Impacts of Russia-Ukraine Conflict on Tungsten Market & Price (VI)

IMPACTS OF RUSSIA-UKRAINE CONFLICT ONTUNGSTEN MARKET & PRICE

PART VI OF X

Thoughts on China’s Tungsten Futures under the Background of Russia-Ukraine Conflict

In recent years, China's tungsten products industry and relevant futures industry have continuously put forward and explored the possibility suggestions and feasibility studies of tungsten products futures in various ways, but there is no convincing professional research report or feasible implementation scheme of tungsten products futures.

As early as 2007, Ganzhou City made relevant suggestions to attract bulk goods into the park for trading in combination with the planning and construction of Ganzhou comprehensive logistics park at that time, and integrate the functions of "spot trading, futures listing, futures delivery, warehousing and exhibition, packaging and processing" of rare earth, tungsten and navel orange into the planning of the comprehensive logistics park. There has been no substantive progress since this suggestion.

Shanghai Futures Exchange (SHFE) has been studying the possibility of futures listing of rare earth, tungsten and molybdenum and other rare metal varieties since 2013. It is hoped that the listing of rare earth related futures varieties can help China's rare earth enterprises avoid risks, arrange production and lock profits, promote the development of the industry, help to form a more transparent and market-oriented price and promote the price discovery of rare earth related varieties.

From March 24 to 25, 2021, relevant leaders of SHFE visited Jiangxi Ganzhou rare earth group Co., Ltd. and local rare metal production enterprises, and said that SHFE would establish a quotation zone on SHFE standard warehouse receipt trading platform to quote rare earth varieties, so as to promote the strategic cooperative relationship between SHFE and Ganzhou municipal government and Ganzhou rare earth group, and jointly promote the construction of multi-level bulk commodity market system, Enhance the price influence of rare earth and rare metal varieties.

On May 28, 2021, Song Liping, the chairman of the board of supervisors of SHFE, said in her speech at the 18th Shanghai derivatives market forum that in the next step, the exchange will implement the decision-making and deployment of the CPC Central Committee and the State Council, improve its political position, adhere to the awareness of the overall situation, work together to promote the stable operation of the futures market, improve quality and efficiency, and strive to build a system that matches the development level of the real economy and the needs of risk management A multi-level non-ferrous metal derivatives market system with strong international competitiveness. The basic working ideas are: (1) Optimize the rule system and earnestly maintain the openness, fairness and justice of the market; (2) Continue the supply of sequential products, orderly promote the R & D and listing of alumina, tungsten, magnesium, aluminum alloy, cobalt, rare earth and other varieties, and promote the construction of a comprehensive derivatives market system with the on-site derivatives market as the core; (3) Adhere to the internationalization direction, study the new internationalization mode of non-ferrous metal futures varieties, and promote high-quality development with high-level opening-up.

On October 18, 2021, China (Shanghai) tungsten raw material industry development high-end forum was successfully held in Shanghai. The forum is hosted by China Tungsten Industry Association (CTIA), co-sponsored by China Tungsten High Tech Materials Co., Ltd., Jiangxi Tungsten Industry Holding Group Co., Ltd. and Xiamen tungsten industry Co., Ltd., and jointly organized by Smelting Branch, Cemented Carbide Branch and Economic and Trade Research Branch of CTIA. The theme of the forum is to build a communication platform for tungsten industry and promote upstream and downstream cooperation of tungsten products, it will help improve the ecology of the tungsten industry chain and build a solid industrial foundation, help the high-quality development of the tungsten industry, and promote the tungsten industry from a large tungsten industry to a powerful tungsten industry. During the forum, a closed-door discussion on tungsten products futures was held, and representatives of relevant parties discussed the variety selection, problems, advantages and disadvantages of tungsten products futures.

From this point of view, the listing of futures varieties such as tungsten products and rare earths seems to be closer!

The conflict between Russia and Ukraine has brought great impact and variables to the world economy, which has not yet fully recovered due to the epidemic, brought great changes to the World Geopolitics, and may completely change the current situation of world political pattern and military power; After Russia proposed to withdraw from the WTO, we have seen that within a few years, the United States and Russia, the world's two major powers and Military Giants, have withdrawn from a global trade organization such as the WTO. Therefore, we can predict that the future world economy, trade and investment will be deeply affected by the chaotic political and military changes, and it may be difficult for us to think and talk about the economy, Especially for China's strategic minerals and metals with advantageous positions such as tungsten, molybdenum and rare earths, at a time when Europe and the United States continue to impose various sanctions and restrictions on China, how to manage and protect China's strategic resources and sustainable development and utilization will become a topic for the industry and the government. Therefore, whether to futures tungsten products is also one of the issues we must seriously and seriously consider.

