At the sharp end of the critical minerals supply crunch

Author Ellie Saklatvala, Senior Editor, Argus Non-Ferrous Markets

Something strange has happened to hafnium. This silvery-grey, high-temperature minor metal has historically attracted little attention.

Trading within a steady price band and rarely topping $900/kg, it has been a reliable mainstay of super alloy and electronics supply chains. But today, prices are topping $5,000/kg in both Rotterdam and the US, after an extraordinary rally as supply struggles to keep up with increased demand.

It is perhaps a cautionary tale of what can happen when investment and technological progress downstream are not mirrored upstream, or when timescales for development do not match up along the value chain.

As with most nonferrous metals, hafnium has more than one application —in this case, super alloys for the aerospace industry, industrial gas turbines and electronics. As each consumer base expands and develops new uses for the metal, buyers might not have visibility of similar evolutions taking place in other industries, and therefore they may not be able to quantify the cumulative impact on demand. Add to this a constrained supply base and an opaque trading market and we have a perfect storm —one that many market participants were unaware of until prices began to rocket in the second half of 2022.

Increasing hafnium production is no easy task. Global supply of pure hafnium metal — as needed by the aerospace industry — is estimated at just 70-75t/yr. Production is concentrated in just four countries — France, the US, China and Russia. It is also a by-product of zirconium but given that 50t of zirconium is needed to get just 1t of hafnium, an attractive hafnium price will not necessarily encourage zirconium producers to ramp up volumes.

Hafnium is a very specific product — a niche within a niche. But it is crucial for the industries that need it, and the issues that underpin today’s record high prices could easily be transferred to other critical minerals in the future. Most critical minerals have constrained supply bases – slow and costly to expand, vulnerable to political will, and lacking geographical diversity. And many are also facing huge demand growth forecasts, often involving multiple end-use industries — both traditional and future-facing.

The severity of looming supply crunches has been mapped out in numerous studies and reports — the alarming figures potentially losing impact as we get used to seeing them. Looking at uses in the energy transition specifically, the International Energy Agency estimates that by 2040 global demand for rare earth elements could rise by more than sevenfold, lithium demand could be 13 times higher, and demand for cobalt and graphite could be anywhere between six and 30 times higher, depending on how battery technologies evolve. And rare earths, lithium, cobalt and graphite are also used by other industries that will continue to compete with energy transition technologies for supply. There truly is a limit to how much material will be available, and some consumers’ ambitions for the next decade might need to be scaled back in order to give the metal industry time to expand globally.

As hafnium demonstrates, an extreme supply-demand imbalance can have a profound impact on raw material costs. And with the most opaque markets, where price indexes are so valuable in shedding light, consumers might not realise the problem until it’s already hitting their balance sheets.

This blog comes to you courtesy of Argus Non-Ferrous Markets.
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