The U.S. needs more of this critical metal — and China owns 80% of its supply chain

BEIJING — China dominates the provision chain for lots of the world’s vital minerals, however to date it is held off on sweeping restrictions on no less than one: tungsten.

The metallic is sort of as laborious as diamond and has a excessive vitality density. That is made tungsten an vital materials in weapons, autos, electrical automobile batteries, semiconductors and industrial slicing machines. Chipmakers similar to Taiwan Semiconductor Manufacturing Firm and Nvidia each use the metallic.

“I do not anticipate any saber-rattling over tungsten,” stated Lewis Black, CEO of Canada-based Almonty Industries. The corporate stated it is spending no less than $125 million to reopen a tungsten mine in South Korea later this yr.

“When you get too belligerent about diversification, [it becomes a situation that’s] biting the hand that feeds you,” he stated, including that “tungsten has at all times been a diplomatic metallic.”

Whereas the Biden administration raised tariffs on imports of tungsten in Could, China this previous weekend didn’t embody the metallic in new laws for enhancing its oversight of home uncommon earths manufacturing.

“The tariffs had been extra of a warning shot, as Biden solely put tariffs on three of the 25 strategic metals China exports,” Black stated.

“However China won’t be too involved, as a result of the Chinese language authorities ignored the brand new tariffs, in contrast to up to now once they restricted some exports of uncommon earths. They fully ignored it as a result of the Chinese language don’t desire tensions to rise.”

Requested final month if China would retaliate to the most recent U.S. tariffs on tungsten, China’s Ministry of Commerce spokesperson He Yadong did not announce countermeasures. As a substitute, he referred to as on the U.S. to take away the extra duties.

Commodity value reporting and analytics firm Fastmarkets identified earlier this yr that China has diminished nationwide manufacturing quotas for its tungsten mines because of environmental restrictions.

Nonetheless, Black expects his firm to profit from rising efforts to diversify away from China. Almonty claims the forthcoming mine in South Korea has the potential to supply 50% of the world’s ex-China tungsten provide.

Demand for non-Chinese language tungsten is already on the rise.

“We see within the U.S., in Europe, they ask their suppliers for a China-free provide chain,” stated Michael Dornhofer, founding father of metals consulting agency Unbiased Provide Enterprise Associate.

The U.S. REEShore Act — or Restoring Important Power and Safety Holdings Onshore for Uncommon Earths Act of 2022 — prohibits using Chinese language tungsten in navy gear beginning in 2026, whereas the European Fee final yr prolonged tariffs on imported Chinese language tungsten carbide for one more 5 years, Almonty Industries identified in a report.

The Home Choose Committee on the Strategic Competitors between america and the Chinese language Communist Celebration final month introduced a brand new working group on the U.S. vital minerals coverage.

Expectations for increased demand and restricted provides of tungsten have pushed costs to multi-year highs, though they’ve tapered off within the final a number of weeks.

Dornhofer stated in an interview in late Could that he was additionally seeing Chinese language patrons growing their tungsten purchases.

“Because the starting of this yr, they aren’t solely asking for Western focus, however they’re shopping for vital volumes, paying much more than Western firms are prepared to pay,” he stated. “Undoubtedly [going to be] a recreation changer.”

Again in January, U.S.-based analysis agency Macro Ops stated: “We’re approaching an inflection level in tungsten provide. The US will rapidly run out of stockpiled tungsten and flip from internet vendor to purchaser over the subsequent 12-18 months.”

The U.S. Bureau of Trade and Safety on the Division of Commerce didn’t instantly reply to a CNBC request for touch upon this story.

Brandon Beylo, head of funding analysis at Macro Ops, informed CNBC in an electronic mail there are solely six firms within the U.S. with capability to supply tungsten. He added that the U.S. hasn’t produced tungsten domestically since 2015, that means future U.S. provide should come from abroad.

He stated the agency would not personal tungsten-related shares, however that he is personally in search of methods to entry the bodily commodity. There are not any futures for buying and selling tungsten.

China dominates over 80% of the tungsten provide chain, though native manufacturing prices are rising because the mines age, in keeping with Argus, noting Chinese language imports of the metallic from North Korea, central Africa and Myanmar.

“This presents a chance for tasks exterior China,” Mark Seddon, principal, consulting and analytics at Argus, stated in a June 28 webinar.

Different non-Chinese language firms within the tungsten provide chain are going to South Korea.

In February, IMC Endmill, an affiliate of Warren Buffett-owned IMC Group, signed an settlement with the Daegu metropolis authorities for a 130 billion Korean received ($93.6 million) funding in a tungsten powder manufacturing facility, in keeping with a neighborhood information report.

IMC Group didn’t instantly reply to CNBC’s request for remark.

China’s dominance in international vital minerals provide chains has been constructed up over a number of a long time.

Dornhofer identified that efforts to supply tungsten exterior of China have languished for years, together with plans for a mine in New Brunswick, Canada, that might have considerably elevated international tungsten capability.

All these tasks have been on the desk since 20 years in the past, he stated. “When individuals inform you in two years, three years they are going to be in operation, it is a query of whether or not you imagine them. On the opposite [hand], the tungsten is within the floor. It is nonetheless there.”

Almonty claims to be the largest producer of tungsten exterior China and proper now, primarily operates in Portugal and Spain. The forthcoming mine in Sangdong, South Korea, closed within the Nineteen Nineties.

After the mine reopens later this yr, Black expects his firm will account for under 7% or 8% of world tungsten provide.

“We’re not crowding out any Chinese language,” he stated. “We do not intend to.”

“Now if we will produce 30% to 40%, I am taking a battle with China, which would not be a sensible factor to do.”

Clarification: Almonty clarified that the funding to reopen the tungsten mine in South Korea is now $125 million.