If the conflict between Russia and Ukraine brings challenges to our monetary policy, then money is a financial means and one of our retractable tools; If we say oil, natural gas and other energy sources, we should pay close attention to and ensure the diversification of sources; If food is very important to our country, it involves the rice bowls of all living beings; Tungsten products are in an advantageous position and have an indispensable and non-renewable strategic position. We need to examine and deal with them carefully from a strategic perspective in terms of macro policies and management systems related to mining, smelting, fine processing, export, reserves, futures, options and indexation. If we observe the recent game between Russia's export of advantageous resources such as oil, natural gas, coal, grain, chemical fertilizer, metal titanium and metal palladium and European and American sanctions, we should understand the importance of China's advantageous resources such as tungsten products and rare earths.

Now, we strongly suggest that at a time when the global epidemic is unstable, the conflict between Russia and Ukraine is unresolved, European and American sanctions continue, Sino-US relations are deadlocked, and cross-strait reunification is unfinished, it is not appropriate to futures China's dominant strategic metals such as tungsten, molybdenum and rare earth. In this regard, we hope to discuss the technical aspects, market factors and related risks of tungsten products futures, and understand the possible spillover and exclusion of tungsten products futures.

IN ANY CASE, THE FUTURES OF TUNGSTEN WILL DETERMINE THE FUTURE OF TUNGSTEN！

1. Metal Futures & Non-ferrous Metal Futures

1.1 Futures and Commodity Futures

Commodity futures is a kind of futures contract in which the subject matter is physical goods. It is a standardized agreement between the buyer and the seller to buy and sell a certain quantity of physical goods at the price agreed at the time of signing the contract on a certain agreed date in the future. The focus of futures is "futures" rather than "goods". Unlike spot trading, futures emphasize future settlement; Similarly, futures is not easy to be "goods". Its subject matter can be some kind of commodity, some kind of securities, bonds or future earnings, which can be specified by standardized cooperation. Therefore, futures can be commodity futures or financial futures. Investors of futures invest or speculate in the futures market and buy and sell futures through standardized contracts, but they do not necessarily refer to professionals or practitioners of each commodity or ticket. For example, investors invest in gold futures forward contracts, but investors may not be gold operators or financial circles. They may only invest in profits through the futures market, Because the futures market is a zero-sum game, which is a speculative market that can be short and long at the same time. The profit of one (or several) investor must be the loss of another (or several) investor, which is quite different from the market logic of stocks.

China's futures originated in Shanghai in the early 20th century. What many people may not know is that Kuomintang President Chiang Kai Shek and Chen Lifu's father once became one of the founders of SHFE in the name of collecting funds for the national revolution. After the founding of new China, China's futures market was closed. In 1988, after China's reform and opening up, China began to try futures trading. Then, before 2001, China standardized and adjusted the blind expansion and savage growth after 1992, which made China's futures market enter a benign stage of development. After the rectification, China's futures exchanges now include SHFE, Dalian futures exchange, Zhengzhou Futures Exchange and China Financial Futures Exchange.

At present, the futures approved for trading in China mainly include commodity futures and financial futures. Commodity futures are divided into three categories: metal commodities (copper, aluminum, tin, lead, zinc, nickel, gold, silver and deformed steel), energy commodities (crude oil, PTA, fuel oil, asphalt and natural rubber), and agricultural products (soybean, soybean oil, soybean meal, wheat, corn, cotton, rapeseed oil and palm oil); Financial futures mainly include stock index futures (CSI 300, CSI 500 and SSE 50), treasury bond futures (2-year treasury bonds, 5-year treasury bonds and 10-year Treasury bonds), interest rate futures (short-term interest rate and long-term interest rate futures) and foreign exchange futures (also known as currency futures).

1.2. Metal Futures and Non-ferrous Metal Futures

The commodities specified in the futures contract standards of the futures exchange become futures varieties that can be listed in the futures exchange after being approved by the state regulatory authority. Standardization is the main feature of futures contract commodities. No matter what kind of commodity, its quantity, quality, grade, delivery, trading unit (unit of measurement), margin, time, delivery place and other terms can use fixed and set standardization. As futures commodities, the only variable is price.

