Need for hedging could spur new derivatives for niche critical minerals, Traxys CEO says
LAUSANNE, Switzerland – Derivative contracts for niche critical minerals including rhenium could emerge over time as supply concerns and price volatility push industrial users to seek better hedging tools, said Mark Kristoff, chief executive of commodity trader Traxys.
Minerals like rhenium and hafnium are little known outside specialist markets, but they are essential to the aerospace, defence, and energy industries. Growing demand and limited supplies have already pushed up prices of critical minerals.
Many so-called minor or strategic metals are too illiquid for exchange-traded products today, but Kristoff said that could change as demand grows and markets mature.
"Some of these markets are currently too small, but it may be a different conversation in five years," Kristoff told Reuters on the sidelines of the Financial Times Global Commodities Summit in Lausanne, Switzerland.
"Derivative tools will become more important. What will drive that is concern around availability and the question of how you manage price and volatility in many of these products," he said.
CRITICAL MASS
Direct investment exposure to minor or strategic materials is difficult because these markets are small and are usually byproducts of larger-volume commodities. Rhenium, for example, is a byproduct of copper, and gallium results from the production of alumina, used to make aluminium.
"If you could build critical mass in some of these products and derivatives, then the investor community that wanted to express a view could," Kristoff said.
He pointed to the London Metal Exchange nickel contract launched in 1979, which Kristoff said "did not really represent the reality of the nickel market for a decade due to small volumes and market participant acceptance."
"The recent focus on the availability of critical metals and minerals is perhaps going to accelerate that transition," Kristoff said.
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