Everbright Securities: Tungsten prices will continue to benefit upstream mining companies operating at a high level

The Zhitong Finance App learned that Everbright Securities released a research report saying that in the future, the supply of tungsten concentrate in China will continue to be tightened, demand will be steady, and there will also be growth points in the military industry and photovoltaics. The tight balance between supply and demand patterns of tungsten is expected to continue in the future, compounded by rising tungsten concentrate mining costs. Although tungsten concentrate prices will adjust to a certain extent, the bank still determines that tungsten prices will operate at a high level in 2026-2027. Tungsten-related listed companies are expected to benefit.

The main views of Everbright Securities are as follows:

Tungsten: China's only index controls the dominant metal, but the concentration is low

Tungsten is China's dominant resource. In 2023, China's tungsten concentrate production will account for 80.77% of the world's production; reserves will account for 52.27% of the world, ranking first in the world. Tungsten and rare earths are currently the only metal minerals controlled by the total mining index. Compared with rare earths, another major characteristic of tungsten is its low concentration: in 2024, China's tungsten ore production capacity is only 43.94%, and CR6 is only 55.87%. Compared with the two major rare earth groups in the rare earth industry, industry concentration needs to be increased urgently. Low industry concentration means that small tungsten ore companies are scattered all over, making it easier for illegal mining or overharvesting of tungsten ore to occur.

China's tungsten concentrate supply will continue to be tightened in the future. There are three logics

1. China's tungsten ore mining continues to implement a control and index quota system. The quota for the first batch of tungsten ore in 2025 fell 6.45% year on year. Over the long term, the quota is slowing down; 2. China's overharvested tungsten production continues to decline. In 2015, China's overharvesting of tungsten accounted for 35.78% of production; in 2024, this figure dropped to 12.63%; 3. After more than 100 years of tungsten ore mining in China, the grade of tungsten resources declined year by year. The grade of tungsten raw ore processed nationwide fell from 0.42% in 2004 to 0.28% in 2016.

On the demand side, the hard alloy base is stable, and there are also growth points in the military industry, photovoltaics, etc.

Domestic tungsten demand split in 2024: hard alloy (58.51%), tungsten material (22.61%), tungsten special steel (15.05%), tungsten chemical (3.83%). Demand for tungsten carbide has maintained steady growth in recent years. Demand for military tungsten will continue to grow against the backdrop of ongoing small-scale armed conflicts around the world and military spending of major countries continuing to rise. Photovoltaic tungsten wire is a tungsten material. The amount used is small but the growth rate is fast.

The rise in tungsten prices will cause a small number of tungsten products to be replaced in the short term

Alternatives to tungsten carbide tools include high-speed steel, superhard materials, and ceramics; the replacement for photovoltaic tungsten wire is steel wire. At the tungsten carbide end, as the digitization process of machine tools accelerates in the future and enterprises manage and use tools more rationally, the position of hard alloy in the tool industry will be very stable; as the price of photovoltaic tungsten wire gradually recovers upward and returns to a reasonable position, the cost performance ratio of tungsten diamond wire will gradually be reflected, and affected demand will be repaired accordingly. Overall, this round of tungsten price increases will only have a small impact on tungsten demand in the short term.

Tungsten supply-demand balance sheet: the pattern of tight balance will continue in the future

The bank has measured the balance between supply and demand for tungsten in China and the world in the next few years. It is estimated that in the future, China and the global tungsten metal will be in a tight balance pattern. China's tungsten supply and demand gap in 2025/2026/2027 accounts for -3.78%/-4.61%/-1.46% of the total demand for that year, and the global tungsten supply and demand gap in 2025/2026/2027 accounts for -3.11%/-3.78%/-1.48% of the total demand for that year. Combined with rising mining costs due to environmental pressure, etc., the bank believes that tungsten prices will run at a high level.

Risk warning: risk of price fluctuations of tungsten products; risk of additional tungsten ore supply; risk of downstream hard alloy products being replaced and promotion of photovoltaic tungsten wire falling short of expectations; risk of inconsistency between theoretical estimates and reality, etc.