After ore processing, metals have stable physical and chemical properties and are easy to become standardized products. Therefore, metals are one of the more mature futures varieties in the world-famous futures markets such as the London Metal Exchange, the New York Mercantile Exchange and the Tokyo industrial products exchange. In particular, the trading price of futures contracts on the London Metal Exchange is recognized as the pricing standard for non-ferrous metal trading all over the world. Among the four futures exchanges in China, SHFE was established earlier and there are many kinds of metal futures. Among them, the trading of copper futures is growing rapidly, and the trading volume ranks second in the world after the London Stock Exchange (LME).

Metals are generally divided into non-ferrous metals and ferrous metals (in fact, they are divided into ferrous metals and non-ferrous metals in Britain and China); Therefore, metal futures are divided into non-ferrous metal futures and ferrous metal futures. Ferrous metal futures mainly refer to the futures varieties of metal products based on iron, chromium and manganese; Gold, silver, platinum and palladium are called precious metal futures because of their high value. The quality, content, purity, grade and specification of non-ferrous metals such as copper, aluminum, zinc, tin, nickel and aluminum are easy to be divided and standardized. The market usage, circulation and trading volume are large, the storage and transportation are relatively simple, and the price is easily affected by supply and market demand. They are ideal futures trading varieties. There are futures varieties of copper in major futures exchanges in the world. Due to the huge output and trading volume, Copper is not only the first established metal futures trading variety with a history of more than 100 years, but also the leading product in metal futures. Copper is the main futures trading variety. In a large manufacturing country like China, copper futures are the most important current metal.

According to the statistics of the previous period exchange in 2015, the total trading volume of all non-ferrous metal futures in the previous period reached 220 million hands unilaterally, with a unilateral trading amount of 27.4 trillion RMB Yuan. In 2015, the physical delivery volume of all non-ferrous metals in the previous period reached 1.302 million mts, including 355,000 mts of Copper, 69,4000 mts of Aluminum, 192,000 mts of Zinc, 51,000 mts of Lead, 18,000 mts ofNickel and 2,000 tons of Tin.

1.3 Guangzhou Futures Exchange and Commodity Index Futures

On April 19, 2021, Guangzhou futures exchange was inaugurated and established. It is the fifth Futures Exchange approved by the State Council and the CSRC. The purpose of establishing one belt, one road, is to implement the decision-making plan of the Central Committee of the CPC and the State Council, improve the multi-level capital market system, serve the important measures of the construction of Guangdong, Hongkong and Macau, and the "one belt and one road" construction. The Guangzhou stage will implement the new development concept, serve the real economy and serve the green development, adhere to the market, rule of law and internationalization, and take the lead in product, system and technological innovation, and actively and steadily push forward the construction of the futures market. Better serve China's ecological civilization construction and high-quality economic development.

Commodity index futures refers to the futures varieties with commodity index as the subject traded in the futures exchange. It is a new derivative and an on-site derivative instrument for index investment. Most of its commodity index compilation is based on futures price rather than spot price; Commodity index futures have a high degree of homogeneity and standardization. They have the characteristics of both commodity futures and financial futures. It is generally believed in the industry that as a recently established futures exchange, the first variety of Guangzhou futures exchange is probably commodity index futures with innovative nature.

This is also an important measure to make up for the gap that there is no commodity index futures in China's four futures exchanges, and to improve China's commodity futures, the two largest commodity index futures of S & P Goldman Sachs Commodity Index and Bloomberg Commodity Index Futures.

1.4 Basic information of futures exchanges and futures varieties in China

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2. Futures of Tungsten Products

Compared with other futures products in the world, China's non-ferrous metal products that have not been futures are mainly non-ferrous metal products such as tungsten, molybdenum and rare earth. At present, the higher voice is the futures of tungsten and molybdenum products. It is reported that the Institute with more contacts with non-ferrous metals and tungsten industry associations and industry circles and deep research on this is not an ambitious and equal rice long-term Institute at the beginning of its establishment.

2.1 Characteristics and futures difficulty of tungsten products

2.1.1 tungsten products and their production process

Tungsten is a kind of insoluble non-ferrous metal. As mentioned above, tungsten has excellent properties such as high hardness, high density, high melting point, high temperature resistance, corrosion resistance, electrical and thermal conductivity. All kinds of products are important raw materials after processing and play an important role in modern industry. Therefore, it is called the "tooth" of industry and is widely used in mining, metallurgy, machinery, construction, transportation, electronics, chemical industry, light industry Textile, military industry, aviation, aerospace, its technology, new energy and other fields.

