Tungsten exists in a sweet spot where an export ban would hurt the US more than China. Here’s the condensed thesis.
A semi-secret critical minerals trade war that has been raging between China and the west for at least two decades — and China is winning.
There are several excellent reasons for this, including the Chinese mindset for long-term strategy, the Chinese understanding that supply is more important than price, and the fact that the bull-bear cycle makes investing in future-proofing supply essentially impossible for western companies beholden to shareholders addicted to quarterly reports and outsized dividends.
Now tensions between the US and China are rising, and fast. It’s getting to the point where listing the grievances is getting a bit time-consuming:
- regulatory problems over US-listed Chinese tech stocks
- disputes over the origins of covid-19
- arguments over a potential BRICS reserve currency.
- a possible TikTok ban in the US
- tensions over Ukraine
- tensions over Israel
- tensions over Taiwan
- spy balloons
- bans on certain semiconductor exports from the US to China
- bans on the export of certain critical minerals from China to the US
- the Huawei ban in the US
- the iPhone ban for government employees in China
- the contested Aukus pact for Australian nuclear submarines….
The list is both endless and growing.
Of course, heavily massaged Chinese economic data appears reasonably upbeat. State stimulus saw the country’s GDP grow by 4.9% in July-September compared to a year earlier. But fears for the country’s real estate sector — which accounts for as much as 30% of GDP — are rising.
This impending catastrophe has been looming ever since Evergrande halted production on some projects in August 2021 due to overdue payments. Fellow real estate titan Country Garden is also now in parallel financial problems.
Putin’s recent meeting with ‘dear friend’ Xi in China highlights the geopolitical tensions — and given that sources are reporting the Russian President’s heart may be giving out — more tensions could erupt soon.
Critical Minerals export restrictions
On 1 August, China decided to introduce some export controls on eight gallium and six germanium products — key elements used to make semiconductors. While citing national security reasons, in reality this was just a tit-for-tat exchange with the US, which is continuing to restrict semiconductor exports to China.
In recent days, China has also strictly curbed exports of graphite — the country mined 850,000 tons of natural graphite in 2022 representing circa two-thirds of global production. It also processed most of the world’s battery-grade spherical graphite. The US doesn’t mine or export any, instead relying on China for a third of its imports.
I made the case for ex-China graphite small caps at the start of the year — with my top pick remaining Blencowe Resources for its advances over the course of 2023. There’s a reason why BRES has managed to secure a $5 million slice of US government funding, and I’m certain more will be in the pipeline.
Then there’s GreenRoc, which remains a solid microcap pick despite the underperformance this year, and MARU (which is multi-commodity). Tirupati has disappointed — but at some point soon I expect the market will wake up to the fact that global graphite supplies are now severely constricted. If you fancy some risk, I expect some excellent RNSs in the near future. Average down.
Of course, these types of export restrictions are nothing new: China had export restrictions on various minerals up until around 2014 when the country was forced to divest its position through the World Trade Organization ruling that they were inconsistent with the state’s international obligations.
One metal that was highlighted at the time was tungsten, which was subject to export controls until 2015-16. It is my belief that tungsten will soon face new export controls.
The metal is important for various applications, including as catalysts and for military-based penetrating projectiles and turbines. This is because it’s incredibly hard and dense, at 19.3g/cm3 — comparable to uranium and gold. It also has the highest melting point of all known elements and the highest boiling point, at 5,930 degrees Celsius.
In the applications where it’s used, it’s essentially irreplaceable — remember how lithium cannot be fully replaced because it’s both the lightest and most ductile metal? Tungsten also has unique qualities. Now, China is unlikely to ban lithium exports, even though it has a similarly powerful position in the global export markets. That’s because it’s economy — 30% of which relies on the real estate sector — is in big trouble. Evergrande and Country Garden both remain on the verge of collapse and increasing state intervention cannot undo the self-inflicted damage of the pandemic-era lockdowns.
Seriously — if you think western governments were draconian — have a quick Google.
China makes tons of money from selling lithium but could restrict some tungsten sales without doing too much economic damage to itself. And that’s the game; the US is stopping China from getting hold of enough advanced semiconductors to further develop its tech, so China wants to make it hard for the US to get the raw materials to build its own tech in the first place.
Tungsten exists in that sweet spot where restricting sales will hurt China but hurt the US far more. And from January 2026, the US Department of Defense is banning the import of Tungsten from China, as well as from Russia, North Korea, and Iran.
Given this, there’s a good chance both that China will act first and that the US will anticipate this by helping companies on US soil develop their own reserves.
The US has spent decades selling down its stockpiles of critical minerals, including tungsten, for the simple reason that it’s easier to sell an asset than collect or raise taxes. For context, the stockpile was worth circa $42 billion (inflation-adjusted) in 1952 and is now worth just $888 million today.
Congress expects the service responsible for maintaining the critical minerals stockpiles will become insolvent by FY25 — after selling off metals including a whopping 76 million pounds of tungsten ores and concentrates. The influential House Armed Services Committee is now planning to bolster these stockpiles and is asking for $253.5 million to get hold of additional minerals.
It might have problems though — China has spent decades cornering the critical minerals markets, and any attempt to bolster tungsten reserves will see China impose an export ban to make it more expensive to get these reserves from the other two countries the US gets the metal from — Canada and Mexico.
This is probably why Congress agreed to allocate $600 million from the recent $40 billion Ukraine aid legislation, specifically to further invoke the Defense Production Act to expand access to critical minerals. This builds on Biden’s executive order in 2022 which sought to improve US supply chains and identify risks — itself an improvement on a Trump-era executive order authorising grants and loans to procure critical minerals.
Indeed, several congressmen have made clear they view the strategic critical minerals reserve to be just as important as the strategic petroleum reserve which takes up all the headlines. This makes sense when you consider that the US plans for 50% of all cars sold in the country to be an EV by 2030 — and the massive subsidies for the sector within the Inflation Reduction Act.
Long-time readers both here and elsewhere will know that my top pick for this sector is Golden Metal Resources. The company’s flagship Pilot Mountain is widely considered to be the largest undeveloped Tungsten deposit in the US — it’s perfectly located in Nevada.
The company is actively pursuing government grant funding. I’ve covered the investment case both here and elsewhere — but the political reality means that funding is, in my view, all but inevitable.
This article has been prepared for information purposes only by Charles Archer. It does not constitute advice, and no party accepts any liability for either accuracy or for investing decisions made using the information provided.
Further, it is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.