Analysts at CMSC have issued a research report maintaining a "Recommended" investment rating for the CNC cutting tool industry. The report notes high growth in imports of coated tools and a large, continuously growing export volume. For other tool categories, import volume showed significant growth in Q1 2026, while total exports exceeded imports.

CMSC points out that China holds a dominant position in tungsten production. If Japan faces increased difficulty in sourcing tungsten from China, leading to a reduction in Japanese tool supply, it would create a significant opportunity for domestic tool substitution. The firm recommends focusing on tool-related companies within the tungsten supply chain that stand to benefit from import substitution. The key views from CMSC are outlined below.

Coated Tool Import Dynamics

In terms of volume, China's imports of coated tools reached 755.32 tonnes in 2025. In Q1 2026, import volume was 209.76 tonnes, representing a year-on-year growth rate of 28.82%. The average import price has remained stable, consistently staying above RMB 3.6 per gram from 2022 through Q1 2026.

In 2025, China's imports of coated tools were highly concentrated, primarily sourced from Japan, Sweden, Germany, and Israel. Japan was the largest source, with import value reaching RMB 744 million. The combined import value from these top four countries was approximately RMB 1.995 billion, indicating a pronounced leading supplier concentration.

CMSC views coated tools as a relatively high-end segment within the industry. The stable demand reflects positive overall trends in China's industrial production. The high and stable average import price is attributed to the premium positioning of overseas tool products and relatively inelastic domestic demand. If domestic coated tools can achieve import substitution, their overall average price is expected to approach that of imported coated tools.

Coated Tool Export Dynamics

The total export volume of coated tools is substantial and shows continuous growth. Exports reached 1,583.12 tonnes in 2025. In Q1 2026, export volume was 364.16 tonnes, with the year-on-year growth rate turning negative to -5%.

CMSC attributes the decline in Q1 2026 export growth to multiple factors, including further restrictions on tungsten product exports implemented by China in 2025, a rapid rise in domestic tungsten prices in Q1 2026, tool price increases suppressing demand, and domestic tool manufacturers prioritizing meeting domestic demand over external supply.

From a unit price perspective, the average export price of China's coated tools saw a notable increase in Q1 2026. CMSC believes this is mainly due to sustained price hikes for domestic tungsten ore. Given the relatively inelastic demand for CNC tools, domestic tool enterprises have been able to implement moderate price increases.

In terms of export destinations, the 2025 market was primarily Russia and India, with a significant characteristic being diversification. Emerging markets and smaller countries provided supplementary demand.

Other Tool Categories Import Dynamics

Import volume for other tool categories was 591.58 tonnes in 2025. In Q1 2026, import volume reached 189.45 tonnes, with a significant year-on-year growth rate of 55.03%.

CMSC suggests the sharp import growth in Q1 2026 is primarily driven by rising domestic tungsten prices coupled with robust industrial production demand during the same period, which together increased downstream demand for tools.

The overall price of other tool categories is lower than that of coated tools, corresponding to processing demands that are also relatively less sophisticated. In 2025, Japan accounted for a high proportion of China's imports in this category, with an import value of RMB 685 million. The combined import value from all other source countries was lower than that from Japan alone, indicating a high market share for Japanese products in this segment. If Japan's future tungsten product supply becomes constrained, domestic manufacturers would have a favorable opportunity for import substitution.

Other Tool Categories Export Dynamics

In terms of volume, export weight for other tool categories was 1,836.41 tonnes in 2025. In Q1 2026, export weight was 424.69 tonnes, with a growth rate of -8.59%. It is observable that total exports exceed imports, which CMSC interprets as indicating a healthy development environment for products where export is the primary focus.

In terms of average price, the Q1 2026 export unit price showed a clear increase, rising to RMB 0.47 per gram, reaching a multi-year high. Considering this alongside the Q1 2026 export unit price for coated tools, CMSC believes the overseas tool consumption end currently has a certain capacity to accept price increases. Price fluctuations in tools driven by raw material volatility can be moderately passed on to downstream customers.

From an export destination perspective, exports of other tool categories are relatively dispersed. In 2025, Russia was the largest export market with RMB 92 million. The export value to any single country for this tool category did not exceed RMB 100 million, characterized by overall dispersion and small-scale purchases from multiple countries. CMSC views this diversified demand structure as effectively reducing dependency on any single country's demand. Furthermore, a comparison with coated tool export destinations reveals that developing countries feature more prominently among the export destinations, and their tungsten ore production is lower than China's. Therefore, this portion of demand is expected to remain stable.

China's Pivotal Role in Tungsten Supply Chain and Potential Substitution Opportunities

China holds a significant position in the global tungsten metal supply chain, leading in both production and consumption. In 2026, China strengthened its export control policies on dual-use items to Japan. In January 2026, a government bureau explicitly prohibited the flow of dual-use items to Japanese military-related users or applications that could enhance Japan's military-industrial capabilities. In February 2026, authorities added 20 Japanese companies, including Mitsubishi Shipbuilding Co., Ltd., that contribute to Japan's military-industrial development to the export control list.

Tungsten metal has numerous military applications. Given China's strong dominant role in tungsten production, if Japan encounters increased difficulty in obtaining tungsten from China, leading to a reduction in the supply of Japanese-made tools, it would present a significant opportunity for domestic tool substitution.

CMSC recommends focusing on tool-related enterprises within the tungsten industry chain that can benefit from import substitution. Specific companies are as follows:

Zhejiang OCEE Tantalum & Niobium Co., Ltd.: The company's main businesses are CNC cutting tools and cemented carbide products. In 2026, it expanded into PCB drill bits and bar materials, continuously developing its second growth curve.

Zhuzhou Huarui Precision Cutting Tools Co., Ltd.: The company focuses on the R&D, production, and sales of cemented carbide CNC cutting tools, with core products being turning and milling CNC tools. It is continuously improving its overseas channels and aims to increase the market share of domestic tools through a strategy of high-end and precision development.

China Tungsten And Hightech Materials Co.,Ltd.: As the listed tungsten industry platform under China Minmetals Corporation, the company possesses a complete industrial chain encompassing tungsten mining and processing, smelting, powder metallurgy, cemented carbide, and precision tools. It controls high-quality domestic tungsten mines and leads the industry in tungsten concentrate self-sufficiency. Its subsidiary is the world's second-largest manufacturer of PCB micro-drills and leads the domestic market share for AI server-compatible drill bits.

Ningbo Newsharp Tools Co., Ltd.: The company's main operations are in cemented carbide, rock drilling tools, and CNC cutting tools, forming a vertically integrated "material + tool" layout. Mining rock drilling tools and roller cone bits form its traditional foundation, with outstanding advantages in overseas mining channels. The company has entered the PCB tool and high-end gear tool fields through acquisitions, further enriching its product portfolio.

Risk Warnings

Significant fluctuations in tungsten prices could impact downstream procurement. Downstream industrial production demand may fall short of expectations.