A Developing Opportunity
In early 2012, Warren Buffet's Berkshire Hathaway unit IMC International Metalworking agreed to invest $80M in a tungsten project in South Korea. Why? Because an exceptional opportunity is developing in the tungsten market.
Classified as a Strategic Metal
Tungsten is classified as a "Strategic Metal" in the U.S. This means it is integral to national defence and the domestic aerospace and energy industries. Tungsten is also subject to potential supply restrictions. The U.S. needs tungsten for everything from tools to missiles to light bulbs. Unfortunately, the country is not getting nearly enough of this versatile metal.
We're Dependent on Imports
The U.S. requires about 20,000 metric tonnes of tungsten per year to meet crucial industrial demand. About 90% of our tungsten is imported. The rest comes from scrap recycling.
No Tungsten Mines in the U.S.
At one time, tungsten mines operated throughout the western U.S. and largely met domestic needs. But not one mine operates in the country today. Only a handful are operating in Canada.
Beginning in the early 2000s, China flooded the market with inexpensive tungsten and began putting other mines out of business. The great recession of 2008-2009 followed and kept prices low. Not only did mines close, the search for new tungsten deposits all but disappeared.
Eight-fold Increase in Tungsten Prices
Today, China produces about 85% of the world's tungsten supply. To make matters worse, the country has greatly restricted tungsten exports to keep pace with its own industrial demand. As a result, tungsten prices have shot up---from $50 per MTU* in 2002 to well over $350 per MTU today (and exceeding $450 per MTU in 2011). Tungsten is one of the few metals that have withstood the recent metals bear market.
Tungsten Demand Booming
As developing countries ramp up their industrial sectors, world tungsten demand is growing at an annual pace of about 6% per year. World supply however is declining. About 72,000 tonnes were produced in 2011, down 21% from the peak of 90,800 metric tonnes produced in 2006. That's why savvy mining and exploration companies are ramping up exploration for economic tungsten deposits.
Why is Tungsten so Valuable?
Tungsten is absolutely essential to our modern way of life, our national security and our economy. Why? Because tungsten is:
VERY HARD: In fact second only to diamonds for hardness
RESISTANT TO HEAT: has the highest melting point and lowest coefficient of expansion of all metals.
DENSE: Denser than lead and even uranium.
ENVIRONMENTALLY BENIGN: Does not break down or decompose, and it is corrosion resistant.
Which means we need tungsten for:
- High speed steel tools and hard cutting blades
- Defence applications, including missiles
- Many different alloys
- Lighting and Electronics
- Thousands of automotive and aerospace applications
- Sports equipment
- And many other valuable uses...even the tips of ballpoint pens!
Where is Tungsten Mined?
Chinese mines produce roughly 85% of the world's tungsten supply, followed by Russia (4%) and Canada (3%). Other important producers are Bolivia, Austria, Portugal and Thailand. The United States no longer produces any tungsten (other than recycled scrap), yet it is one of the world's largest tungsten consumers.
* Tungsten prices are generally based on Metric Tonne Units (MTUs) of ammonium paratungstate (APT), a more refined downstream product. A metric tonne unit (MTU) of ammonium paratungstate is 10 kilograms, which contains 6.95 kilograms of tungsten. So the U.S. dollar price of tungsten is calculated by first dividing the price per kilogram of APT by 6.95 to get the price in dollars per kilogram and then dividing by 2.2 to get the price in dollars.