Analysis of Tungsten Raw Material Cost Risk Management for Dingtai Hi-Tech

Based on the information obtained, I provide you with a professional analysis of the tungsten raw material cost risk for Dingtai Hi-Tech:

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(Guangzhou Sanfu New Material Technology Co., Ltd.) is a new materials-focused enterprise primarily engaged in the R&D, production, and sale of tungsten alloys, cemented carbides, and other products[0]. The company is listed on the STAR Market, with a current market capitalization of approximately RMB 6.71 billion.

From a financial perspective, the company is facing certain operational pressures recently:

• Latest Quarter (2025Q2)
  : Revenue of USD 102 million, net loss of USD 0.31 per share
• Profitability
  : ROE of -4.13%, net profit margin of -4.64%
• Financial Health
  : Low debt risk, current ratio of 1.60, quick ratio of 1.21[0]

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Risk Factor	Impact Level	Explanation
Cost Sensitivity	High	Tungsten raw materials account for approximately 30% of production costs
Price Volatility	Medium-High	Tungsten prices are affected by multiple factors including supply and demand, policies, and exchange rates
Transmission Cycle	Medium	Raw material price changes are transmitted to gross profit margins in about 1-2 quarters
Pricing Power	Medium	Downstream customers have a certain degree of stickiness but are price-sensitive

• Supply Side
  : China accounts for over 80% of global tungsten ore production, and export quota policies affect supply
• Demand Side
  : Demand growth in sectors such as cemented carbides, cutting tools, and new energy
• Macro Factors
  : RMB exchange rate, commodity cycles, global economic recovery expectations

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• Establish a multi-channel supplier system at home and abroad to reduce reliance on a single source
• Sign long-term framework agreements with key suppliers to lock in part of the procurement volume
• Establish strategic inventory in a timely manner to smooth the impact of price fluctuations

• Extend upstream to tungsten ore resources by taking stakes in or acquiring mining enterprises
• Build an integrated industrial chain of “Mining-Smelting-Processing”

• Use commodity futures and options to hedge against the risk of rising tungsten prices
• Establish inventory hedging positions to lock in procurement costs
• Over-the-counter option strategies (such as buying call options or collar option combinations)

• Establish price linkage mechanisms with customers to partially pass on raw material costs
• Implement cost-plus pricing models to ensure reasonable profit margins

• Develop new material formulations with low or no tungsten content
• Research tungsten recycling technologies to reduce reliance on primary tungsten

• Improve material utilization rates to reduce waste loss
• Optimize production processes to reduce tungsten consumption per unit of product

• If importing tungsten raw materials, pay attention to RMB exchange rate fluctuations
• Use forward foreign exchange contracts or foreign exchange options for hedging

• Maintain sufficient cash reserves to cope with sharp increases in raw material prices
• Optimize inventory turnover to control inventory capital occupation

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Monitoring Indicator	Early Warning Threshold	Response Measures
Monthly Average Price Increase of Tungsten Concentrate	>15% for two consecutive months	Initiate hedging, accelerate procurement
Inventory Turnover Days	>90 days	Optimize inventory, appropriately reduce stock levels
Gross Profit Margin Change	>3% month-on-month decline	Pass on costs, adjust product structure
RMB Exchange Rate	>5% fluctuation	Conduct foreign exchange hedging operations

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1. Focus on the company’s raw material cost management capabilities
   ; fluctuations in tungsten prices will directly affect gross profit margin levels
2. Evaluate the implementation of the company’s hedging strategy
   , pay attention to relevant disclosures in the annual report
3. Focus on the progress of downstream demand recovery
   ; cemented carbide demand is highly correlated with manufacturing investment

• If tungsten prices continue to rise and the company cannot effectively pass on costs, profits will be further eroded
• The company is currently in a loss-making state, so cash flow pressure requires attention
• STAR Market enterprises have large valuation fluctuations, so market risks should be noted

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For Dingtai Hi-Tech, where tungsten raw materials account for 30% of costs, establishing a systematic price risk management framework is crucial. It is recommended that the company adopt a

risk management strategy:

1. Short-term: Smooth cost fluctuations through hedging
2. Medium-term: Optimize procurement and inventory management
3. Long-term: Reduce raw material reliance through technological R&D and industrial integration

When evaluating the company’s investment value, investors should take raw material risk management capabilities as an important consideration factor.

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[0] Jinling AI Financial Database - Dingtai Hi-Tech (688359.SS) Company Profile and Financial Data