Opinion:

Another downside to globalization

Prices for tungsten have significantly increased in the past several months.

Why is this important?

Tungsten is used in everything from semiconductor computer chips (I know personally about that) to hardening drill bits used to fabricate everything from cars to ships to tanks to anything else built out of steel.

It could reasonably be categorized as a "strategic material".

Why has the price risen?

From an article from The Economist magazine.

It hardens anything from saw blades to turbine blades. It goes into light bulbs and weaponry. America's government has a stockpile that could meet all that country's demand for the next three years. It is tungsten, and its price has gone crazy. Why? China controls 85% of world output, uses maybe 35-40% of it—and as demand has risen, has taken steps that cut supply.

Inside China, prices rose sharply last year, by some 70% for the concentrate that leaves the mine. But this year they have rocketed. As 2005 began, exporters were offering APT—ammonium paratungstate, a “downstream” compound about 80% made up of the metal—at around $9,000 a tonne; last week, $19,000; this week, nearly $22,000.

China's own demand, up by 20-30% last year, was one reason. Others, says Philippe Lavagna, at Specialty Metals in Brussels, were more unusual. China's government has been trying for years to close down the many small, illegal mines. Last year it got tough, blocking deliveries of mining explosives to them. Most of them shut. On top came electricity shortages, hitting large mines too. Meanwhile, China Minmetals, a giant state company, took over one of the biggest producers in Jiangxi province.

The resultant Jiangxi Tungsten has done much to “stabilise” the market, says one of its executives. Really? According to its own figures, in 2004 other Chinese miners raised output by 17% but Jiangxi only by a bit under 5%. Some small miners began to stockpile and, ignoring contracts, refused to supply Chinese processors except at higher prices. And the export quota set by the government was actually cut.

Russia apart, the world has few other potential sources: a large Canadian mine, closed in December 2003 because its customers went off to buy cheaper elsewhere; a smaller Tasmanian one, also idle; one in Portugal; and a few tiny mines here and there. A big opencast mine in Vietnam planned by another Canadian company is likely to come on stream only in late 2007.