Company note: MNS — Tungsten turns to gold? Probably not…
03/06/2019 - 08:39
Target price: 93,000
- The market seems to believe that tungsten is a rare earth metal.
- China represents 70% of global tungsten production, and could use the metal as a bargaining chip.
“Don’t say we didn’t warn you”. China dominates the world’s tungsten production with over 80% market share, and Chinese tungsten accounts for 43% of US tungsten imports, according to Flexport data. Whether tungsten supply is a component of China’s warning remains unclear.
Is tungsten even a rare earth metal? According to our informal survey, investors appear to consider tungsten to be a rare earth metal. But The International Union of Pure and Applied Chemistry (IUPAC) and CRC Handbook of Chemistry and Physics do not include tungsten on their list of 17 rare earth elements.
We can’t rule out China using tungsten as a bargaining chip, rare earth or not. Tungsten accounts for 60% of MSR’s sales and 30% of profits. The table below summarizes the sensitivities to MSN’s earnings and fair value if tungsten prices rise in 2020-21E. However, we aren’t metals experts but our understanding is that any potential supply-demand mismatch would not likely persist for very long. So our sense is that last week’s share price excitement for MSR may have been overdone.
Please access the link for our complete report: MSN_Tungsten price sensitivities
Analyst: Quang Vo, email@example.com