Guosheng Securities: Total control indicators show a year-on-year decline, while a tight supply of raw materials is driving up the price of tungsten.

Guosheng Securities released a research report stating that in the current situation where the "tight resource and weak demand recovery" pattern has not clearly reversed, resource products will still dominate the industry chain profits. Companies with resource advantages will fully benefit from the excess profits brought by the tight resource supply. At the same time, the high-end deep processing of domestic tungsten products and the trend of domestic substitution are evident. Companies with high-end processing capabilities are expected to benefit from the additional gains in back-end processes. Overall, companies with both resource security and deep processing capabilities are expected to fully benefit from the tungsten industry's business cycle. Event: On April 21st, the Ministry of Natural Resources issued the first batch of tungsten ore (WO3 65%) mining total control indicators for 2025 at 58,000 tons, compared to 62,000 tons in the same period last year, a decrease of 6.5%. In terms of structure, the main reduction in this year's first batch of indicators comes from Jiangxi (-2,370 tons), Yunnan (-400 tons), and Heilongjiang (340 tons). Some regions like Heilongjiang, Hubei, Zhejiang, etc., did not issue total control indicators. Guosheng Securities' main points are as follows: Tightening total control indicators; scarcity of resources drives the rise in tungsten prices With the year-on-year decline in the first batch of total control indicators this year, it is partly due to the clearance of indicators for some old mines that have stopped production, and partly due to the smoothing of annual indicators. Last year, the first and second batches were respectively 62,000 tons and 52,000 tons, totaling 114,000 tons for the whole year. This year may adjust the distribution of indicators based on the actual production situation last year, and the difference in the levels of the two batches of indicators is trending narrower. If the annualized first batch of indicators for this year, the total annual indicators will reach 116,000 tons, an increase of 1.8% year-on-year, slightly lower than the compound growth rate of 2.1% in the past five years. However, considering historical precedents, the second batch of indicators in the second half of the year is usually lower than the first batch, and this year's actual annual indicators are expected to remain flat or decrease compared to last year. In the long term, since 2018, the total control indicators for tungsten concentrate mining have shown a steady upward trend, but at the same time, major producing areas nationwide have strengthened their crackdown on illegal mining activities such as theft, unauthorized mining, and unlicensed mining since 2016, which has been effective. Combined with natural resource depletion and indicator growth, the over-mining rate of domestic tungsten mines has decreased from 155% in 2015 to 114% in 2024. Overall, since reaching its peak in 2015, domestic tungsten mine supply has long faced growth bottlenecks, with scarcity of resources driving the rise in tungsten prices. March exports: With the implementation of export controls, the export of dual-use tungsten products plummeted On February 4th, the Ministry of Commerce issued an export control on tungsten, tellurium, bismuth, molybdenum, and indium-related items. The specific tungsten-controlled items include: APT, tungsten oxide, tungsten carbide, tungsten-copper alloy, tungsten-silver alloy, high-density, high-strength tungsten-nickel/iron/copper alloys, and related technologies. During March, tungsten product exports reached 502 tons, a year-on-year decrease of 63%. In the first quarter of 2025, the cumulative export of tungsten products (excluding cutting tools) was 2,571 tons, a year-on-year decrease of 25%. The newly added controlled items such as tungsten carbide, tungsten oxide, and APT powders saw a sharp drop in export volume to 0, while the export volume of tungsten rods, tungsten bars, and other hard alloys decreased significantly month-on-month. Tungsten powder, which was already a controlled item, was not significantly impacted by this round of export controls, and there was an increase in export volume year-on-year in the first quarter of 2025. Ammonium paratungstate has not yet been subject to export controls and is mainly exported to the United States, with a significant increase in export volume in the first quarter of 2025 possibly due to the rush to export before US tariffs took effect. The scarcity of ore constitutes the main logic for the central upward movement of tungsten prices. In the short term, attention should be paid to changes in US tariff policy and the smooth running of the export control process Global tungsten resource supply bottlenecks began in 2016. During this period, despite the downward pressure on tungsten prices due to trade frictions, epidemic disruptions, and pan-Asian inventory disturbances, from a long-term perspective, the tungsten industry chain traded "time" for "space," fully absorbing the slowdown in demand and the excess inventories in Asia. Tungsten pricing logic has shifted from a "demand narrative" to a "supply narrative," leading to the longest uptrend in nearly 20 years. Under this paradigm shift, tungsten industry chain profits are shifting to the resource end, manifesting as an uptrend period, with tungsten concentrate prices showing greater strength compared to middle and downstream smelting products and discount factors rising. With "real-name" conditions in the supply side, the short-term elasticity of tungsten prices may come from changes in US tariff policies and the smooth running of the export control process. On April 23rd, Trump signaled a relaxation of tensions with China, with the view that US tariff disturbances may marginally slow down, leading to potential improvements in tungsten product consumption. On the other hand, the domestic export control process has not fully taken effect yet, with a sharp drop in the export volume of major items such as tungsten carbide suppressing demand for tungsten products. Referring to previous export control processes for germanium, gallium, and antimony, a general signal of a turning point is when the export of controlled items drops to zero, which stimulates an increase in domestic prices. Specifically for tungsten products, due to disruptions caused by US tariffs in early April, the approval process for controlled tungsten items has been delayed, and the process of resuming exports may be postponed, with attention needed for the progress in May. Risk alerts: Increased risk of tungsten supply, geopolitical risk, manufacturing growth below expectations, risk of calculation errors.