The investment is part of an agreement with two other companies, including a unit of China Minmetals Corp,

Xiamen Tungsten and China Minmetals Nonferrous Metals Co Ltd will set up a 2 billion yuan alloy processing plant in Jiujiang, Jiangxi province, of which Xiamen Tungsten will hold 70 percent. The plant will produce 6,000 tons of tungsten powder and 4,000 tons of cemented carbide annually.

Xiameng Tungsten will also invest another 2 billion yuan to explore tungsten resources in Jiangxi province with the local producer, Xiamen Sanhong Molybdenum Co Ltd.

Yang Guoping, an analyst from China Jianyin Investment Securities Co Ltd, said that the cost of downstream products will rise in tandem with the surging raw material price of tungsten. The cemented carbide production will be a new growth point for Xiamen Tungsten.

China's output of tungsten concentrate, used in products ranging from light bulbs to military weapons, rose by 20 percent year-on-year to 129,000 tons in 2010.

However, domestic tungsten consumption outstripped supply last year, pushing up the price. Tight supply will continue to keep pressure on the price this year.

The price of black tungsten concentrate rose to 153,000 yuan a ton on Friday, up 30 percent from 117,000 yuan a ton in February.

China, which has 65 percent of the world's tungsten ore reserves, accounted for 85 percent of the global output in 2010.

The country will control the expanding capacity of the nonferrous metals industry, with its annual growth rate of tungsten reaching less than 8 percent over the period of the 12th Five-Year Plan (2011-2015), said Kang Yi, the former head of the China Nonferrous Metals Industry Association.

He said the industry will also upgrade its structure and improve quality and effectiveness as the country faces increasing environmental problems resulting from high energy consumption and depletion of resources.

China has suspended the approval of new mining licenses for metals including antimony, tungsten, and rare earths until at least June 2012.

Analysts said this will further influence the market because China produced 85 percent of the global tungsten output.

In December 2009, China Minmetals Corp took control of more than 90 percent of the tungsten resources in Hunan province through its purchase of Hunan Nonferrous Metals Corp Ltd.