The following essay was written over New Year’s weekend, 2011-12. My
theme is that the rare earths supply frenzy has exposed an irreversible
shift in the demand/supply picture for all technology materials, not
just the metals, but also the energy minerals, and the minerals
necessary for agriculture. The only mining ventures today that have the
potential to be profitable on a stand-alone basis are those that can
produce at the lowest cost in the global marketplace and the breakeven
point of which is low enough to so they can maintain production at very
low levels thus holding on to their customers.
America’s
technology materials mining industry can prosper now only by vertically
integrating to supply the domestic market first. Surplus production can
be exported from several points of a total supply chain thus reinforcing
capacity flexibility and dropping the breakeven point for the whole
supply chain. This is smart globalization. Just as an aircraft flight
attendant tells you to connect your oxygen first before trying to help
anyone else I am telling you to build total supply chains for technology
materials domestically to ensure that you can help yourself before you
try to help others.
Note that by “American” I mean North
American. The North American market for producing end use technology
materials is 90% in the USA, but the production of those materials and
at least half of the requisite supply chains can be constructed in
Canada. There has never been a better opportunity to make NAFTA into the
basis for a world class technology materials production economy.All
that is really needed now is insightful finance and much better educated
legislators driven by something other than re-election and greed. Call
me a cynic, but Happy New Year.
The unprecedented and unexpected
growth in total demand for technology materials for the production of
fabricated goods, energy, and food since the beginning of the 21st
century has changed the dynamic of the global materials market.
The
response of American and European style capitalism to this sudden rush
of demand has until now been to treat it as a problem to be resolved
along traditional lines by raising the prices of the affected
“commodities” until the “opportunity for profit” thus created resulted
in additional supplies to relieve, or at least, to limit, the upward
price pressure. “Demand will create supply” and “shortages will be
ameliorated by surpluses” were among the responses I heard from American
and European industrial procurement and planning managers. I was among
those who then raised the “security of supply” issue only to be told
that it was a non-issue due to the fact that the amounts of all
materials in the earth’s crust made the potential supply infinite.
It
was impossible at first, and it is not much easier now, to explain to
industrialists and financiers that only resources the mineral deposits
of which are concentrated enough to be recovered and purified by known
and economical technologies can be called even potential supplies. The
greed, short-sightedness, and poor general science education of our
current politicians, industrialists, and financiers has let America and
Europe sit back and not only observe but actually assist our economic
competitors to gain such an advantage over us through focused
acquisition and management of natural resources that the USA and Europe,
in order to survive economically, must now restructure our financial as
well as our remaining industrial assets in the hope of salvaging some
competitive advantage through maintaining a lead in technological
innovation.
Yet like the Mahdi’s soldiers who wore talismans to
ward off bullets our financial, industrial, and political elites raise
the banner of an outmoded form of independent operator capitalism to
ward off the advances of a differently structured and focused Asian
capitalism wedded directly to the finances and centralized direction of
an immense nation able to drown the individual western capitalists in a
tsunami of money not for the sole purpose of acquiring more money but
mainly to acquire ownership and control of critical natural resources so
as to make their home nation(s) self-sufficient in natural resources
and energy.
The western capitalists serve the purpose of the
eastern capitalists by choosing to concentrate on short term gains while
the Chinese, for example, acquire resources for their use to create
products and jobs not for speculation.
The problem of course arises from the fact that this growing demand
for natural resources has not been created by the USA, Europe, or Japan,
but almost solely, at this point, by a new player on the world trading
stage, the Peoples Republic of China (PRC).
I believe that 2012
may finally see a recognition by western strategic investors that the
long term outlook for the global demand for technology materials is one
of continued high net growth and that the present rate of supply of
these materials already is at the point where it cannot even now keep
pace.
Junior miners, which are basically exploration companies,
playing the same old game of appearing to be on the cusp of “rushes” are
really just bit players in the new world of natural resource supply.
The economic cycles and turmoil in the old capitalist societies of the
west and of Japan have taken precedence in the news over the dramatic
growth of overall demand for technology materials, but the focus on
short term gain from trading junior mining shares in a casino atmosphere
is no longer viable when looking at ensuring the security of supply of
technology materials.
