The 2020 Mid-Year Economic Update_long

Tungsten Markets Squeeze Tooling Distributors

The price of the key raw ingredient used in tungsten carbide tooling, Ammonium Para Tungstate, has spiked from around $70 a metric ton unit to more than $300 a metric ton unit in just the past year. That means manufacturers have had to pass on the increased price of making the tools onto distributors who have little choice but to pass on the cost to customers.

In the past nine months, industrial distributor The George Whalley Company has seen a 12 percent to15 percent increase in the price it is paying for carbide cutting tools. The company’s executive vice president, Howard Whalley, doesn’t expect those increases to slow anytime soon. It’s hard to justify or explain to customers why the price is going up,” Whalley says.

Causes include increased speculation as raw materials become more visible to more metals investors; strong demand for hard metal tools and steel in China; and minimal investment in new mine capacity in China or the West.

Mitigating Price Jumps
To mitigate price increases, manufacturers are either adding a surcharge to tools or adding the increase into the price of the tool. The latter is preferred, Whalley says, because surcharges force distributors to increase the price they offer the end user but shrink the profit margin. Many times, manufacturer surcharges have turned into permanent price increases, Whalley says.

IMCO Carbide Tool Inc. has avoided surcharges, says its president Perry Osburn. “Our customers prefer managing the issue through price increases,” he says.

Osburn says U.S. manufacturers have been the most aggressive about passing on price increases. Asian manufacturers are trying to increase their global market share by keeping prices low, and European manufacturers are staying low because they expect costs to decrease again, he says.

Because distributors can’t control pricing, Whalley says his company has had to look for other avenues to fight profit squeeze on cutting tools. He says it’s important to focus more on selling high-performance tooling, which is generally sold at a higher price anyway. The strategy makes it easier to justify price increases. Distributors also need to provide information to customers on how they can maintain the quality of their tools so they last longer, promoting cost savings.

Chinese Dominate Market
More than one-half the tungsten consumed in the U.S. in 2005 was used in cemented carbide parts for cutting and wear-resistant materials primarily in the metalworking, mining, oil- and gas-drilling, and construction industries, according to a U.S. Geological Survey report.

World tungsten supply is dominated by Chinese production and exports. Beginning in 1999 and continuing into 2005, the Chinese government started controlling the release of Chinese tungsten into the market. In addition to regulating tungsten production and the total volume of tungsten exports, the Chinese government was gradually shifting the balance of export quotas toward value-added tungsten materials and products. Also, as the country’s economy has grown, China has become a large tungsten consumer.

In 2005, inadequate supplies of tungsten within China combined with increased demand elsewhere contributed to the sharp price increases manufacturers and distributors are now seeing. Some companies have worked in recent years to develop tungsten deposits or reopen inactive mines in Australia, China, Peru, Russia, the U.S. and Vietnam, according to the USGS.

Historical Ups and Downs
Though manufacturers and distributors may be seeing price spikes now, many were seeing similar prices in the early 90s when the U.S. imposed a 151 percent antidumping duty against Chinese tungsten ore concentrates in the U.S. market, according to the USGS. Prices doubled, and then declined in the next couple of years, going up again in 1994 and 1995 due to increased demand.

An earlier price jump occurred from 1975-1977, when tungsten prices increased sharply to record highs; the spike was a result of worldwide inflation, strong buying by Eastern European countries, a recovery in Western demand, and reports of decreased supply by China.

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