Tungsten's Tightrope: How Elmet Turned a Chinese Export Squeeze Into a Growth Engine

The sole U.S. refractory-metals maker rides a critical-materials supercycle, doubling its defense backlog while capturing a once-in-a-decade tungsten price spike.

ELMT · Earnings Call · 2026-08-13

A Moat Built for the Critical-Materials Supercycle

When China tightens the screws on critical-material exports, most Western manufacturers brace for pain. The Elmet Group, the sole U.S.-based producer of certain precision engineered refractory metal components and high-power microwave systems, has spent a decade building the opposite reflex. “for over a decade, we have sourced more than 95% of our tungsten and molybdenum from outside of China, which largely shields us from export control-related supply chain disruptions.” — Peter Anania, Chairman and CEO · 2026-08-13 That foresight is now paying off in spectacular fashion. In Q2 2026, revenue jumped 35% to $66.4 million, gross margin expanded 430 basis points to 25%, and adjusted EBITDA grew 57% — all while the critical material supply chain convulsed around them. The tailwind is unmistakable. The company's own keyword trajectory shows tungsten and molybdenum surging to the top of the deck, alongside defense and refractory metal components. These aren't niche concerns — they're the gravitational center of a once-in-a-generation repricing of strategic metals, driven by export controls and a global push for material independence that the whole earnings season keeps echoing.

The Capture Machine: Converting Metal Inflation Into Margin

The real magic is in the mechanics. When tungsten prices spike, most manufacturers get squeezed on input costs. Elmet, through long-term strategic sourcing agreements, effectively buys at legacy prices and sells into a market that's already repriced.

as the material spikes, we're able to either, a, leverage our existing agreements with our supply partners or b, in effect, sell some material at market versus what we had on the shelf.
Michael Lee, CFO · 2026-08-13

This "capture" dynamic — confirmed by CFO Mike Lee — is the difference between a pass-through commodity business and one that converts metal-price inflation directly into gross-margin expansion. To institutionalize that advantage, Elmet deepened its equity stake in EQ Resources, a fast-growing Western tungsten miner, tying the strategic collaboration to a long-term offtake contract. The material pricing tailwind also flows straight into the backlog: roughly $36.3 million of the $46.9 million backlog increase over the past year came from tungsten price and volume within the ADG market. Management was explicit that this isn't a one-quarter blip — the supply agreements are expected to keep buffering input costs through the balance of the year.

A Defense Backlog Poised to Double Again

The most telling metric is the aerospace, defense & government (ADG) backlog, up 100.5% year-over-year, driving total firm order backlog to a record $131.5 million. “We also attribute approximately $36.3 million of the $46.9 million of total backlog growth between Q2 2025 and Q2 2026 to tungsten product increases within the ADG market, driven by a mixture of price and volume.” — Michael Lee, CFO · 2026-08-13 New programs — CERN, Strategic Missile Systems, PrSM, Standard Missile, Patriot — are feeding the growth. Yet the juiciest part is what's NOT yet in the backlog. The large multiyear interceptor awards to defense primes haven't fully flowed down to component suppliers yet: “we really haven't seen a significant amount of those larger multiyears the primes are being awarded flow down to us yet.” — Michael Lee, CFO · 2026-08-13 That's a forward catalyst — the missile-defense interceptor wave is just beginning to reach the end market suppliers like Elmet. Meanwhile, the company is positioning for orbital compute and satellite defense, with a new production line (~$3M CapEx) starting to produce for satellite customers, and “we are seeing an increase in drone defense activities, and now that is expanding into satellite areas.” — Peter Anania, Chairman and CEO · 2026-08-13 The sole U.S. based supplier positioning makes Elmet a strategic linchpin as the Pentagon seeks to domesticate its supply chain for mission-critical systems.

Risks: The Other Side of the Coin

It's not all tailwind. The GAAP net loss of $4.5 million in Q2 obscures a cleaner adjusted profit of $5.2 million, with $14.2 million of equity compensation (of which $12.9M tied to IPO vesting) masking the operating strength below. The EMP division, which handles higher-margin ADG and semiconductor work, hit operational snags in Q2 — management flagged factory challenges it expects to correct in H2. And the end market volatility is real: the large medical customer swung its CMC backlog sharply, from ~$12M in Q2'25 to ~$5.5M in Q2'26, a single-customer concentration that will keep creating quarter-to-quarter noise. Even so, management's target of 30% gross margin in 4-5 years is anchored in increasing ADG mix and the productivity gains already showing up "faster than originally anticipated." For a small-cap riding both a geopolitical commodity supercycle and a defense budget supercycle, with a genuinely moated sole U.S. based supplier position, this is about as clean a thesis as the market offers today. The tungsten spike may eventually normalize — but the structural demand shift toward U.S.-sourced critical materials is just getting started.