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Critical minerals have become one of the hot topics in the mining industry currently. As their strategic importance has grown in sectors such as aerospace and defense, so too has the geopolitical debate surrounding their processing and supply.
It’s no longer simply a mining story, but a resource nationalism and national security one. Governments around the world are seeking to strengthen domestic supply chains, secure access to raw materials and reduce their exposure to external supply disruptions.
Especially Western economies are intensifying efforts to compete with China’s established position across several critical minerals value chains.
The United States provides a clear example of this shift. In 2023, the Department of Energy (DOE) published a comprehensive assessment of various materials for energy looking at potential supply risk. Since then, developments have arrived quickly: more materials are now considered critical in the US; new supply constraints appeared as well as new demand from new technologies related to AI; export controls started to reshape the market.
Initiatives such as the US-backed critical minerals stockpile, Project Vault, illustrate the growing emphasis policymakers are placing on security of supply and the strategic availability of key raw materials.
This changing geopolitical landscape worldwide for critical minerals also introduces another challenge: price transparency and volatility management.
One of the most interesting things I have observed when talking to market participants regarding critical minerals is that conversations about prices are becoming increasingly challenging to separate from conversations about geopolitics. This shows that geopolitical developments can interact with traditional market fundamentals in complex ways.
A policy announcement in one country can influence expectations for investment elsewhere. Trade restrictions can redirect material between regions. Government incentives can encourage new capacity, while strategic stockpiling can add another source of demand. These developments can contribute to greater differentiation between regional markets and create new sources of price risk across the supply chain, resulting in challenges for producers, consumers and investors.
As governments become more involved in these markets, the following question becomes more urgent: how can companies effectively manage the price volatility that accompanies this new geopolitical landscape and at the same time absorb additional layers of complexity that comes with it?
This is not easy to answer and involves many layers. But I would say the private sector in general needs stronger mechanisms to understand, measure and manage their exposure to price movements. Through transparent price references they can make smarter and more informed capital-allocation decisions.
Price volatility itself is not necessarily the problem as markets naturally respond to changing fundamentals. The greater challenge arises when participants do not have sufficient transparency or appropriate mechanisms to understand and manage that volatility.
This is particularly important for “young” markets such as critical minerals which are still developing in terms of liquidity, transparency and pricing infrastructure.
Furthermore, price transparency matters more than ever for critical minerals because supply chains are in the process of moving away from China. Western projects want clarity regarding the ex-China pricing for financing, for example.
It is also important particularly for OEMs and downstream manufacturers sourcing from newer supply chains, that often means buying in markets that are small, bilateral and opaque, at prices likely to be higher than they're used to.
That’s why in my conversations with market participants, I always highlight that managing volatility therefore starts with credible and transparent price discovery by the development of independent price assessments to show in which levels these markets are trading.
Robust price assessments can provide market participants with an independent reference point against which physical transactions can be negotiated, contracts can be structured and exposure can be evaluated.
As markets mature, reliable benchmarks can also support the development of more sophisticated risk-management mechanisms, including the future markets serving as hedging instruments.
One clear example of this is the launch this week of CME Group's tungsten futures contract, financially settled against the Fastmarkets APT benchmark to provide market participants with a transparent, centrally cleared tool to manage price risk directly against the benchmark used across physical contracts.
Therefore, for companies operating in the critical minerals markets, effective price-risk management is becoming essential. A resilient critical minerals environment requires not only physical supply, but also transparency, credible price discovery and mechanisms that allow companies to manage risk effectively.
Bio:
Letícia Simionato works at Fastmarkets, one of the most trusted cross-commodity price reporting agency (PRA) of the world, with more than 150 years of experience. Her main role is to cover base metals and critical minerals for the Americas and to develop strategic actions to improve these markets and consequently help market participants to make smarter business decisions.
