China's Supply-Side Reforms Bring Silver Lining to Rare Metals Includes Tungsten

To address excessive production, Beijing has been promoting supply-side reforms, which government-led moves are underway to consolidate producers, slash output and build up reserves. And while those efforts have struggled to make progress in the steel, coal and aluminum industries, they are gradually bearing fruit in the rare metals industry.

In April, China increased its reserves of tungsten, a rare metal used in carbide cutting tools, by 10,000 tons, or roughly 10% of the country's annual output. Prices of ammonium paratungstate, an intermediate material used as a stand-in for tungsten in pricing, had been holding below $200 per 10kg since last autumn, but they have since risen to around $210.

In March, China's eight major mining companies said that they were cutting production for the current year by 15% on the year. A trading house official said the companies have since agreed to raise the target to 20%.

Thanks to government-led stockpiling efforts, prices of rare-earth metals used in the manufacture of high-tech products have been climbing of late. The international spot price of neodymium, used in high-performance magnets, stands at about $56 per kilogram, while that of dysprosium is about $265 per kilogram. Both are up by 3% to 10% since May.

As for why supply-side reforms are working with rare metals but not for other commodities, compared with the industry's smaller size, steel, which makes it easier for the government to take control. Consolidation efforts, cooperative production cuts and increased reserves are supporting prices.

Demand trends are another actor. Demand for rare-earth metals is generally strong across the globe for use in high-performance motors for electric vehicles. For antimony, however, demand from Japan and Western economies for use in home appliances and for housing-related purposes is largely weak. Demand for the metal is also falling in China and other countries as electric bicycles switch from lead batteries to lead calcium batteries. Likewise, tungsten demand for carbide tools is declining due to stagnating mine development.

In the rare metals market, supply-side factors are sending prices higher. Whether the upward momentum continues, however, will likely depend on changes in demand.

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