Critical minerals: booms, busts and price spike indicators

By Emma Hughes
Published: Friday, 27 February 2015

As the growth in next generation technologies – most notably green energy – continues to gain momentum, scrutiny is intensifying on the supply and sustainability of the raw materials that are facilitating these developments. IM Research analyses the market sensitivity of eight of these critical minerals.

Speciality applications and low annual consumption volumes for critical minerals and metals have earned these raw materials reputations as "minor" or "spice" materials. Compared with bulk commodities like iron ore, alumina and coal, the markets for cobalt, graphite, lithium, rare earths, vanadium, uranium, zircon  and potash are niche and relatively small.

Today, the label "minor" no longer does justice to these minerals and metals, however. These materials are increasingly becoming regarded as essential for new technologies including tablets, smartphones and national defence systems as well as green energy applications like electric vehicles (EVs), wind turbines and power storage.

The growing importance of critical minerals is being driven by changing human needs and facilitated by revolutions in materials science and advanced processing technologies, which allow for the mass manufacture of next generation materials. 

What these minerals have in common is that their industrial use is relatively new. We are only just beginning to understand the extent of their physical and chemical properties and, to unleash these properties, the minerals often need to be produced to extremely high purities and tight specifications for a handful of high-tech applications.

Unlike bulk commodities, critical minerals and metals do not originate from a large number of sources around the world. Most come from a handful of dedicated mines or are produced as by-products of other mining and processing activities.

There is no market trading for these minerals in the common sense of the term; their prices are not quoted on exchanges and their opacity does not lend itself to futures or derivatives contracts. The industry is run by a relatively small number of supply and demand-side companies and a small club of traders and their prices are collected by one or two specialised trade publications. Traded volumes are a fraction of even some of the smaller metals, like tin.

Usually, critical minerals and metals are sourced by processing companies or high-tech chemicals and materials companies such as Socieded Quimica y Minera (SQM), HC Starck Group, Rhodia or 5N Plus Inc. These medium-sized but powerful companies source raw materials from around the world and transform them into high-purity advanced materials, which are are the key ingredients of high-tech components.

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Rare earths basket prices 2009-2012


Rare earths

As economies and consumer preferences develop and more technologies begin to rely on advanced materials, critical minerals are gaining prominence, often in sudden and dramatic ways. 

In one of the most notorious examples of this transition, rare earths, a group of crustally abundant lanthanide elements used in polishing powders, catalysts and magnets, skyrocketed from obscurity to front page news in 2010.

Global recognition of rare earths began after the captain of a Chinese fishing trawler was arrested by Japanese coast guards in disputed territorial waters. The incident became a diplomatic crisis and China, the de facto monopolist in global rare earths trading, halted exports of the minerals to Japan. 

This sparked a wave of panic buying and opportunist transactions among traders which caused prices to shoot up, by as much as 100% in some cases, and stockpiles ran so low that manufacturers began to use air freight to transport rare earths from one production site to another. As a result, everyone from national leaders to fund managers and the international press felt compelled to take notice.

IM Research’s "Critical Minerals & Metals" report asserts that, far from being unique, the rare earths crisis followed a predictable pattern. With the accelerating pace of innovation, such crises are becoming more common. In the last decade alone, tantalum, indium, lithium, rhenium and graphite have been subject to supply scares and price spikes.

Based on a unique dataset of critical minerals prices coupled with forensic analysis of market patterns, the report documents the incidence of these crises and analyses the drivers behind each of them.

Key characteristics of minerals and metals markets

Critical minerals and metals are a collection of niche but globally significant elements used in a variety of industrial and high-tech applications. Supply of these elements is generally limited, with few viable available substitutes that can offer similar performance.

Small volumes 

Typically, critical minerals and metals are traded and consumed in smaller volumes than commodities like iron ore, bauxite and coal. It is important to note, however, that there are a few critical minerals, namely the agriminerals, potash and phosphate rock, which are traded like niche minerals but are mined and transported on a bulk scale like commodities.

The difference between mined volumes of critical elements can be vast. At one end of the scale, uranium is mined in tens of thousands of tonnes annually, while global rare earths output is a little over 100,000 tpa. Potash and phosphate rock are produced in the tens and hundreds of millions of tonnes each year, while commodities like iron ore and coal breach the billion tonne mark.

Speciality products

Critical minerals and metals are speciality products usually produced in tandem with miners and materials scientists. They are not simply mined, processed into a concentrate and sold like commodities – they are part-engineered products with strict specifications. 

Applications for each individual mineral or metal are generally determined by a combination of its chemical and physical properties. For example, battery-grade graphite needs both a purity of 99.95% carbon (C) and a spherical particle shape, requiring rigorous processing methods. 

Suppliers of all critical materials need to add value to minerals through further processing to make them suitable for higher value, specialist markets, such as technology and defence applications, which define their criticality. 

Inflexible market structure 

Niche mineral markets tend to be over-reliant on a single source country to produce the majority of supply. 

For example, 85% of rare earths, 62% of flake graphite and 55% of vanadium is produced in China, while 55% of lithium is extracted in Chile. In 2013, over 55% of global cobalt output was produced in the Democratic Republic of Congo (DRC) as a by-product of copper mining and approximately 90% of niobium comes from Brazil. 

This situation is the result of a lack of investment in new sources, mainly owing to low mineral prices. This has created an inflexible supply situation, which is not equipped to meet sharp changes in demand.

This structure also means that there are only a handful of niche mineral producers around the world, while the number of end users is continuously expanding in line with advances in technology. 

The lack of supply diversification in these industries also means there is a lack of understanding of how to produce the specifications required by emerging high-tech end markets. These factors only add to the inflexibility and supply risk of critical minerals and metals.

Prices and trading

Critical minerals and metals are traded in private, bilateral contracts between buyers and sellers. Supply deals can vary in length from monthly or quarterly deals to multi-year agreements. Price changes in these minerals can occur on a weekly, monthly or even yearly timeframe, and often in large jumps.

These pricing patterns are significantly different to those affecting exchange-traded commodities, where prices fluctuate constantly in liquid markets with large numbers of buyers and sellers, many of which have ultimately no involvement in the physical production, transport or use of the raw material. 

Accordingly, analysis of where these markets might go and how price patterns may develop is expedient for industry observers looking to understand how critical materials markets function and may evolve over the coming years.

This article is based on an executive summary of IM’s "Critical Minerals & Metals" report, available to purchase now. To order your copy 

or to receive a report brochure please contact Emma Hughes, Special Projects Editor, on ehughes@indmin.com or +44 (0) 207 827 6449.