Tungsten: A Hundred-Year Prediction Market for War

Magical-realist oil painting: an abandoned open-pit mine on a windswept southern island, flooded into a dark mirror reflecting a line of grey warships; a rusted mine headframe stands on the shore as wild grass bends in the wind

A state, however large, that loves war will perish;
a world, however calm, that forgets war is in danger.
—— Sima Fa (Chinese military classic, 4th century BC)

What this episode is about

Odd Lots is Bloomberg’s flagship finance podcast. Joe Weisenthal and Tracy Alloway specialise in the plumbing of the real economy — transformer lead times, port labour, uranium enrichment capacity — while everyone else talks about price moves.

This episode’s guest is David Fickling, a Bloomberg Opinion columnist based in Sydney, fresh off a reporting trip to a mine on an island off the coast of Tasmania. His opening line set up the whole hour:

You can look at tungsten as a sort of century-old prediction market for war.

Original episode (worth your 44 minutes): The Tungsten Market Is Warning of an Upcoming War

The notes I took

A mine that switches on and off with the century. It opened in 1917 during the First World War. It closed when the war ended — European governments dumped their strategic stockpiles and the price collapsed. It reopened in 1938, just ahead of the next war. It struggled afterwards, was more or less rescued by Korea, nearly died around the time Sputnik went up, limped through Vietnam, and finally shut in 1990 as the Cold War ended. The pit flooded. It sat ignored for three decades. It is now restarting.

Why tungsten. It is about as dense as gold, and it melts above 3,000°C — roughly three times the temperature of lava, and it’s still solid. Put those two properties together and you have the ideal armour-piercing projectile: instead of mushrooming on impact and dissipating its force the way most metals do, it holds its shape and goes through. Cluster munitions use it as small pellets that burst into a kind of metal rain. When war looks likely, buyers will pay almost anything for those properties.

But 80% of tungsten is boring. The dominant use is tungsten carbide: drill bits, cutting tools, dies. Auto shops, mines, oil wells — anywhere you need to cut something hard. A little goes into turbine blades (up to 10% of the alloy, relevant to gas turbines powering data centres, and to LNG compressors), and a vanishingly small amount into chipmaking.

The Nazi decision. The detail I can’t stop thinking about: late in the war, Germany was running short of tungsten, so to conserve it for weapons they stopped using it for tooling. Allied soldiers who later captured German tanks reported the machining was terrible — gears out of true, equipment poorly made — because without tungsten carbide tools, precision collapsed. They saved the metal at the sharp end and lost the ability to sharpen anything.

China supplies 80%, and it isn’t only policy. Fickling was careful here: China’s dominance is largely geological endowment, in the same way South Africa and Botswana have the best diamonds, Russia and South Africa the platinum group metals, Australia and Brazil the best iron ore. Chinese tungsten deposits are the highest grade and the most plentiful, and they have dominated global supply since the turn of the 20th century. North Korea and Russia supply another 5%. Everyone else is fighting over the remaining 15%.

There is no futures market. For my money this was the most important part of the episode. Tungsten has no forward curve and nothing to hedge with. If you mine copper, you can lock in a price five years out on the LME, take that contract to a bank, and say: here are my costs, here are my revenues, this project is bankable. With tungsten you cannot. A plausible price ranges from roughly $300 to $3,000 per unit — both are defensible, because China can restrict or release supply at will — so no bank will lend against it. What blocks the mine is not geology. It is financial structure.

The prices. During the 2022 “tungsten cube” internet craze, the quote was around $300 per dry metric tonne unit. It is now above $3,000 — which works out to roughly $400,000 per tonne of tungsten. Joe bought one of those cubes at the time, misplaced it in a desk move, and spent the episode mourning it.

The sums are absurdly small. Total cash invested in that mine over twenty years: about $77 million — “what Amazon spends in about four hours,” as Fickling put it. If it runs, it supplies roughly 2.5% of the world market — but since China takes 80% and Russia and North Korea another 5%, that 2.5% is closer to one sixth of what Cold War commodity reports used to call the free world market. For comparison, a single THAAD interceptor costs about $10 million.

The shareholder register reads like a heist movie. A Red Bull heir (there is a long central-European interest in tungsten), distressed-debt investors, a Caterpillar dealer who worked at the mine in the 1960s, retired miners, equipment lessors who took equity in lieu of unpaid bills, and the state government of Tasmania, which had bailed it out. Almost no bank finance — see above.

The shape of war determines tungsten’s fate. After the 1991 Gulf War, the West rethought what wars would look like: if you can paralyse an enemy’s command infrastructure with technological superiority, you don’t need to stockpile for a war of attrition. Tungsten spent thirty years in the wilderness. Then Ukraine ground on for four years across a battlefield that looks like the twentieth century’s, and the next scenario being war-gamed involves the largest manufacturing power on the planet. Nobody assumes a 1991-style walkover any more.

