You already know China has claimed the throne as the world’s biggest producer of rare earths. Even though it’s sitting on less than half of the world’s deposits, it controls around 95% of global supply. It has squeezed other producers out of the market by undercutting their prices…
From 2009 to 6 June 2011, China’s stranglehold on the rare earths market pushed the value of Lynas Corp’s [ASX: LYC] rare earths up an average 1667%:
And now it’s laying claim to tungsten – ‘the new rare earths’…
Since April this year, plenty of commodities – except gold – have taken big beatings.
Coal is down around 16%…
Oil is down around 17%…
But tungsten is up about 45%. And according to Dr Alex Cowie from Diggers & Drillers, it’s a metal worth looking at…
Here’s a quote from his most recent D&D update…
‘One commodity that hasn’t been bashed up recently is tungsten… Tungsten has almost doubled in price since last year…
‘This is no bad thing. Tungsten is a valuable metal, and is in short supply… The market is also monopolised by China – which exports very little of the metal. It has a mix of military and industrial uses, so is a very important commodity.
‘Being one of the few companies with a source of tungsten outside China in coming years could be very profitable.’
The China element of the story is what makes tungsten ‘the new rare earths’. China has a monopoly on this tight market. According to Richard Karn, of the Alaska-based Emerging Trends Report, China has an 81% market share in tungsten.
Tungsten’s big use, Dr Alex Cowie says, is for hardening the tips of bullets and missiles. Basically, you can’t run an army without tungsten. And China is cutting off the tungsten market the same way it dealt with the rare earths… so the country can use it for its military purposes… but it seems no one has noticed yet!
China did a similar thing to rare earths in 2010: it cut its export quota by 72%.
This brought down shipments to 30,258 tonnes in total for 2011. In 2009, Neodymium (the rare earth element used for high-performance magnets for top-spec audio equipment) was $19… today it’s $258!
And here’s what happened to Lynas Corp [ASX:LYC] – a small-cap rare earths miner – after the rare earths supply got choked off…
Could the same thing happen to tungsten? And if so, what would do to the share price of tungsten explorers and producers…
Aaron Tyrrell
Editor, Money Morning
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