Hafnium prices surge as supply concerns build

Hafnium prices have surged since September as firm demand from the aerospace, industrial gas turbine (IGT) and semiconductor industries rapidly outpaces supply, and buyers attempt to navigate this notoriously illiquid and opaque market.

"We are seeing a ramp-up in aerospace with Boeing and Airbus accelerating deliveries, and niche materials such as hafnium continuing to gain traction," a trading firm said.

The aerospace industry — the main demand base for hafnium — requires the metal to be in its purest form for superalloys. But with global supply of pure hafnium metal only totalling around 70-75 t/yr according to industry estimates, and concentrated in just four producing countries — France, the US, China and Russia — consumers are finding it increasingly difficult to replace material.

"We recognise that there is an imbalance — the question is how much the supply gap is. It has been a slow burn… now it is not clear how far [the shortage] can go, it is uncharted territory," a supplier said.

"There is an acute tightness causing significant concerns in the industry about whether [consumers] will be able to keep enough material at the right time," the first trading firm said. "Everyone in the market is trying to assess what is promptly available in order to keep the needs of consumers… most of it goes into long-term contracts, it is not something you can easily find overnight in European warehouses".

Argus' assessment for 99pc grade hafnium with 1pc zirconium rose to $2,220-2,500/kg in warehouse Rotterdam on 8 November, up from $1,800-2,000/kg on 3 November and their highest level since Argus' assessment was launched in 2015. At the start of the current rally, in early September, the assessment stood at just over $1,500/kg in warehouse Rotterdam.

In the US — where imports from China are subject to a 25pc duty — prices have lately been pegged even higher as there are fewer options available and French suppliers are reportedly sold out until at least the end of the year.

But even in Europe, where there is no duty on Chinese material, market participants note reduced volumes coming from China in recent months. "Chinese producers are holding more hafnium as tetrachloride — for the electronics sector — instead of converting it to crystal bar, which is the form that aerospace uses," a second trading firm told Argus. "Semiconductor manufacturers in the US are also enquiring for more volumes for next year to enhance memory cards."

With such strong buy-side competition, differing levels of urgency between different types of consumer are causing a wide spread between offers. "It is entirely possible that on one day the spread between different buyers might be high, 20pc or even 30pc," a third trading firm said. "There are some end users who are not very price sensitive, they just need to get the material — usually spot and smaller quantities — and will have to pay premium prices. On the other hand, other end users will reject high prices, as they cannot make their product work at that price point".

Another trader said that "the market is very difficult to call right now and there is no transparency on Chinese supply, we are hoping that improves in the new year, and in the meantime there appears to be a bit of stalemate".

Exploring options

Some end users told Argus that they may look to reduce hafnium consumption where possible, if prices keep climbing, so as to protect margins and keep production costs under control, but substituting hafnium within such complex applications is no easy task.

"The preferred option is to see an expansion of [hafnium] capacity that will help balance out demand and supply… but if prices continue to climb, we will have a lower hafnium percentage," an original equipment manufacturer (OEM) said. "There are options available to us… [if prices increase much more] we will have to have a very serious conversation — everyone knows we have to look at alternatives."

Some market participants are looking to rhenium for reference — another speciality material used in superalloys for jet engines, which soared to a multi-year high in 2008. Back then, the aerospace industry made changes in alloy design to reduce the need for rhenium and pushed for greater recovery rates and recycling.

However, when it comes to hafnium, there is no clear set of options, Argus understands. The development of substitutes could be more plausible for industrial gas for turbines where the metal is used to use to boost the heat resistance of nickel-cobalt alloys, but is not that clear in jet engines or space rocket engines.

"In industrial gas turbines, [hafnium] is a less critical application, they can have the ability to replace it — it can be done in six months to a year," a supplier said, as in this segment, it is understood that rhenium could be used instead of hafnium. "When it comes to aerospace, that's going to take longer".

"There are other alloys (existing) that were used in the current generation of engines that contain rhenium instead of hafnium. Superalloy makers have already been looking at testing/retesting these rhenium alloys and low-hafnium variants of current hafnium — containing alloy products in these engines — so far, although this is just a consideration," a trader said.

The question of expanding global hafnium production is closely linked to the future of the nuclear industry and the output of pure zirconium, of which hafnium is a by-product. "The nuclear programme dictates the supply of hafnium," a market participant said. For every tonne of hafnium, 50t of zirconium is needed. Therefore it is not always profitable for zirconium producers to ramp up hafnium output even if there are more applications for hafnium. "You can stockpile zirconium, but that's not sustainable".

In the long-term, the hafnium supply shortage could also be eased by improvements in the recycling process and finding better methods to separate hafnium from zirconium — a difficult process because of the chemical similarities of both elements, sources said.

Hafnium was included in the EU Critical Raw Materials list in 2017. But it is still an overlooked metal, according to market participants. "Hafnium does not seem to have the attention of other metals and battery materials, mainly because it is a small market, but that does not mean is less strategic," the OEM said.

By Cristina Belda