China can crush the price whenever it likes. This is the real reason Western investors stay away. Today’s high prices are substantially driven by buyers front-running Chinese export controls. Lift the controls and that speculative demand evaporates, prices fall, and any miner whose economics depended on high prices goes under. There is precedent: after the First World War, allied governments liquidated their tungsten stockpiles and killed this very mine.

A fix, and the philosophical problem with it. Fickling’s prescription is a price floor — not forever, but a three-to-five year guarantee, long enough for miners to borrow against it. The problem is that “critical mineral” is an infinitely elastic category: copper, nickel, aluminium and metallurgical coal are already on the US list, and someone recently raised the alarm about citric acid (China controls 65–70%). His worry is that a $12bn strategic reserve programme ends up as price insurance for ordinary commodities rather than a national hedge on genuinely scarce ones. The list that actually matters is short: tungsten, rare earths, gallium, germanium.

The hosts’ closing point is the sober one. If every country builds its own critical-minerals supply chain at once, with no buyer of last resort at the end of it, the result is a glut — and in the meantime, all that duplicated, non-productive strategic spending is inflationary at the margin.

What I took away

1. My definition of “bottleneck” was too narrow.

When I look for bottlenecks in a supply chain, I look for technical ones: which layer can’t add capacity, which process only three firms can run, where physics binds. This episode handed me a category I didn’t have: some bottlenecks exist because the thing has no price curve.

Tungsten isn’t geologically scarce. The capital requirement is almost embarrassingly small. The technology is not the issue. What blocks it is that no futures market means no collateralisable future cash flow, which means no bank, which means no mine. It is a physical shortage produced entirely by financial structure.

Generalised, that gives me a new question to ask: when I decide some link “can’t add capacity,” is it that they can’t (physics, technology) or that nobody dares (financing)? Those two have completely different durations, different resolutions, and different beneficiaries. The first waits on a technical breakthrough. The second unlocks the moment someone agrees to be the guaranteed buyer — and that someone is usually a government.

2. Market share is not pricing power, and the sign is often backwards.

I wrote a version of this in my own notes a couple of months ago, looking at rare earths: China holds ~90% of the share and uses low prices to push Western projects out — which is exactly why US producers needed a Department of Defense price floor. This episode runs the same mechanism again with tungsten.

Worth writing down: “country X controls Y% of supply” is almost always deployed as a bullish argument — scarcity, price spikes, chokeholds. But the most common thing a dominant supplier actually does is drive the price down until your new mine dies. So the follow-up question isn’t “how much will it rise?” It’s “if they choose a price war, does this company survive, and who bails it out?”

3. The theme and the affected companies can point in opposite directions.

Eighty per cent of tungsten goes into carbide tooling. Which means the first people this price move actually hits are not defence primes — they’re the people buying drill bits: machine tool shops, die makers, and the manufacturers of the micro-drills used on printed circuit boards. There are listed companies in Taiwan doing exactly that, with tungsten steel as their input. For them, $300 to $3,000 is a cost problem, not a thematic tailwind.

This is the trap I keep reminding myself about: news reports a theme, but a theme lands on companies as winners and losers, and the easiest mistake is buying whichever ticker sits closest to the keyword.

4. The Nazi tungsten decision is a perfect parable about local optimisation.

Protect the weapons, cut the tooling. Every step is a defensible allocation of a scarce resource. The outcome is that the precision of your entire production system collapses and you can no longer build good weapons either.

I read it as a lesson about portfolio management: draining your cash, your discipline or your attention to defend one position looks like concentrating resources where they matter most. What actually gets consumed is your capacity to make decisions at all. You saved the tungsten at the sharp end and lost the grindstone.

5. On the line item called “insurance.”

The most pointed observation in the episode came from the hosts: these amounts are rounding errors against a defence budget, and still nobody wants to put them in a budget. In peacetime, keeping a loss-making mine alive always looks like waste — right up to the day you need it, and restarting takes thirty years.

The Tao Te Ching has a line for it: what is stable is easy to hold; what has not yet begun is easy to plan for. That holds for countries and for individuals. My own portfolio has line items like this — cash I’m not deploying, positions that dampen volatility without earning much, and the hours spent on verification and record-keeping. They share one property: until the day you need them, they look exactly like waste.

What I’ve been doing for the past six months is separating opinions from things that can actually be verified. This episode didn’t hand me a single stock. It handed me a hole in my own framework — I thought I was looking for bottlenecks, and I was only ever looking for technical ones. That’s worth more than a ticker.

What this episode is about

The notes I took

What I took away

Further reading