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The Pentagon is proactively developing a program designed to estimate prices and predict supplies of nickel, cobalt, and other critical minerals, sources have revealed. This initiative is seen as a strategy for enhancing market transparency, although it also introduces a new element of uncertainty into the global metals markets. Announced quietly on a Pentagon website in October, the program is part of the larger ambition of accelerating US production of essential minerals that are pivotal in manufacturing modern weaponry and driving the energy transition.
Despite being a vital competitor, the US's production of these strategic minerals falls behind China. Factors like volatile commodity prices have influenced the trajectory of American mining efforts. For instance, Jervois Global's suspension of its Idaho cobalt project in 2023 due to unsustainably low market prices highlights the challenge; in contrast, financially supported Chinese miners are escalating their production.
Central to the Pentagon's plan is the Defence Advanced Research Projects Agency (DARPA), known for spearheading pivotal technologies. DARPA, in coordination with the US Geological Survey, is setting out to employ AI technologies that can formulate what they call a "structural price" for the critical minerals based on various production factors, essentially creating a parallel strategy to current market-based pricing mechanisms.
The project, named Open Price Exploration for National Security (OPEN), seeks to mitigate the risks associated with what Washington considers "opaque and flawed pricing data" by offering greater clarity for both government agencies and commercial entities. The program, however, does not aim to set an official US government price for metals or to replace existing market structures like the London Metal Exchange. Nonetheless, the Pentagon's program emerges amid criticisms of these traditional markets—last year's nickel pricing debacle at the London Metal Exchange accentuates this point.
Companies such as S&P Global and Lockheed Martin have reportedly shown interest in the bidding process to develop the AI model, which will unfold in three phases over two years. The model's design also includes the ability to anticipate potential supply disruptions from market shocks, excluding the prediction of natural disasters or other specific market events.
The DARPA's objective goes further than just pricing; it's about revolutionizing how prices, supply, and demand predictions are constructed and circulated in markets that are critical to national security. The Pentagon could use the model to guide stockpiling strategies, such as the planned procurement of 1,300 tonnes of lanthanum in 2024. Lanthanum's pricing, which isn't represented on futures exchanges, is currently hard to pin down due to China's market dominance.
The reaction of mining companies, consumers, traders, and metals exchanges—stakeholders in an ecosystem centuries in the making—to this US government-led pricing estimate remains to be seen. It's notable that many metals are traded on long-term contracts with prices that typically pull in premiums covering various costs.
The London Metal Exchange has acknowledged the rising trend of AI utilization in metal supply and demand analysis while maintaining confidence in its price-setting mechanisms, which are rooted in actual transactions.
The implications of the Pentagon's Open program are vast and could herald a significant shift in both the strategic approach to US mineral reserves and the overall framework of global metal markets.