The rising tungsten price is a major concern for oil drillers.
U.S. shale drilling companies are paying higher prices for tungsten. This rare metal is used in industrial tools such as drill bits. Chinese export controls have slowed down the supply of tungsten. This threatens President Donald Trump's plans to increase America's fossil-fuel production. Tungsten is used in up to 75% of drill bits deployed in oilfields. The price of the metal has risen to more than $600 per unit metric ton from $330-$340 early in February. This was after Trump imposed 10% tariffs on Chinese goods, and Beijing responded by curbing exports of critical metals including tungsten. The curbs are not an outright ban but they have had a significant impact on exports in the past.
According to the U.S. Geological Survey (USGS), China controls over two-thirds global tungsten supply. Industry experts say it is difficult to replace this supply.
According to Yaseer ISmail, supply-chain manager of supply-chain management firm Scan Global Logistics, drill bits with polycrystalline diamond compacts (PDCs) now cost between $3,000 and $25,000 more.
Ismail stated that PDC drill bits were highly prized for their resistance to abrasion in oilfields. On its website, SLB, a leading U.S. service provider, calls them the "workhorse" of the oilfield.
WHEN IT RAINS, IT POURS Tungsten prices highlight an unexpected result of Trump's policy, despite his promises to boost the energy industry.
Ben Dieterich is a spokesperson from the U.S. Department of Energy. He said that the Department gave a grant to Melt Technologies in Texas, which reclaims metals for industrial use and recycles them. The grant was to fund a pilot plant to produce tungsten-carbide products.
He said that the grant, which was made during the last days of the former president Joe Biden's administration, would result in greater savings for the consumers. The DOE didn't immediately respond to an inquiry about whether the grant was made during the Biden Administration.
The American Exploration & Production Council (which represents U.S. producers of energy) declined to comment.
Since Beijing's retaliation Trump has increased tariffs on Chinese imports and levied duties on other items commonly used in oilfields like steel.
There are also challenges for the industry.
Oversupply
After OPEC+
On Sunday, the decision was made to increase output.
After years of cuts. U.S. producers of oil have reduced drilling activity because commodity prices are declining, even though output reached record levels in July, according to the most recent government data.
Mark Chapman is the lead OFS analyst for Enverus Intelligence. He said that oilfield service providers are likely to absorb U.S. Tariff costs rather than pass them on. In their second-quarter reports, these companies warned that steel tariffs could reduce margins by up to 50 basis points. Chapman added that the soaring tungsten prices will have a similar impact. SLB announced in July that it would be taking the hit during the second half of this year after reporting sharply lower earnings for the second quarter compared to a year earlier. Days later, the smaller competitor Halliburton posted a huge drop in its second-quarter profit and warned that revenue would decline for the full year, citing soft demand.
Brent crude futures, the global benchmark for crude oil, were trading at less than $65 per barrel on Tuesday. This is a decline of over 12% this year.
Samantha Hoh is a senior analyst in clean technology at HSBC. She said that while the industry could generally pass on higher costs to consumers, it was difficult to do when there were flat or lower levels of activity. This was made even more difficult by anticipated pressures on commodity prices. (Reporting from Anushree Khan in New York and Shariq Mukherjee, in Bengaluru; Additional reporting by Timothy Gardner, in Washington; Editing and review by Liz Hampton and Richard Chang.)
(source: Reuters)