Theme of the Day: AI and commodity pricing

Is it time to turn commodity price discovery over to artificial intelligence? The US government thinks so, at least when it comes to critical minerals such as nickel, lithium and a swath of the periodic table.The US Department of Defense wants to use AI to plot the supply and demand of critical minerals and shine a light on what it sees as the current opaque pricing. To this end, it has charged the Defense Advanced Research Projects Agency (Darpa) with spurring tech advances “to enable a more reliable signal for buyers, sellers and investors than is currently available”. Access for retail investors is unconfirmed, with the project recently put out to tender.The Defense Advanced Research Projects Agency is a research and development agency of the United States Department of Defense responsible for the development of emerging technologies for use by the military.The Pentagon’s interest in the opaque world of materials pricing is understandable. There are both industries and nations to protect. Lanthanum is used in night-vision goggles; molybdenum in missiles; silver in Apache helicopters; nickel in body armour. Much of this is imported: more than half of all but two of 12 key critical minerals for the US aerospace and defence industry, reckons the Aerospace Industries Association.There is a limited, if admittedly growing, data set on zigzags and U-turns in policy and technology. There is the waning appetite of traditional carmakers like Ford and rental outfits such as Hertz for battery-powered vehicles. Even assuming EVs regain their momentum it is closer to crystal ball work to nail down what elements will power them. Layer on to that governments’ backtracking on their commitments to the energy transition.One straightforward input — whether on AI, spreadsheets or an abacus — should be stockpiles. True, these will become more transparent as countries, including the UK, and the International Energy Agency address vulnerabilities in supply. This month the IEA unveiled plans to secure enough minerals such as lithium, cobalt and copper, much as it does with oil. Under that programme member countries are required to hold 90 days of net oil imports which they can release in the event of severe supply disruptions.But there is a huge wild card in China, which dominates in production as well as refining and processing of many of these. It has been building reserves of the likes of cobalt, as well as acquiring mines across the globe. But forget about transparency. Resolving that particular informational asymmetry challenge is likely to prove one of the stiffest tests for Darpa’s planned AI model.