Production reduction and price protection: tough tungsten price meets strong support
Tungsten industry giant's strong production reduction and constant consumption of inventory in price protection industry
On May 17, 2019, China Tungsten Industry Association, together with ten presidium members, spontaneously held an industry Symposium. The output of tungsten concentrate of the participating enterprises reached 86% of the national annual output. It was decided that this year's combined production reduction of tungsten concentrate should not be less than 10%. On June 5, 2019, 17 smelters in Ganzhou jointly proposed to start production reduction and shutdown from June, with the shutdown time no less than 15 days and the production reduction of enterprises no less than 30%. Within one month, the industry twice proposed to reduce production and stop production, and unanimously called on upstream and downstream enterprises to strengthen cooperation, jointly resist vicious competition and malicious speculation in the industry, hoping to start from the supply side, strive to improve the current sluggish situation of tungsten market, and promote the reasonable return of the overall price of upstream and downstream tungsten products.
After the meeting, the operating rate of domestic apt industry dropped from 66.67% to 48.72%, which proved the efficiency and tough attitude of the implementation of production reduction and price protection. Affected by the overall demand of the steel industry, the operating rate of ferrotungsten is still rising, which proves that the downstream demand of tungsten is still relatively stable.
Looking back to 15-16 years, the three times of production reduction in the industry has a significant effect
From 2014 to 2015, in order to save costs, large-scale mines accelerated the increase of production per unit time, the supply of tungsten concentrate in some areas increased significantly, and the recovery rate of tungsten waste also gradually increased. The oversupply led to the continuous decline of China's tungsten concentrate price, which fell below the cost line, and the mainstream tungsten enterprises suffered serious losses.
In November 2015, major domestic tungsten enterprises gathered in Xiamen and decided to limit the production of tungsten concentrate by 20%. (there were 27 mines under the eight tungsten enterprises participating in the meeting, and the output of tungsten concentrate exceeded 50% of the total domestic output). In the following two months, the supply of tungsten concentrate was basically stopped, and the output dropped sharply from December 2015 to March 2016, and the tungsten price recovered.
On June 7, 2016, the third meeting of eight tungsten enterprises was held in Chaozhou. Several major mining enterprises suspended shipment and agreed that the sales price of 65% wolframite concentrate should not be less than 75000 yuan / ton, and the sales price of apt should not be less than 115000 yuan / ton. In addition, the Ministry of industry and information technology issued "tungsten industry standard conditions" in that year and four times of national storage, which effectively inhibited the large-scale expansion of production. In 2016, the output of tungsten concentrate was 124100 tons, down 3.87% year on year, effectively boosting market confidence and stabilizing tungsten price.
Through the analysis of the monthly output and price of tungsten concentrate in 15-16 years, it can be seen that the output will shrink significantly and the price will rise significantly in the next month after holding the production reduction and price protection meeting, with an average increase of more than 11%.
Comparison of varieties electrolytic aluminum: significant effect of industrial capacity concentration combined with production reduction
The aluminum industry chain is similar to tungsten: Bauxite alumina electrolytic aluminum (primary aluminum) - aluminum processing recycled aluminum, the industry concentration is at a high level.
In 2012-2015, China's aluminum price continued to fall below the new low, the aluminum smelting industry continued to lose money, and half of the corporate capital was on the verge of collapse. At the end of the road, domestic electrolytic aluminum enterprises began to reduce production. In that year, the total capacity of electrolytic aluminum was 38.94 million tons, and the total capacity of electrolytic aluminum shut down was 8.15 million tons (accounting for 21%). As the restart cost of electrolytic aluminum production capacity is very high and the possibility of restart is very small once the production is stopped, the reduction in production will substantially reduce the supply of electrolytic aluminum in a large range. The measures of production reduction and price protection strongly promote the aluminum price to rise from 9965 yuan / ton to 13680 yuan / ton.
We believe that the current situation of tungsten market is similar to that of electrolytic aluminum in 2015: the industry falls below the average cost line, the willingness to reduce production and protect prices is strong, and the concentration of production capacity of enterprises reducing production is high. Therefore, with the continuous consumption of tungsten stock, the industry is expected to pick up.
