Tungsten: the cash cost of securing industrial supplies

Kennametal earned $342.4 million in fiscal 2026, yet its operations used $4 million of cash. More expensive tungsten, costlier inventories and payments made ahead of delivery help explain the gap. The toolmaker’s annual accounts expose a less visible requirement of industrial resilience: somebody has to finance the wait.

A sale and its associated cost enter the income statement. Cash follows a different timetable: supplier payments, time in inventory and eventual collection from customers. At Kennametal, more expensive raw materials sharply increased the money committed to that cycle.

For the year from July 1, 2025 to June 30, 2026, Kennametal reported sales of $2.36 billion and $342.4 million of net income attributable to its shareholders, up from $93.1 million a year earlier. Cash from operating activities moved in the opposite direction, falling from positive $208.3 million to negative $4 million. These are reported financial results, not an analyst’s forecast. Source: 2026 Form 10-K, pages 35 and 37.

Consolidated net income was $350.4 million. It includes earnings belonging to noncontrolling shareholders in certain subsidiaries, which are deducted to reach the $342.4 million attributable to Kennametal shareholders. The cash flow reconciliation starts with consolidated income. Source: consolidated income and cash flow statements.

A material used to make other things

Kennametal produces cutting tools, wear-resistant components and metallurgical powders. Tungsten carbide is used in materials that withstand the abrasion involved in metalworking, mining and construction. A carmaker can therefore depend on tungsten through its tooling even when the part it sells contains none of the metal. The US Geological Survey describes these applications; Kennametal sets out its own product range in the business sections of its annual report.

Supply is concentrated. The USGS’s China profile estimates that the country accounted for 82% of global mined tungsten production in 2024. That is a mine-production share, not a measure of reserves, recycling or finished-tool market share. It is also a historical reference point, not a direct reading of metal availability in September 2026. Source: USGS China overview.

On February 4, 2025, Beijing introduced export controls covering certain products and technologies, including tungsten products. China’s Ministry of Commerce confirmed the decision at its February 6 press conference, while saying that compliant licence applications could be approved. Controls should not be described as a universal embargo. This government source establishes the policy decision; it does not independently assess its economic consequences.

Kennametal links the pressure on tungsten to trade restrictions, concentrated supply and other market factors. Importantly, the company also says adequate supply was available at the time of its report. It uses long-term contracts, spot purchases and internal recycling. Its disclosures describe the expense of keeping production supplied, rather than a business with no access to raw material. Source: “Raw Materials and Supplies,” page 5.

How €60 of gross profit can leave €10 of cash

Consider a deliberately simplified example. There are no taxes, manufacturing expenses or payment delays. A business owns one unit of inventory for which it has already paid €100. It sells the unit and collects €160. The transaction produces €60 of accounting gross profit.

It then replaces the unit immediately. The purchase price has risen to €150. Of the €160 collected, €150 goes back to the supplier. Incremental cash after replacement is €10, even though gross profit is €60. The difference has been absorbed by the higher cost of maintaining the same unit of inventory.

Now suppose the business wants two units on the shelf as protection against disruption. The replacement purchase costs €300. Cash flow across the sale and restocking sequence is negative €140, while gross profit on the item sold is still €60. More resources are being committed to running the business.

This is the underlying idea of operating working capital: resources tied up in inventories, customer receivables and other operating assets, partly financed by operating liabilities. Paying a supplier before delivery lengthens the funding cycle. Receiving a customer deposit can shorten it.

The illustration isolates that mechanism. It is not a Kennametal product price, margin estimate or inventory-accounting model. The company uses several accounting methods, so the path from purchases to reported cost of sales is more complicated.

Selling prices can move ahead of reported costs

Kennametal estimates that the timing difference between raw-material-related selling prices and the corresponding costs had a favourable impact of approximately $316 million on annual operating income. This is management’s explanation of an earnings effect. It is neither a separate cash receipt nor a pool of money automatically available for distribution. Source: August 5 results, “Fiscal 2026 Key Developments”.

The mechanism is straightforward. Selling prices can adjust quickly to new market conditions while the income statement still reflects costs arising from earlier purchases, contracts or production cycles. The margin temporarily benefits. Meanwhile, purchases intended for future sales already have to be funded at the new prices.

There were other contributors to performance. Kennametal also cited higher volumes, pricing unrelated to raw materials and restructuring savings. Attributing every dollar of earnings to tungsten would go beyond the evidence. But the opposite shortcut is just as misleading: “adjusted” does not mean stripped of every temporary benefit. The company’s published non-GAAP reconciliation removes certain charges; it does not remove the $316 million timing effect. Source: annual results and reconciliation tables.

Simply deducting $316 million and calling the remainder “real earnings” would not solve the problem. That would remove one favourable effect without rebuilding the sales, costs and taxes of a consistent alternative scenario. The useful questions concern the durability of the margin and its conversion into cash.

