Graff-Pinkert’s used machine tool business has been challenging for the last couple of years. It has always been a cyclical business that takes grit, creativity, and a willingness to pivot when times are grim.
We have moved into consulting and matchmaking for machining companies and brokering expensive, sophisticated machines like 5-axis vertical machining centers, as the value of older multispindle screw machines has dwindled.
But I am always looking for clues about the cyclicality of the machining industry in North America, particularly in light of our relationship with China as an economic competitor and committed enemy of the United States.
This is what brings me to the price of tungsten (atomic symbol W, universally known as wolfram), atomic number 74 on the periodic table you learned in high school.
Tungsten has the highest melting point of any pure metal, 6192°F, and is almost as dense as gold. When combined with carbon it can form tungsten carbide. It is extremely hard, and when combined with a cobalt substrate, it is perfect for cutting tools.
Today China controls most of the tungsten mines in the world and they are using their strategic position to choke off the supply in the United States.
If you have checked the price of your scrap cutting tools and bargained with a local scrap dealer you have probably noticed their value has more than doubled recently.
Cutting tool makers, Sandvik and Kennametal, have seen the price of their stocks almost double in the past year because they both have long term relationships with clients to buy back their scrap cutting tools and big in-house inventories of tungsten. Sandvik, based in Sweden, has been particularly strong because of its mining interests, which reduce China’s leverage over it.
I recently bought Sandvik and Kennametal stock after connecting the dots between China’s strategic metal chokepoint on tungsten, the rise in scrap prices for used cutting tools, blistering aerospace demand, continuing strength in medical products, an uptick in mining and oil production, and the need for more machined products in the data centers now burgeoning in America.
Add a significant growth in military work and you have the makings of a bull market in machining in North America, even if the auto industry is flat.
An interesting question is whether China is playing its tungsten squeeze too hard. They control 80% of the mining today, but the stranglehold will not last forever. A huge mine in South Korea which has been virtually idle in recent years is being redeveloped and the United States is putting up money to get a big mine going in Canada’s Yukon area. Other sources are being developed from Kazakhstan to Australia, but the raw material is only valuable if the processing facilities and expertise are available. That is where Sandvik, Kennametal, and Iscar retain their critical edge in the marketplace.
This is capitalism at work.
China is playing its political poker hand in its “rare earths” position. It gives them short-term strength, but the West is adjusting.
It appears to me after decades of bouncing up and down in the cyclicality of the used machinery industry that we are in the early years of a rebound. The big jump in the price of scrap carbide tools, the thriving aerospace, military, mining, and medical arenas, plus data center and semiconductor production, are all indicators that point the way for a strong upturn for the people who have the knowledge and the willingness to take a risk to take advantage of it.
Tungsten is the clue.
Question: What are you getting per pound for scrap inserts?