Ownership of ore bodies and other such
natural resources are only of long term value when they are developed to
the stage where they contribute directly to Increases in the rate of
production of technology materials. This requires years of planning and
continual development. This cannot be achieved just by issuing shares to
raise capital. The share market for technology materials’ producers is
rapidly becoming a sideshow. China seems today to be the only
nation-state with both an existing industrial policy and the capital and
command organization to carry it out. Like the Soviet Union before it
the PRC plans its economy in five-year tranches. Also, like the Soviet
Union before it the PRC sets higher production targets for goods and
services with each successive five-year “plan.” But the PRC also
measures the success of a five year plan by the increase in employment
and improvement in the standard of living it brings about. The Soviet
Union pretended that it was always at full employment. The planners of
the PRC do not seem to follow this tradition.
The key to future
wealth is the ownership and control of total supply chains for the
production of technology materials. There are no short cuts.
In
the western markets tumbling share prices and suspension of IPOs on news
of temporary declines in demand or temporary oversupply are simply
casino gambling, and if that is the best that the so-called free market
can do then China will be the clear long term winner in the technology
materials’ self-sufficiency stakes. In order to be a competitive economy
it is necessary for a nation to have access to the natural resources it
needs so that its economy can grow. The development of such resources
can no longer be left to short term planning. It is necessary to commit
both capital and intellectual capital to the long term development of
adequate and sustainable production rates of natural resources. Base
lines must be established for nations and the development of the
resources necessary to maintain those baselines and allow for growth
must be a priority of the nation’s markets.
This didn’t come
about overnight. This situation has been building since the making of
money for the sake of having more money eclipsed the making of money
from increasing productive commerce
The economic cause of the
transfer the world’s trading and manufacturing center from America to
China has been American capitalism, which seeks the lowest cost for all
resources, goods, and services in a system of as much global free trade
as is compatible with minimizing national and international taxation,
i.e. maximizing profit. American style free market capitalism does not
believe in natural resource exhaustion except as a scare tactic to drive
share or commodity prices. In fact it is the maximization of the rates
of production of natural resources that is the problem from the point of
view of the long term allocation of capital for most, non-energy,
extractive industries.
Increasing the rate of production of
extractive resources is capital intensive and time consuming, which
means, of course, that it must be a low profit endeavor when ranked
against speculation.
Twenty-five years ago when the transfer of labor
intensive repetitive operations to low labor cost countries was begun
in earnest the main driver for American industrialists was cost control
as a method for the retention of market share in a very competitive
market place then just beginning to feel downward price pressure from
Asian, predominantly Japanese, imports. A second, no less important,
driver at the time was the maintenance of the industrial company’s share
price. This was in the era of blue-chip stocks, which were defined as
those of the largest producers of raw materials, energy, or finished
goods in an era when banks were service industries. Money was to be made
through profit margins on goods and services. Banks were providers of
the service of lending money to blue chips mainly for cash flow or
working capital purposes. Investment “banks” took new ventures public
and the partners in those banks had their own money at risk first of
all.
The until now unnoticed political driver that allowed the
transfer of low cost manufacturing to China, in particular, was the
desire of the ruling communist party of the People’s Republic of China
to use the situation (the desire of the capitalists for low cost labor)
to literally force-start and then accelerate China’s development into a
modern military-technological-industrial state. As Deng Xiaoping had put
it succinctly the idea was to make China “strong and rich.” A version
of capitalism was to be allowed albeit one with Chinese characteristics
so that the nation could be put onto a path that would lead it to being
able to provide its average citizen with the safety, health, and
material well-being already achieved by the nations of the west of which
the paragon is the USA. Of course this would come after or at the same
time as China grew in strength to “resume” its natural place among
nations.
On Friday, December 30, 2011 the Chinese government
announced that China would put men on permanent duty in an orbital space
station before 2020. Such an announcement in 2000 would have been
considered “crackpot” at best. What a difference a decade of GDP growth
at 10% per annum makes!
I have thought, and I have been trying to
point out for many years now that apocalyptic theories of supply
shortages and of subsequent rampant price inflation supposedly due to
peak natural resources, i.e., the exhaustion of natural resources, are
based on the type of reasoning that confuses the disease with the
symptom. The disease is the financialization of capital, which means
that the majority of investments made in the west today are completely
detached from any relation to the production of commerce at all. Money
is being used primarily for pure speculation. The purpose of such types
of investments is solely to make more money. The confusion between
wealth creation (jobs, goods, and services )for productive purposes and
the simple making of money, for no other reason than to make more money,
by the press, the politicians, and the ordinary citizen has masked this
societally suicidal frenzy until it has now resulted in the downgrade
of the American standard of living for the vast majority, and the
placing on the path to extinction not only the contemporary middle-class
but also the pathways to entering and remaining in that class.
