This article came from The Gold Report website: http://www.theaureport.com/
Jack Lifton is a Senior Fellow of the Institute for the Analysis of Global Security.
I am beginning the writing of this article on a plane, flying from Singapore to Tokyo, Japan. I arrived in Singapore six days ago from Sydney, Australia. I fly to Madagascar and Germany in August, and then Beijing and Baotou, China in September. Between overseas trips (I live in the Detroit area), I will travel to Toronto, Montreal, Labrador, Canada and Washington, DC, New York City and various locales in Alaska, U.S.
I am not trying to impress you with my frequent-flyer status. I want to establish my credibility as an observer of and participant in the global metals economy. And I want to establish that credibility, so I can give you a truly global overview and, I hope, perspective on the metals’ markets economy with an emphasis on individual metals, related groups of metals and all of their present- and future-use trends.
This undertaking, of course, will require more than one article; so, in this one, I am going to introduce the topic and discuss it in general. Here and over the next year, I will write about the detailed markets for the most critical metals in particular; but this month I want to focus on two metals-related issues that have surfaced and become prominent in the news in this first decade of the 21st century:
1.The control of the supply of the rare earth metals (REMs), in particular.
2.The issue and identification of “Critical Metals,” in general.
Although the REM-supply issue came to the public’s attention first, the rare earth metals are, in fact, simply a closely (chemically) related group of metals that are the first part to surface and the far-more important metals issue of the 21st century—the critical metals supply issue.
Something can be called “critical” if its absence means something else cannot be accomplished in any manner.
Even informed people who are not involved in the metals mining-and-refining industry think increasing the supply of metals—any and all metals—can be accomplished simply by increasing their production or production rate from what they, the informed people, seem to think is an infinite resource called the “earth’s crust.” This pervasive idea is both completely wrong and dangerously foolish, because it leads to the belief that the supply of any and all metals is limited only by financial considerations.
Constantly, I hear the idea being expressed that if there is a big enough demand for a metal, then its supply must increase because more money will be offered for additional production of the metal, and this money will fund the additional production. This is actually the theory that’s taught in business schools as being universally applicable, and it is taught just as an example of the basic law of supply and demand. The only problem with this theory is that it is wrong. And the complacency of the financial and political worlds about its applicability to the supply of natural resources has now led us to a crisis point in the world’s metals’ economy.
China’s voracious demand growth for metals in the 21st century has created a large and very serious problem for the global mining-and-refining industry. For the uncritical, it seems like the mining companies are in an era of embarrassing riches; they could sell everything they can produce, it seems.
Ironically, this in fact is the problem—the industry can sell everything it can produce of nearly any metal, but the rate of increase in production rate for almost all metals is limited not only by installed capacity and access to infrastructure and supplies, but also by the finite supply of accessible, mineable, ore bodies and the capital, technology, time, and skilled labor required both to maintain current production and increase the production rate.
It is becoming increasingly apparent that, apart from the production of iron ore and aluminum ore, the global metal mining-and-refining industry is finding that it cannot maintain a rate of both ore-production and refining-capacity growth high enough to keep up with the actual current and currently projected growth of Chinese demand when coupled with the existing demand of the rest of the world and the impending demand increase from the growing economies of India, South America and Indonesia (just to name the largest future demand drivers).
China is already the world’s majority user of all metals. If China’s total metals demand growth rate (TMDGR) continues to match either its [current] actual or currently projected rate of overall GDP growth over the remainder of this decade, within a decade China’s total annual metals demand will move from today’s 55% (yes, I said 55%) to more than 75% of the total world production of all metals!
Satisfying Chinese demand would bring about a true global industrial crisis, economically and politically. In the best case, there would be only enough metals “left over” after China’s utilization to maintain the existing replacement and a marginal addition rate for the mature industrialized economies. That means there would be no possibility of industrialization of any significant kind, much less China’s, occurring in India, Indonesia, the Philippines, or, for that matter, North Korea—Southeast Asia’s most-populous nations after China. South Korea’s and Japan’s economies would face crippling shortages of raw materials as new production moved to where the materials were available.
China, by systematically garnering possession or control of as much as it can of the world’s metals, will be able more and more to dictate where and how they are used. First and foremost, among those uses, without question, will be to maintain employment and the growth of China’s economy. This is not a theoretical discussion; this process is well underway as the current situation with Chinese control of rare earth metals production and its already-achieved and growing dominance in their use in industrial manufacturing shows.
For the rest of this column, please go to The Gold Report website: http://www.theaureport.com/pub/na/10287