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China's limited impact on raw material prices, optimistic about the future development of tungsten industry

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The French "Le Monde" published an article co-written by the Asian Development Bank's economic adviser Abdul Abyad and the bank's chief economist Wei Shangjin on April 7, entitled "China's role in the decline in raw materials is limited". The article said that China's current economic slowdown undoubtedly has a great impact on the global economy. But its role in the fall in raw material prices is more limited than is commonly claimed.

There is indeed a clear correlation between China's economic growth and raw material prices. At the beginning of 2000, when China's economic growth accelerated, the price of raw materials also rose sharply. By 2011, when China's economic growth began to slow, energy prices had fallen by 70 per cent, metals by 50 per cent and agricultural raw materials by 35 per cent.

However, as a new study conducted by the Asian Development Bank confirms, although China plays an important role in the raw material market (such as it represents about half of global consumption of metals, coal and pork), it is far less dominant than one might think. It accounts for less than a fifth of global consumption of sugar, wheat, poultry and beef, 12% of crude oil consumption and 5% of natural gas. In fact, the raw materials that have seen a sharp drop in prices, mainly oil (-73%) and natural gas (-55%), are raw materials that China has relatively little impact on.

In addition, China's real consumption is weaker than the various figures make people think. Traditional assessments do not take into account international production chains, but only take into account a country's total production and its imports, which in turn determine its level of consumption. But for China, a large proportion of the products it "consumes" are actually used to produce export goods. For example, nearly a third of China's demand for metals is used to meet foreign demand. Deducting the raw materials used in China's exports of manufactured goods could greatly weaken China's apparent role in this market. A look at price fluctuations further confirms this view. In the case of copper, for example, from 2001 to 2006, its price changed greatly, falling by 30 per cent and then rising by 150 per cent, depending on the year, while the growth of industrial production and demand for copper in China remained relatively stable, at about 15 per cent and 20 per cent, respectively. In addition, the price of tungsten has also fluctuated sharply in recent years. First, it continued to rise, and then the price fell rapidly in 2015 and 16 years. In recent years, China's tungsten industry has been relatively stable in terms of national macro policies and market product delivery, and even through production reduction and national purchasing and storage to stimulate the market recovery. Obviously, not only does China's economic growth affect the development of the industry, but other factors related to global supply and demand, speculative demand and inventory adjustment also play an important role in price changes.

The change in China's economic situation is hardly catastrophic for raw material exporters. Even if, as many fear, China's economic growth will slow further, its impact on raw material prices will be limited. Demand in other emerging powers such as India and Indonesia will accelerate in the coming years. If the economies of other emerging economies in Asia continue to grow solidly over the next 10 years, demand for raw materials will be at least as strong as China's during the period of rapid economic growth. The prospects for a recovery in raw material prices seem promising.

In this context, we are optimistic about the future development of the tungsten industry. The rebound in raw material prices will drive up the price of tungsten concentrate. In addition, it is widely rumored that the third national tungsten concentrate collection and storage activity will be launched recently, which will directly stimulate the price of downstream tungsten products. Ganzhou Tungsten Association issued the April tungsten forecast average price, and continued to be optimistic about the tungsten market. It is expected that the price of tungsten will rise steadily in the later period.