US Strategic Metal Reserve

Most people know that the US holds reserves of oil that they can release in times of scarcity or to balance global supply. What a lot of people don’t realize is that the US also carries reserves of metals - zinc, tin, and a variety of other base and minor metals and minerals that are considered strategic to national security. The department is the Defense Logistics Agency https://www.dla.mil/Strategic-Materials/About/ and they will hold sales (auctions) for stockpiles they are holding.

For 2025 for example they have already sold 2,500 Short Tons (2,268 MT) of refined zinc per this announcement that I’m sure barely anyone took notice of at the time: https://www.dla.mil/Portals/104/Documents/Strategic%20Materials/Announcements/3261%20FY%2025%20Zinc%20Award.pdf?ver=XSFdZuLcHdJ7RrRARlO1gw%3d%3d

I don’t have any issue with the US creating stockpiles of material and then occasionally releasing this back into the supply chain. However, having seen first-hand how these auctions are handled, I do have significant concerns regarding the knowledge of the people who are making the sales at the DLA. Any revenue generated from these sales, and importantly any money left on the table is part of government assets and hence belongs to the taxpayer. It is only fair then, that these sales should be handled by people with a working knowledge of both the physical and derivative markets for those metals in order to extract as much value as possible from these holdings.

Currently, companies are able to buy these metals from the government at prices much lower than the actual market and then make a handsome profit by selling that same metal to end consumers. The DLA employees who handle the sales are seemingly completely unaware of physical market conditions meaning they are often not obtaining any premium to the exchange price for the metal.?

The DLA also accepts ridiculous QPs to establish the LME (or other exchange) price for these sales, allowing companies to declare cash settlement prices for zinc, tin, etc. days or weeks after that price has been established. For example, let’s say on the 15th day of the month the zinc price is trading at $3,200/mt, but the cash settlement price for zinc on the 1st of the month was $2,900/mt. On the 15th of the month, the buying company can declare the price for their purchase using the CSP from the 1st of the month at $2,900/mt (known as a back-pricing). They can then sell futures at the market price of $3,200/mt, capturing an additional profit of $300/mt. The fact that the DLA is offering this kind of optionality on these sales without gaining an ounce of upside is outrageous.

I can’t comment on how the sales of other commodities are handled by the government but if this is how they are handling their metal purchases and sales, I dread to think how much money is being wasted or not properly captured by these programs.

With so much focus on economies moving toward the energy transition, and with the US looking to reduce reliance on imports, these strategic stockpiles of critical minerals and metals are going to become increasingly important. Establishing the correct procedures and developing a team with the knowledge base required to handle these issues should be a top priority for the incoming government.