U.S. Department of Defense (DoD) has unveiled a groundbreaking program to estimate prices and predict supplies of vital metals such as nickel, cobalt, and others.
In a bid to enhance market transparency and strengthen the supply chain for critical minerals, the U.S. Department of Defense (DoD) has unveiled a groundbreaking program to estimate prices and predict supplies of vital metals such as nickel, cobalt, and others.
The initiative, known as the Open Price Exploration for National Security (OPEN) program, is part of broader efforts by Washington to boost domestic production of critical minerals crucial for weapons manufacturing and the global energy transition.
The program, managed by the Defense Advanced Research Projects Agency (DARPA) in collaboration with the U.S. Geological Survey, aims to develop an artificial intelligence-backed model for estimating the “structural price” of metals. This model will take into account various factors, including the location and timing of production, labor costs, and supply considerations.
The initiative comes at a time when the U.S. is lagging behind China in mineral production, partly due to the influence of commodity price fluctuations on the establishment of new American mines. The DoD hopes that by providing a reliable rubric for estimating metal prices, it can reduce the impact of market uncertainties on domestic production.
However, concerns have been raised that the introduction of an official pricing mechanism by the U.S. government could lead to confusion in global metals markets. Traditional pricing structures are established through futures markets and pricing agencies, reflecting the willingness of buyers and sellers to transact based on supply, demand, and other market dynamics.
The OPEN program, expected to be implemented over two years in three phases, seeks to enhance transparency for both government agencies and commercial entities. The DoD believes that current commodity purchase transactions are hindered by “opaque and flawed pricing data,” posing significant barriers to U.S. commercial competition.
While the program does not aim to replace existing futures markets such as the London Metal Exchange (LME), it addresses perceived shortcomings in these markets, citing the LME’s 2022 nickel pricing issues as an example of market dynamics that may not provide accurate price information.
Companies such as financial information firm S&P Global and defense contractor Lockheed Martin have applied to be part of the program.
S&P Global, a publisher of benchmark prices for metals, and Lockheed Martin, a key player in defense, could play integral roles in shaping the success of the OPEN program.
The DARPA spokesperson emphasized that the program is fundamentally about transparency, aiming to eliminate market opacity that could lead to supply chain disruptions. The AI model developed through OPEN will not predict specific events like natural disasters but will assess potential impacts of unexpected market shocks, such as labor strikes.
One of the main goals outlined in the program is to enable the Pentagon to anticipate price fluctuations and determine optimal times for purchasing metals critical to national security.
For instance, the DoD plans to acquire 1,300 metric tons of lanthanum, a rare earth element used in steel alloys, this year. However, as lanthanum is not traded on futures exchanges and China dominates the sector, determining market fundamentals is challenging.
The initiative also aims to address issues arising from price spikes, like the 2021 increase in coal prices leading to a 200% surge in magnesium prices, affecting the transparency of the U.S. critical material supply chain.
It remains uncertain how a U.S. government-established metal price or supply estimate will be received by mining companies, customers, and metals exchanges. Market structures have evolved over centuries, with most metal being sold on long-term contracts and exchanges serving as a market of last resort.
In response to concerns about potential conflicts with existing market structures, the DARPA spokesperson clarified that such concerns are beyond the scope of the OPEN program’s objectives. The U.S. Treasury Department did not respond to requests for comment, while the White House referred inquiries to DARPA.
The OPEN program holds the potential to revolutionize the construction and dissemination of price, supply, and demand predictions for critical minerals markets, with implications for both national security and global economic dynamics.