The basic processing technology of tungsten products is generally divided into several steps: tungsten ore mining beneficiation and smelting smelting reduction product processing; The products of tungsten products are divided into tungsten oxide according to the product characteristics, such as tungsten raw ore, tungsten concentrate, yellow tungsten oxide (yto), blue tungsten (BTO), ammonium paratungstate (APT), ammonium metatungstate (AMT), tungstic acid, metal powder, such as tungsten powder and tungsten carbide powder, high specific gravity tungsten alloy, cemented carbide, metal tungsten products, such as tungsten bar, tungsten plate, tungsten wire, tungsten electrode, tungsten heater, tungsten iron, and two-phase alloys, such as tungsten molybdenum, tungsten copper Tungsten gold, tungsten silver, etc. The industrial chain of tungsten products is widely used. From the perspective of the use of tungsten products, it involves almost all aspects of the national economy and the people's livelihood. This paper will not start here, but China Tungsten online will update its own tungsten products catalogue every year. It is believed that the 2022 edition of China Tungsten intelligent manufacturing tungsten molybdenum products catalogue, which is planned to be completed in the first half of 2022, will be launched soon.

2.1.2 characteristics and futures difficulty of tungsten products

3. Possible Risks & Inspiration of tungsten Industry after the Russia-Ukraine Conflict

3.1 Sensitivity of Tungsten

3.2. Inspiration from Russia's Sanctions after the Russia-Ukraine Conflict

3.2.1 reduce monetary reserves and increase the reserves of tungsten, molybdenum and rare earth materials

3.2.2 Shall We Consider & Decide the futures of tungsten Carefully?

3.2.3 Potential Risks of Tungsten in the Russia-Ukraine Conflict

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If the war between Russia and Ukraine expands, our tungsten products industry may be easier to get more attention, and its political risks will also increase sharply. It is difficult for us to predict many uncertain political factors, such as the benign development of China US relations, the future of China EU relations and investment agreements, the right-wing cooperation between Japan and South Korea, and the variables of the Taiwan Strait crisis, when the conflict between Russia and Ukraine worsens.

What's more, we also pay attention to the unpredictable risks brought by other so-called conflicts to the tungsten industry……

This may be the biggest uncertainty faced by China's tungsten products industry under the background of the Russia-Ukraine Conflict. Before concluding part VI of this article, allow me to reiterate once again:

BE CAREFUL, THE FUTURES OF TUNGSTEN WILL DETERMINE THE FUTURE OF TUNGSTEN！

(PART VI of This Article Is Finished, and PART VII TO X Parts Are to Be Continued)

SUMMARY

Based on the experience of tungsten products market in the past decades and the current situation of the conflict between Russia and Ukraine, the author believes that the price of tungsten products will continue to rise in 2022, but the main factor is not traditional market factors; Therefore, in the first part, we focus on the Russian Ukrainian conflict and the military use and importance of tungsten products. In the second, third and fourth parts, we focus on the global resource distribution of tungsten products, especially the overview of Russian tungsten resources and the relationship between China's tungsten products industry and Russia. In the fifth part, we analyze the energy, bulk metals Factors such as the sharp rise in grain prices, the cost pressure on China's tungsten market caused by the over issuance of the US dollar and the interest rate generated by the Federal Reserve, and the possibility of a strong RMB. In the sixth part of this paper, we discuss the particularity, feasibility, legal conflict and risk of tungsten products futures in China; Since it is related to Russia, finally, we will also describe and briefly analyze some news about the new development of tungsten products in life, such as the so-called sky-high price Russian tungsten gold bars and other suspected fraud from time to time in recent decades.

Read/download the full report:

'Impacts of Russia-Ukraine Conflict on Tungsten Market & Price (VI)'

'Impacts of Russia-Ukraine Conflict on Tungsten Market & Price (V)'

'Impacts of Russia-Ukraine Conflict on Tungsten Market & Price (IV-2)'

'Impacts of Russia-Ukraine Conflict on Tungsten Market & Price (IV-1)'

'Impacts of Russia-Ukraine Conflict on Tungsten Market & Price (III)'

'Impacts of Russia-Ukraine Conflict on Tungsten Market & Price (II)'

'Impacts of Russia-Ukraine Conflict on Tungsten Market & Price (I)'

 

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