Cash leaves before the customer pays

Net inventories rose from $538.2 million at June 30, 2025 to $1,108.5 million at June 30, 2026. Their carrying value increased by about 106%. That does not establish that physical quantities doubled, or that every dollar represents tungsten. Management attributes the increase primarily to the metal’s higher cost. Source: balance sheet, note 7 and “Financial Condition”.

A quieter line in the notes reveals another commitment. Advance payments to vendors reached $72.5 million, compared with $0.7 million a year earlier. These assets record money committed before it appears as inventory. They are balances at two dates, not the gross sum of all supplier deposits paid during the year. Source: note 10, page 48.

In the cash flow statement, other current assets absorbed $102.1 million. That category includes advances but also other items, so the whole amount cannot be relabelled “supplier prepayments.” Accounts receivable absorbed a further $116.9 million. Larger receivables may accompany higher sales and selling prices; they do not by themselves prove that customers have started paying later. Source: cash flow statement, page 37.

Suppliers and other operating creditors provided part of the financing in the other direction. Accounts payable and accrued liabilities contributed a positive $226.1 million to the reconciliation. That is not, on its own, evidence of overdue bills. Normal credit terms, negotiated extensions and involuntary payment delays are different things. The aggregate figures do not reconstruct every contract. Source: consolidated cash flow statement.

The earnings-to-cash gap can be reconciled

No forecast of tungsten prices is needed to explain the reported cash flow. The reconciliation is already in the accounts.

Starting with $350.4 million of consolidated net income, approximately $240.1 million of adjustments bring the subtotal to $590.5 million. These adjustments include depreciation, amortisation, share-based compensation, deferred taxes and other items. Changes in the assets and liabilities listed in the cash flow statement then absorb $594.5 million. The result is operating cash flow of negative $4.008 million, conventionally rounded to negative $4 million. Source: cash flow statement and management discussion, pages 24 and 37.

The inventory line is the largest use of cash, at $593.4 million. It is not interchangeable with the $570.2 million increase between the two inventory balance-sheet figures. A cash flow statement and a subtraction of balance sheets do not treat every movement in the same way, including foreign-currency translation effects. The two values are kept in their respective contexts here; the full difference is not arbitrarily assigned to one cause. Source: cash flow statement and “Financial Condition”.

Capital spending comes next. After $76.9 million of property, plant and equipment purchases and $1.8 million of disposals, free operating cash flow under Kennametal’s definition was negative $79.1 million. The company defines this non-GAAP measure as operating cash flow less capital spending plus proceeds from property, plant and equipment disposals. It is not net income, and it is not the final change in cash, which also reflects financing and distributions. Source: “Free Operating Cash Flow” reconciliation.

Several methods determine inventory value

Kennametal uses last-in, first-out accounting, or LIFO, for approximately 34% of its inventory. LIFO assigns the most recent inventory costs to cost of sales first; it does not claim that the newest physical item must leave the warehouse first. The rest uses first-in, first-out or average-cost methods. Source: notes 2 and 7.

It would therefore be wrong to describe all of the company’s margin benefit as old, cheap inventory sold at new prices. The €100 illustration shows a possible mechanism. Management’s estimate concerns a company-wide pricing and cost-timing effect across different products and accounting methods.

Note 7 reports $1,469.9 million of inventory at current cost, less a $361.4 million LIFO valuation adjustment, resulting in the $1,108.5 million carried on the balance sheet. The adjustment is an accounting valuation difference. It is not cash set aside, nor hidden earnings that can be added to a bank balance. “Current cost” is not an estimate of the proceeds from liquidating the inventory either. Source: note 7.

These distinctions limit what can be inferred. Without detailed physical quantities, contract prices and cost histories, the accounts cannot precisely separate precautionary stocking from price inflation and other operating movements.

Credit facilities fund the operating cycle

The funding response is explicit. In a May 29, 2026 announcement, Kennametal linked new financing resources to tungsten-related working-capital needs. On May 28, it entered into a $500 million, three-year delayed-draw term loan and increased its revolving credit facility by $200 million to $850 million.

A revolving facility allows borrowing and repayment within agreed limits. A delayed-draw loan permits the funds to be taken during a specified window. At June 30, the accounts show $20 million outstanding under the revolver, $830 million still available and no amount drawn under the $500 million term loan. The annual report expected the term loan to be fully drawn by September 30. That expectation does not establish the actual balance on September 12. Source: liquidity discussion and contractual obligations, pages 22–24.

Kennametal also had $95.8 million of cash at June 30 and reported compliance with its financial covenants. These resources give the manufacturer room to fund its operating cycle, subject to the terms of its bank agreements. Adding the $850 million facility to its $830 million availability would double-count: the latter is the undrawn portion of the former. Source: balance sheet and note 12.

The separate $300 million bond issue maturing in 2036 refinances existing debt. It is not all incremental funding for inventory. Announced financing transactions cannot simply be added together and called unrestricted cash. Sources: May financing announcement and annual report, note 11.

