacturing company And Nvidia both use the metal.

“I don’t expect any saber-rattling over tungsten,” said Lewis Black, CEO of Canada-based Almonty Industries, which is spending at least $75 million to reopen a tungsten mine in South Korea later this year.

“If you get too belligerent about diversification, [it becomes a situation that’s] biting the hand that feeds you,” he said, adding that “tungsten has always been a diplomatic metal.”

While the Biden administration increased tariffs on tungsten imports in May, China did not absorb the metal this past weekend new regulations to increase oversight of domestic rare earth production.

“The tariffs were more of a warning shot, as Biden only imposed tariffs on three of the 25 strategic metals that China exports,” Black said.

“But China may not be too concerned because the Chinese government ignored the new tariffs, unlike in the past when they restricted rare earth exports. They ignored it completely because the Chinese don’t want tensions to rise. “

When asked last month whether China would retaliate against the latest US tariffs on tungsten, Chinese Commerce Ministry spokesman He Yadong announced no countermeasures. Instead, he called on the US to abolish the additional duties.

Commodity price reporting and analysis company Fastmarkets pointed out Earlier this year, China cut national production quotas for its tungsten mines due to environmental restrictions.

Still, Black expects his company to benefit from increasing efforts to diversify outside of China. Almonty claims the upcoming mine in South Korea has the potential to produce 50% of the world’s tungsten supply, excluding China.

Demand for non-Chinese tungsten is already increasing.

“We see that in the US and Europe they are asking their suppliers for a China-free supply chain,” said Michael Dornhofer, founder of metal consultancy Independent Supply Business Partner.

The US REEShore Act – or Restoring Essential Energy and Security Holdings Onshore for Rare Earths Act of 2022 – bans the use of Chinese tungsten in military equipment starting in 2026, while the European Commission last year extended rates on imported Chinese tungsten carbide for another five years, Almonty Industries said in a report.

The House Select Committee on Strategic Competition between the United States and the Chinese Communist Party last month announced a new working group on US policy on critical minerals.

Expectations for higher demand and limited supply of tungsten have pushed prices to multi-year highs, although they have eased in recent weeks.

Dornhofer said in an interview in late May that he also saw Chinese buyers increasing their tungsten purchases.

“Since the beginning of this year, they are not only asking for Western concentrate, but also buying significant volumes, paying even more than Western companies are willing to pay,” he said. “Certainly [going to be] a game changer.”

In January, a US-based research firm MacroOps said“We are approaching an inflection point in tungsten supply. The U.S. will quickly run out of tungsten supplies and transition from net seller to buyer over the next 12 to 18 months.”

The Commerce Department’s Bureau of Industry and Security did not immediately respond to a CNBC request for comment on this story.

Brandon Beylo, head of investment research at Macro Ops, told CNBC in an email that there are only six companies in the U.S. with capacity to produce tungsten. He added that the U.S. has not produced tungsten domestically since 2015, meaning future U.S. supply will have to come from abroad.

He said the company does not own any tungsten-related stock, but he is personally looking for ways to access the physical commodity. There are no futures for tungsten trading.

China dominates more than 80% of the tungsten supply chain, although local production costs are rising as mines age, Argus said, pointing to Chinese imports of the metal from North Korea, Central Africa and Myanmar.

“This offers opportunities for projects outside China,” said Mark Seddon, director of consulting and analytics at Argus, in an interview Webinar of June 28.

Other non-Chinese companies in the tungsten supply chain are heading to South Korea.

In February, IMC Endmill, a subsidiary of Warren Buffett-owned IMC Group, signed an agreement with the Daegu city government to invest 130 billion Korean won ($93.6 million) in a tungsten powder production plant, according to a local news story.

IMC Group did not immediately respond to CNBC’s request for comment.

China’s dominance in global supply chains of crucial minerals has been built over decades.

Dornhofer pointed out that efforts to produce tungsten outside China have languished for years, including plans for a mine in New Brunswick, Canada, that would have significantly increased global tungsten capacity.

All these projects have been on the table since 20 years ago, he said. “When people tell you that they will be operational in two or three years, the question is whether you believe them. On the other hand [hand], the tungsten is in the ground. It’s still there.”

Almonty claims to be the largest producer of tungsten outside China and is currently mainly active in Portugal and Spain. The future mine in Sangdong, South Korea, was closed in the 1990s.

After the mine reopens later this year, Black expects his company to account for just 7% to 8% of global tungsten supply.

“We are not displacing Chinese,” he said. “We have no intention of doing that.”

“If we now start producing 30% to 40%, I will be competing with China, which would not be a smart thing to do.”