The Tungsten Market Is Warning of an Upcoming War

Tungsten functions as a century-old prediction market for war because real investment flows into it when conflict becomes a credible prospect. Traders maintain contact with military material companies that receive the first large orders when war is genuinely anticipated, giving the market an early-warning quality that more liquid commodity markets lack. The Australian mine David Fickling visited illustrates this pattern precisely, opening in 1917, closing after World War One, reopening before World War Two, being rescued by the Korean War, and finally shutting in 1990 when it flooded. That mine, the Dolphin Mine in Tasmania, remained inactive for most of three decades before restarting, and its history tracks almost every major 20th-century conflict.

Tungsten's military value comes from a melting point above 3000 degrees Celsius and a density roughly equal to gold. These properties make it effective for armor-piercing projectiles that maintain their shape on impact rather than mushrooming, and tungsten pellets used in cluster munitions create a metal rain more lethal than steel equivalents. Demand has risen partly because of higher-than-anticipated consumption of cruise missiles and shrapnel used against drones. The war in Ukraine, now four years old and resembling large-scale 20th-century attritional battlefields, has revived strategic interest in the metal. Tungsten is most valuable in wars of attrition rather than rapid technology-dominant conflicts, and a potential Taiwan conflict against China is not expected to be as one-sided as the 1991 campaign against Iraq.

China produces 80 percent of the world's tungsten supply, a dominance that is partly geological since China holds the highest-grade and most abundant deposits. China currently has export controls on tungsten, which the Chinese government frames as reorganizing an underperforming aging industry, though observers attribute the controls primarily to geopolitics. Those controls drove prices from approximately 300 dollars per dry metric ton unit around 2022 to over 3000 dollars, implying an effective price of roughly 400,000 dollars per ton of tungsten at the higher end. North Korea and Russia together supply another 5 percent of global output, meaning roughly 85 percent of supply comes from countries currently adversarial to Western interests.

There is no futures market for tungsten, which makes financing mines outside China extremely difficult because revenues cannot be hedged and banks will not lend without a forward curve. The Dolphin Mine in Tasmania has virtually no bank financing and is capitalized almost entirely through equity from shareholders including Red Bull, Peabody Energy, a former Caterpillar dealer, the Tasmanian state government, and equipment leasing companies that took equity in lieu of unpaid bills. Total equity invested over roughly 20 years is approximately 77 million Australian dollars against a current equity valuation of approximately 7 million Australian dollars. If operational, the mine could supply about two and a half percent of the global market, representing roughly one sixth of the free-world tungsten supply.

A key risk investors face is that China could flood the market and suppress prices to bankrupt new entrants, as Allied governments did after World War One when they sold off tungsten stockpiles and collapsed prices, forcing the Tasmanian mine to shut in 1920. If every country simultaneously builds out tungsten capacity without a definitive buyer of last resort, the market could become oversupplied. This simultaneous multi-country strategic spending is marginally inflationary, and when combined with reduced free trade driven by security anxiety, the replication of strategic infrastructure across geographies creates a double negative economic effect.

The US has established Project Vault, a 12 billion dollar plan to build a reserve of critical minerals modeled on the strategic petroleum reserve. A floor price mechanism has been discussed, with a medium-term price security window of three to five years considered necessary so that miners can borrow against guaranteed prices and justify capital investment. However, the criteria for inclusion in the reserve are not clearly defined, creating a risk that it becomes a vehicle for hedging price risk on common commodities. Copper, nickel, aluminium, and metallurgical coal could end up included because industry wants government-backed price security, while minerals with a real strategic case such as tungsten, rare earths, gallium, and germanium may not receive focused attention. When China cut off Japan's rare earth and tungsten supply, Japan sourced recycled and scrap material with reasonable success, but if China stopped exporting tungsten to the entire world simultaneously, scrap supply would likely be insufficient to replace that volume, making the Japan precedent an imperfect model for a broader disruption.