Pentagon Embarks on AI-Based Pricing Program for Critical Minerals Amidst Market Challenges
The Pentagon is venturing into a new realm with its ambitious AI-based program, aimed at estimating prices for critical minerals. This groundbreaking initiative, led by the Defense Advanced Research Projects Agency (DARPA), seeks to create a more transparent pricing model in response to the complexities of current global markets.
Despite having a strategic germanium stockpile, the United States lacks reserves in gallium, a situation that reflects the broader challenge of keeping pace with market leader China in critical mineral production. The volatility of commodity prices has significantly impacted U.S. mining ventures. For instance, Jervois Global suspended the construction of a cobalt project in Idaho due to low market prices, contrasting with Chinese miners’ production increase.
The new Pentagon program, dubbed Open Price Exploration for National Security (OPEN), is intended to enhance price transparency for both government agencies and commercial entities. DARPA, known for its pivotal role in developing the Internet and the mRNA vaccine for Covid-19, is collaborating with the US Geological Survey on this project.
The aim is to develop an AI model that constructs a metal’s “structural price,” factoring in various elements like production location, labor, and supply costs. This initiative, however, has raised concerns among industry insiders who fear it could create conflicting price determination structures, traditionally governed by futures markets and pricing agencies.
The current system, based on supply, demand, and other factors, has been in place for centuries, with prices typically set by what buyers are willing to pay and sellers willing to accept. The Pentagon’s move is not intended to replace the London Metal Exchange (LME) or other futures markets but to provide an alternative data point.
Financial information firm S&P Global and defense contractor Lockheed Martin are among the entities that have shown interest in this program. The AI model, to be developed in three phases over two years, will also aim to predict market shocks, such as labor strikes, though it will not anticipate natural disasters or specific market events.
This initiative is seen as a way to potentially revolutionize critical materials market pricing, offering the Pentagon a tool to time purchases for national stockpiles more effectively. It comes at a time when the opacity of the US critical material supply chain has been magnified, as exemplified by the 200% jump in magnesium prices following a coal price spike in 2021.
The program's reception by mining companies, customers, and metals exchanges remains uncertain. The LME has acknowledged the growing use of AI in analyzing metals supply and demand but emphasizes that its prices are based on real-world transactions.
As the OPEN program progresses, it will be crucial to see how this new model coexists with established market structures and whether it can bring the desired transparency and efficiency to the critical minerals market.
