Increased European defence spending is expected to boost the continent's demand for specialty metals in the coming years, but buyers will have to adapt to complex supply chains and geopolitical risks associated with many critical metals in order to raise purchase volumes.
The European Commission's ReArm Europe Plan, which is also referred to as the Readiness 2030 plan, aims to mobilise up to €800bn ($865bn) for defence investment, focusing on areas such as air defence and military mobility. These measures are a response to the short-term urgency of supporting Ukraine, but also to address the long-term need to boost Europe's security and defence.
"The era of the peace dividend is long gone," commission president Ursula von der Leyen said last week. "The security architecture that we relied on can no longer be taken for granted. Europe is ready to step up. We must invest in defence, strengthen our capabilities and take a proactive approach to security [...] We must buy more European. That means creating an EU-wide market for defence equipment."
Nato in December released a list of 12 raw materials that it determined were integral to the manufacture of advanced defence systems and equipment. The list included gallium and germanium, which are crucial for advanced weapons systems; tungsten used in armour-piercing ammunition and armour plating; aluminium, vital to military aircraft and missiles; graphite used in battle tanks and submarines; and cobalt, which is an essential component in super-alloys used in jet engines, missiles and submarines.
Demand for these non-ferrous metals and others such as antimony, chromium and niobium is likely to rise with increased armaments production in the coming years, and some markets are already finding support from stronger demand. Market participants have noted an uptick in enquiries for germanium crystals used in infrared lenses. This uptick is partly owing to defence companies purchasing these lenses for weapons systems, tanks, goggles and drones, which play a crucial role in Ukraine's defence strategy.
Similarly, prices for columbite, the raw material used to produce a range of niobium products, have increased steadily since 2022, driven by a sustained increased in demand for C-103 alloy from defence and aerospace applications. C-103 is made up of 89pc niobium, and is used in the nose cones of hypersonic missiles and in jet engine afterburners because of its high strength at extreme temperatures.
But not every critical mineral will be subject to an immediate uptick in defence-related demand as it will take some time for European investments in the sector to ramp up. The bulk of orders for the new EU plan is expected to translate into increased demand by the second quarter of next year at the earliest, market sources said.
A changing landscape
Existing supply constraints could be a significant road block despite the urgency of the EU's new plan.
Many critical minerals are facing severe supply restrictions and increased market volatility, aggravated by tariffs and Chinese export controls.
Antimony prices in Europe have risen by 327pc over the past year owing to a severe global shortage of concentrates as well as Chinese export controls, while bismuth prices have risen by about 550pc since the end of February after a sudden restriction on exports from China.
Despite these challenges, the need for defence investment has triggered a shift in attitudes from banks that had previously been reluctant to invest in metals and mining, market participants said. "We are seeing increasing interest from banks and hedge funds in minor metals used in the defence space," one trader told Argus.
New agreements and partnerships are also being formed between miners and defence lobbyists. Last week, tungsten and molybdenum mining company Almonty entered into a strategic alliance with American Defense International (ADI), a prominent government relations and business development firm based in Washington, D.C. The Mountain Pass Rare Earth Mine in California is the only other mining firm that has an agreement with ADI. "We can expect to see more partnerships like this in Europe as well. Everything will be about defence," Almonty chief executive Lewis Black told Argus.
Overreliance on allies
Although investments in European ammunition and missile production have increased to support Ukraine, Europe is still heavily reliant on military equipment imports from the US, South Korea and Israel.
One example where a capacity increase is urgent is the European titanium industry, market sources said. Europe lacks titanium sponge production and a strategic stockpile, and while the continent is home to melting plants and forging shops for billets, bars and tubes, it lacks the capacity for titanium plate production.
But there are opportunities to adapt current industrial capacity to meet new defence needs. The Federal Association of the German Security and Defense Industry earlier this month suggested that Germany could repurpose the struggling automotive sector's manufacturing capabilities to produce defence equipment and address production bottlenecks.
