The move is intended to encourage greater market transparency as part of the US administration’s efforts to boost domestic production of key minerals.
At present US output is significantly behind that of China’s and this is partly due to investment being influenced by commodity price swings. For example, due to low market prices last year Jervois Global, a leading cobalt mining company, said that it would suspend construction of an Idaho cobalt project. By contrast Chinese cobalt miners - financially backed by Beijing – are boosting production of this critical battery metal.
The decision to develop a program to estimate prices has been criticised, however, because it could end up confusing the metals markets that traditionally use supply and demand factors for setting prices.
The Pentagon's work is being run by its Defense Advanced Research Projects Agency (DARPA) division which, along with the US Geological Survey, is now looking to hire contractors to develop an AI-backed model to construct a metal's "structural price" based on where and when it is produced, while also taking into account factors such as labour and other costs.
The Open Price Exploration for National Security (OPEN program is intended to boost price transparency for government agencies and commercial entities and offset the risk Washington believes futures markets and pricing agencies pose to national security, the traditional ‘setters’ of market prices.
According to DARPA its aim is to "remove market opacity that can engender supply chain disruptions" and that the data will be used by government agencies and commercial entities.
The AI model is expected to be rolled out in three phases over the course of two years.
The ability to anticipate price swings and market shocks would help the US calculate an appropriate value for key commodities. When it comes to rare earths many are not traded on futures exchanges, and so it is extremely difficult to determine whether prices offered reflect market fundamentals.
How the mining industry and the metals exchanges respond to this program has yet to be determined as well as how it could impact a market structure that’s taken hundreds of years to develop.