Shareholders are part of the allocation decision. Kennametal paused its repurchase programme after about $10 million of buybacks during the year, while paying $60.8 million in cash dividends. Those are relevant choices, not a sufficient explanation of the entire funding requirement. Source: cash flow statement and “Share Repurchase Program”.

Sandvik’s powders and cutting tools respond differently

Sandvik’s report released on July 17, 2026, covering April–June, offers corroboration of the industrial mechanism. In Machining, it estimated a temporary SEK 550 million benefit from tungsten price timing to adjusted EBITA, earnings before interest, tax and amortisation of intangible assets. The positive effect in powders was partly offset by a lag in raw-material-related pricing in cutting tools. Source: second-quarter report, page 8.

Two opposing effects within one business area are revealing. The same raw-material price move can help one margin and squeeze another, depending on the product, the speed of repricing and which costs are flowing through production.

Sandvik nevertheless generated SEK 2.706 billion of positive operating cash flow in the quarter. Kennametal’s situation cannot be turned into a uniform diagnosis for the industry. Business mixes, currencies and reporting periods differ; a Swedish quarter is not being ranked against an American fiscal year here. Source: consolidated cash flow statement, page 15.

The mixed effects of lower prices

The reverse scenario deserves attention as well. If purchase prices stabilise at an elevated level, recent costs progressively catch up with sales in the income statement. A timing benefit can fade without tungsten becoming cheaper and without the business losing customers. Losing a temporary benefit is not the same thing as becoming loss-making.

A sharp decline in prices could lower the cash needed for the next purchases. But goods made with expensive material might then face less favourable selling prices. Depending on recoverable value and the applicable accounting rules, some inventory could require a write-down. Kennametal’s inventory policies include valuation tests; those policies do not establish that a future impairment will occur. Source: inventory accounting policies.

Price relief could consequently improve parts of cash flow while compressing margins. The outcome depends on contracts, inventory turnover and demand. Neither an inevitable disaster nor an immediate release of all the trapped cash follows from lower tungsten prices alone.

Resilience has to be funded between transactions

Holding more material may reduce disruption risk. An advance can secure a shipment. A second source can reduce geographic dependence. Each protection may require financing before the corresponding products are sold and the proceeds collected.

The decision weighs inventory, credit and deposit costs against potential losses from interrupted production. Accepting a temporary cash outflow can be economically rational. The question is whether the protection is worth its cost and how long the commitment lasts, rather than whether one annual cash-flow line is positive or negative.

Kennametal’s accounts document that cost without warranting an easy insolvency narrative. The company earns profits, commits more resources to operations and has access to credit. The next meaningful test is the conversion of inventory and advances into deliveries and customer receipts. A secure supply chain must finance the interval as well as the purchase.

Further reading: the carrying cost of US copper inventories examines the financing of metal held in storage. Our sulfur investigation follows another overlooked input on which industrial production depends.

Sources

[1] Kennametal : 2026 Form 10-K. Fiscal year ended June 30, 2026; audit report dated August 12, 2026. Locators: raw materials, p. 5; management discussion, pp. 18–25; income statement, p. 35; balance sheet, p. 36; cash flows, p. 37; accounting policies, note 2; inventories, note 7, p. 46; advances, note 10, p. 48; financing, notes 11–12. Original financial statements are in thousands of US dollars; the article converts them to millions.

[2] Kennametal : Fiscal 2026 and fourth-quarter results, August 5, 2026. “Fiscal 2026 Key Developments,” outlook and non-GAAP reconciliations. The price-cost timing effect is management’s estimate.

[3] Kennametal : Financing announcement, May 29, 2026. Transactions dated May 28: delayed-draw loan, revolving credit facility and bond refinancing. June-end availability is checked against the 10-K.

[4] Sandvik : Second-quarter 2026 report, July 17, 2026. P. 8: Machining and temporary tungsten effect; p. 15: group cash flows. Tables are in millions of Swedish kronor.

[5] USGS : Tungsten Statistics and Information. Industrial applications; reference page consulted September 12, 2026.

[6] USGS : China. “Overview,” estimated share of mine production in 2024; consulted September 12, 2026. The statistical year is distinct from the date of consultation.

[7] China’s Ministry of Commerce : February 6, 2025 press conference. Controls introduced February 4 and the licence-approval principle. A Chinese government source used to establish the policy decision, not an independent assessment of its effects.

Limitations

Documentary analysis as of September 12, 2026, without company interviews. This is not a live tungsten price report or a stock-market forecast. Kennametal’s figures cover a fiscal year; Sandvik’s cover a quarter. Two companies are not a representative industry sample. Detailed physical volumes, contract prices, advance-payment schedules and credit drawdowns beyond the published information have not been reconstructed. The euro illustration is hypothetical; other calculations use reported amounts. Final balance-sheet figures in the 10-K take precedence over the preliminary earnings release. Original text and infographics: CC BY 4.0. Source documents retain their respective rights.