Munitions Metal Tungsten Eclipses Gold, Copper in 557% Rally

(Bloomberg) — Manufacturers are facing a squeeze on supplies of a key metal used in weapons and semiconductors, as Chinese export curbs and rising military demand send prices to record highs.

Tungsten, a super-dense material that’s a key component in drilling equipment and armor-piercing weaponry, has more than doubled in value this year, according to the APT European benchmark from Fastmarkets. At $2,250 per metric ton unit, prices have risen 557% since Beijing added certain tungsten products to its export control list in February last year amid a trade dispute with the US.

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Gains have accelerated in recent weeks as buyers exhaust stockpiles and conflict in the Middle East sharpens focus on military demand.

“In my 12 years working across the commodity space and dealing with a lot of weird and wonderful metals, I have never seen a market as tight as tungsten is right now — aside from maybe lithium in 2021,” said George Heppel, vice president of commodity research with BMO Capital Markets. “This isn’t like lithium, where there was a huge pipeline of projects that could come online.”

Manufacturers have jostled for alternative supplies since China, which dominates global production, tightened exports. Chinese shipments of restricted tungsten products were down about 40% last year, according to Project Blue, a London-based research and consulting firm specializing in critical minerals and energy-transition supply chains.

The squeeze underscores why Western governments are attempting to reduce reliance on China for critical minerals — a leverage point Beijing has used in trade and technology disputes.

“The industrial base is desperate for material,” said Almonty Industries Inc. Chief Executive Officer Lewis Black, whose firm is scheduled to hold a ceremony Tuesday to mark the resumption of commercial production at the site of an idled mine in South Korea and is seeking to develop the first US tungsten mine in a decade.

Black said US authorities contacted Almonty last month regarding immediate material availability. Almost half of its South Korean output is earmarked for Pennsylvania, from where it’s used in munitions.

Tungsten’s rally gathered pace as users drew down inventories and export restrictions allowed prices — previously restrained by Chinese subsidies — to better reflect supply and demand, Black said.

“We’ve never been in a situation where the market is determining the price,” he added. “So we don’t really know where it’s going to settle.”

Despite its strategic importance, tungsten remains a niche market. Project Blue estimates its value at about $16 billion this year — roughly 5% of the copper market at current prices. It is also far more opaque and illiquid, as it does not trade on major exchanges. Even so, its gains over the past year have far outpaced those of commodities such as gold and oil.

“The current conflict in the Middle East is a contributing factor to the most recent price surge,” said Janine Le Roux, a researcher at Project Blue.

Military-related tungsten consumption — including use in helicopters, fighter jets and ammunition — is set to increase 12% this year, she said. Tungsten alloys are commonly used in missile components and counterweights in aircraft and helicopters, because their density allows projectiles to retain momentum and pierce through armor. They’re also used in artillery shells, grenades and bullet-proof vehicles.

As with many critical minerals and rare-earth elements, China emerged as the dominant producer in recent decades. But unlike many, China also holds the largest reserves of tungsten and, according to the US Geological Survey, accounted for 79% of the 85,000 metric tons produced from mines last year.

In building out domestic supply chains, Beijing focused on securing low-cost inputs to support advanced manufacturing. That state support helped China to dominate global supply — the US hasn’t mined tungsten commercially since 2015. It also meant US and European manufacturers became dependent on cheap tungsten imports from China.

As the Trump administration intensifies efforts to reduce reliance on Chinese supply chains, tungsten has become one of the metals caught in the geopolitical crossfire.

Mining in China has slipped from levels seen a decade ago amid deteriorating ore quality and, more recently, as authorities imposed tighter mining quotas. But rather than an attempt to preserve local supplies, last year’s export restrictions were a geopolitical “poke in the eye,” said David Argyle, co-founder of Arlington Innovation Partners, a Washington-based critical material investment firm.

There’s no quick fix to the supply constraints. Mining could expand in Spain, Brazil, Australia and the US, but new Western output would take about two years to materialize — assuming investors believe elevated prices will persist, Argyle said.

Supply Risk

Some large users are partly insulated from supply issues. Carbide toolmaker Ceratizit, a unit of Austria’s Plansee Group, said it mitigates supply risk by collecting and recycling scrap. Similarly, Swedish engineering group Sandvik owns a company that mines and recycles tungsten. Scrap and recycled material help offset primary supply constraints, according to the USGS.

Resolving structural tightness in the market would require more than the restart of dormant Western mines. It would also depend on higher output in China and greater artisanal production globally. Elevated prices could encourage substitution into cheaper materials such as lead in some applications, potentially curbing demand — although tungsten typically represents a small share of finished product costs.

Prices could spike further given the market’s scarcity and lack of liquidity, Argyle said, though he views the current squeeze as temporary. “You’ve got a maximum 24-month window of it being frustrating and annoying.”

Despite the strategic importance of sectors deemed essential to national security, most tungsten demand comes from more mundane areas of the economy. About 60% of US consumption goes into cemented carbide components used in cutting and wear-resistant applications in industries like construction and metalworking, according to the USGS. The metal is also used in aerospace alloys and chemicals.

Still, rising defense spending has exacerbated the tightness.

“The war in Iran has been a stark reminder of just how metals-intensive 21st-century warfare is,” BMO’s Heppel said. “Hundreds and thousands of drones, and hundreds and thousands of missiles and drones countering them. Tungsten has a big role to play in that.”

–With assistance from Sybilla Gross.

(Adds commissioning ceremony of Korean mine in seventh paragraph)

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