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 drillbits. 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 when Trump first imposed tariffs on Chinese products. Beijing responded by imposing a ban on five metals including tungsten.

Exports have been severely curtailed by previous measures, even though the restrictions do not amount to an outright prohibition.

According to the U.S. Geological Survey (USGS), China controls over two-thirds global tungsten supply. This makes it difficult for other countries to replace this supply. Yaseer ISmail, an oilfield services executive, and supply chain expert, explained that polycrystalline diamond compact drill bits (PDC), which are typically priced between $20,000 and $100,000, depending on the size, design, and other factors, cost $3,000 to $25,000.

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

The tungsten costs are an unexpected result of Trump's policy, despite the promises he made during his campaign to boost the energy industry.

Ben Dieterich is a spokesperson from the U.S. Department of Energy. He said that the department has given a grant to Melt Technologies in Texas, which reclaims industrial metals and recycles them. The grant will be used to fund the pilot plant to produce tungsten-carbide products. He said that the grant, which was made during the last days of former president Joe Biden's administration, would result in greater savings for the consumers. DOE didn't immediately comment on whether the grant was made during Biden's administration. Trump has increased tariffs on Chinese imports since Beijing's response. He also imposed duties on steel and other products used in oilfields. After OPEC+ decided on Sunday to increase output again after years of reductions, the industry is also facing a possible oversupply. According to the latest data from the government, U.S. producers of oil have reduced drilling activities due to falling commodity prices after production reached record levels in July. The number of oil rigs in the United States, a good indicator for future production, dropped by two to 422 last week, according to data from Baker Hughes. Last year at this time, the oil-rig count was 479.

The OFS Companies have warned of HIT

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.

Chapman noted that these companies warned in their earnings reports for the second quarter of this year that steel tariffs could reduce margins by up to 50 basis points. The rising tungsten prices will also likely have an impact on financial results, he said. 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, Halliburton, a smaller competitor, also reported a significant drop in its second-quarter profit and warned that revenue would decline for the full year, citing soft demand. Brent crude oil traded at $66 per barrel on Tuesday. This is down more than 10% 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 is especially true given the 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)