“Western industrialised countries need a plan B for raw materials”

Tungsten is indispensable for many applications in the military, e-mobility, as well as for chip and hydrogen technology. However, about ninety percent of the world's tungsten supply now comes from China, Russia, and North Korea - given the geopolitical tensions, this dependency is extremely risky. But how did this situation arise and what can industrial companies learn from it?

Tungsten: Unique for armaments, batteries, and semiconductors

Since the Chinese central government announced export restrictions for tungsten at the beginning of February, market nervousness has been growing. Although the unique element is still available to buyers, the world is heading towards a shortage. Market observers like Merchant Research and Consulting have already considered a supply gap for tungsten from 2025 possible in 2024, and thus before Donald Trump takes office. That this will happen in the near future is more likely than ever today. The billion-dollar investments in armaments and the associated developments are likely to drive demand for tungsten.

Over the years, China has worked its way to dominance in the tungsten market - thanks to low costs and a long-term strategy of the central government in Beijing. Even processing plants are scarce in the USA and Europe today. Back in the early 1970s, before China's raw material strategy, there were around one hundred tungsten mines worldwide. The raw material was expensive but available worldwide. Today, there is no way around China, which has gradually displaced foreign competition with low prices.

Given the fact that the element with the highest melting point and a density similar to that of gold cannot be replaced in many areas, this is worrying. Western industrialised countries have no plan B for the supply of a metal for which there are no alternatives in defence, the chip industry, or modern high-performance batteries (niobium-tungsten batteries).

Yesterday dumping prices, today vulnerable to blackmail

A counterbalance to Chinese producers will be formed from the summer of this year by the Sangdong mine in South Korea, which will extract 2,300 tonnes of tungsten annually in an initial production phase. From the end of 2026, the production capacity is expected to increase to 4,600 tonnes. The project, financed by the Kreditanstalt für Wiederaufbau (KfW), would then produce around five per cent of the total tungsten supply and make a significant contribution to supply security.

There are already partnerships with the Austrian Plansee Group, which has concluded a purchase agreement with a term of fifteen years and guarantees mine operator Almonty Industries a fixed price floor without an upper limit. Plansee recognised the special situation on the tungsten market early on and also participated as a strategic investor in Almonty Industries, which has been mining tungsten in Portugal for years.

Such foresight is generally recommended for buyers of critical raw materials. Especially when industrial companies, as is often the case with tungsten, do not require large quantities, but production comes to a complete standstill without the unique element. I compare the situation of many industrial companies to a baker who urgently relies on yeast for his daily work, but the cost of this yeast is incidental: it would be worthwhile to pay double the price for this essential ingredient if, in return, supply security were guaranteed.

Western industrial companies have ignored China's dominant market position and the resulting fragmentation of producers for many years and have even rejoiced over dumping prices. Today it is clear: if the world market is heavily dependent on a few suppliers, counterbalances must be created. This recommendation applies even more to elements that have long been the subject of geopolitical rivalries and can serve as leverage.

Critical Raw Materials Act of the EU: 'First steps in the right direction'

But what can buyers do today to avoid ending up like a baker who has to close his business due to a lack of yeast? The key to a stable supply of critical elements lies in balanced purchase agreements that, on the one hand, secure existing production and open up potential for additional capacities. Almonty Industries has succeeded in securing such purchase conditions and thus being a reliable partner for buyers from a stable jurisdiction.

The era of price competition is over not only in the tungsten market - buyers must understand that the 'race to the bottom' carries more risks in the long term than it brings benefits in the short term. This is exactly what the Korean steel company SAeH Holdings has realised, securing 100% of the molybdenum from future Korean production, which could potentially last 60 years. For SAeH Holdings, it was crucial to be reliably and independently supplied with molybdenum - our production facility in South Korea guarantees just that.

A proven method to guard against short-term shortages of raw materials or semi-finished products has always been storage. While critical raw materials are more heavily stocked in other parts of the world, such as Japan, the USA, China, and South Korea, the European Union (EU) has only recently pushed for more storage with the Critical Raw Materials Act and currently only regulates that stocks of critical elements must be better documented than before - further details are still pending.

Whether the EU can optimise its previously rather sluggish processes around the supply of critical raw materials and when this will succeed remains open. Until then, companies themselves are responsible. Since it can sometimes be costly to stockpile raw materials, the challenges for European industrial companies are significant.

Geopolitically volatile times require foresight

To secure the long-term supply of important raw materials and basic materials, purchasers from industrial companies should carefully analyse the markets relevant to them. If the supply is heavily concentrated on the side of a few economies, action is required. Especially in geopolitically volatile times, there is always the risk that exports will be regulated or tariffs will significantly increase the cost of goods.

For this reason, industrial companies would do well to rely on partners from secure jurisdictions and to prioritise secure supply when negotiating purchase agreements. The example of tungsten shows how quickly demand for certain elements can change - new conflicts, as well as innovative technologies that are becoming market-ready faster than ever today, can destroy a balance of supply and demand that has existed for years within a few weeks.