EB SECURITIES: Tungsten prices expected to continue high, with upstream mining companies benefiting.

EB SECURITIES released a research report stating that in the future, China's tungsten concentrate supply will continue to tighten, with a stable demand base and growth points in military and photovoltaic industries. The future tight supply-demand balance of tungsten is expected to continue, coupled with the rising cost of tungsten concentrate mining. Although there may be some price corrections in tungsten concentrate, the bank still predicts that the price of tungsten will operate at a high level in 2026-2027. Tungsten-related listed companies are expected to benefit. The main views of EB SECURITIES are as follows: Tungsten: China has a dominant advantage in the production of this metal, but the concentration is relatively low. Tungsten is a dominant resource in China. In 2023, China's tungsten concentrate production accounted for 80.77% of the global total, and reserves accounted for 52.27%, ranking first in the world. Tungsten, along with rare earths, is currently the only metal mineral under total mining volume control in China. Compared to rare earths, another major characteristic of tungsten is its relatively low concentration: in 2024, the CR4 of China's tungsten mines was only 43.94%, and the CR6 was only 55.87%. The industry concentration urgently needs to be improved. Low industry concentration means that small tungsten mining enterprises are widespread, making it easier to see illegal mining or over-mining of tungsten. In the future, China's tungsten concentrate supply will continue to tighten, with three reasons: 1. China continues to implement control and quota system for tungsten mining. The quota for the first batch of tungsten mines in 2025 decreased by 6.45% year-on-year, and in the long term, the quota is expected to slow down. 2. Excessive mining of tungsten in China continues to decline. In 2015, the proportion of excessive mining of tungsten in China was 35.78%, which decreased to 12.63% in 2024. 3. Tungsten mining in China has been going on for over 100 years, and tungsten resource grade has been decreasing year by year. The average grade of tungsten ore processed in the country has decreased from 0.42% in 2004 to 0.28% in 2016. On the demand side, the hard alloy base is stable, with growth points in military and photovoltaic industries. In 2024, China's tungsten demand breakdown: hard alloys (58.51%), tungsten materials (22.61%), tungsten special steels (15.05%), tungsten chemical industry (3.83%). The demand for hard alloys has been steadily growing in recent years. Against the backdrop of continued small-scale armed conflicts globally and continuous increase in military expenditures in major countries, the demand for tungsten in military industries will continue to grow. Photovoltaic tungsten wire belongs to tungsten materials, with a small amount but fast growth. The short-term rise in tungsten prices will lead to the substitution of a small amount of tungsten products. Substitutes for hard alloy cutting tools include high-speed steel, superhard materials, and ceramics, and substitutes for photovoltaic tungsten wire include steel wire. At the hard alloy end, with the accelerated digitization of machine tools in the future and more rational management and use of cutting tools by enterprises, the position of hard alloys in the cutting tool industry will be very stable; at the photovoltaic tungsten wire end, with the gradual recovery of silicon material prices, the cost-effectiveness of tungsten wire diamond line will gradually be reflected, and the affected demand will also be restored. Overall, this round of tungsten price increases will only have a small impact on tungsten demand in the short term. The supply-demand balance sheet for tungsten: the future tight balance pattern will continue. The bank has separately calculated the supply-demand balance of tungsten metal in China and globally in the coming years, and it is expected that both China and the world will be in a slightly tight balance pattern. The supply-demand gap of tungsten in China in 2025/2026/2027 is estimated to account for -3.78%/-4.61%/-1.46% of the total demand in that year, and the global supply-demand gap of tungsten in 2025/2026/2027 is estimated to account for -3.11%/-3.78%/-1.48% of the total demand in that year. Coupled with the rising mining costs due to increasing environmental pressures, the bank believes that the price of tungsten will operate at a high level. Risk warning: Risks of fluctuations in tungsten prices; risks of additional tungsten supply; risks of downstream hard alloy products being substituted, and photovoltaic tungsten wire promotion falling short of expectations; risks of theoretical calculations not matching reality, etc.