Tungsten Prices Surge 557% as China Export Limits Tighten Global Supply

Tungsten prices have surged 557% since China placed certain tungsten products on export controls, trading above $2,250 per metric ton unit and more than doubling year-to-date. China supplied roughly 79% of global output (85,000 MT) last year while shipments of restricted tungsten fell ~40%, tightening global supply as buyers deplete stockpiles. Defense-related consumption could rise ~12% this year per Project Blue, heightening competition for a relatively small ~$16bn market and increasing price volatility. Miners are responding — Almonty began South Korea production in December and is pursuing a potential US mine, with US authorities reportedly contacting the company about immediate material availability.

Analysis

The market is behaving like a highly concentrated industrial metal with inelastic short-term supply and lumpy, long lead-time new capacity. That combination amplifies inventory-driven rallies: front-loaded procurement by militaries and manufacturers can double demand volatility within a single fiscal quarter while new primary supply typically requires multiple years to permit, finance and ramp.

Second-order winners include non-Chinese tungsten producers and any midstream powder/conversion businesses that can scale exports into Western defense chains quickly; losers are narrow-margin manufacturers that cannot pass through rapidly rising input costs and specialty fabricators facing long qualification cycles. Expect increased activity in recycling, trade-arbitrage routes, and government-backed financing/fast-tracking of domestic projects — each can blunt price pressure but faces regulatory, environmental and time-to-market constraints.

Key catalysts and risks cluster across three horizons: days–weeks (spot shipment bottlenecks, export reclassifications or opportunistic Chinese shipment surges), months (inventory digestion and tactical substitution/recycling uptake), and years (new mines and processing capacity). Reversals will come from diplomatic or regulatory changes that restore opaque but large-volume supply flows, successful inventory builds by major end‑users, or rapid substitution/recycling breakthroughs; the largest tail risk is covert re-exporting and data opacity masking true flows, which would keep prices elevated and volatility high.

Key Decisions for Investors

• Long AII.TO (1–2% NAV, 12–18 month horizon): establish a core position in Almonty to capture outsized cashflows if Western sourcing contracts accelerate. Use staggered buys to average into potential regulatory/permits news; set tactical stop at -35% to limit execution/permitting risk. Reward scenario: 2–3x equity upside if they secure medium-term offtake and higher-for-longer prices.
• Long AII.TO Jan 2028 LEAP call spread (buy OTM call, sell higher-strike call): lowers upfront premium while preserving asymmetric upside tied to project execution and contract wins. Position size 0.5–1% NAV; max loss = premium, upside capped but >3x intrinsic leverage vs equity.
• Pair trade: long AII.TO / short KMT (Kennametal) equal notional (3–9 month horizon): captures divergence between a potential upstream price taker and a downstream tooling manufacturer with margin squeeze risk. Rationale: Kennametal faces margin compression if cost passthrough is slow; hedge overall metal-price beta while isolating execution arbitrage. Trim/exit if KMT announces aggressive price passthrough or AII fails permitting announcements.
• Maintain a 0.5–1% NAV tactical cash allocation to buy physical powder or forward contracts via trusted counterparties if access available (weeks–months): direct procurement hedges production exposure for downstream strategies and provides optionality to sell into peaks. Operational risk: counterparty and certification; cap exposure to working-capital limits.