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
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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.