The
American governing classes have purposefully joined the financial
elites and insulated themselves from this downgrade, which has now moved
beyond their understanding. They have assigned the solution of the
financialization crisis to those whose lack of interest in the well
being of the nation is manifest, the bankers, who in fact brought on the
American abandonment of wealth creation for productive purposes as a
status game enshrined in the corrupted phrase, “Him who has the gold
makes the rules.”
American industry literally taught the world
how to build and equip workshops to economically mass produce consumer
goods. The industry was financed by a capitalism, which counted success
as the marketing of mass produced products made at the lowest cost that
could be sold at a profit.
America’industrialists never worked under a
national industrial policy, so that when the opportunity arose to lower
costs simply by exchanging the American for a lower cost labor
workforce there was no ethical barrier. The short term goal of
maximizing profit was paramount. No one was concerned with the long term
consequences of such a move to the workforce much less to the country
as a whole.
Keep in mind that financiers backed the moving of
millions of jobs to low cost labor countries while politicians never
even gave a thought to the effect on the economy of the ensuing
unemployed masses. As I recall we were told that “service” jobs here
would replace those lost to low labor cost countries. It was never clear
exactly what the economic pundits were defining as service jobs. We now
realize that was because they didn’t know what they would be either.
So
why should investors in natural resources care about the sad history of
American corruption, greed, and sheer stupidity. It’s because one of
the totally unforeseen long term consequences was the shift to Asia of
the demand for not only the final assembly and the manufacturing of the
parts necessary for such assembly, but ultimately of the TOTAL SUPPLY
CHAIN BEGINNING WITH AND INCLUDING THE MINING AND REFINING OF THE
MINERALS. This shift has meant the loss of not only the physical plant
for total supply chains but the withering away by the attrition of
non-use of the intellectual basis of such industrial processes.
The
rare supply earth situation, which has been highlighted in the USA for
the last few years, is just the tip of the iceberg the body of which is
the loss or collapse of the capability to build or operate a total
supply chain for a given critical material when the first steps of that
supply chain have been moved off-shore.
Clueless and
engineering-ignorant American environmentalists for whom mining and
refining are simply evil incarnate have managed over the last generation
to force re-election-only driven legislators to favor the closing of
sites producing natural resources for energy and manufacturing and the
imposing of regulations that make such production simply too time
consuming as well as adding enormous costs .
The dwindling
proportion of capital targeted to increasing productive capacity
remaining in a system being squeezed dry of such capital by pure
financial speculators seeking short term gain has now made it more
productive to move entire supply chains off-shore to where the raw
materials CAN being mined and refined rather than to waste capital on
endless regulations and battles with the ignorant and suicidal (or
ignorant and rich). The result has been at best to increase the cost of
re-starting a supply chain and at worst to make it intellectually
impossible if only domestic resources are to be utilized.
I note
in passing that America’s most important remaining engine of wealth
creation is its innovative high-tech industries. These industries, such
as electronics and healthcare, have been responsible for more
improvement in the standards of living and lifestyle of the peoples of
the world than any other intellectual force in history. The American
electronics, aerospace, and nuclear industries have held out off-shoring
their research and development, but sadly they have only managed to do
that by enticing the best of the Asian students to come and work in the
USA.
For a generation this worked well, because such individuals for the
most part preferred to stay in the USA to utilize their American honed
and learned skills to enjoy a better life style than they could at
“home.” And to have the opportunity to create their own businesses.
Today that situation has changed as places like China and India have
improved enough in opportunity-availability to entice their brightest
and best to stay home or even to come home. The American mining and
refining industry has also had its share of bringing skilled Asian
workers and engineers to the USA from China and India and like the high
tech manufacturing industries it has now seen the outflow of these same
people with their American honed skills and technological improvements
back to their “home” countries.” Asian engineers who specialize in
mining and refining engineering are very unlikely to remain in an
America that blocks them from opportunity at every step.
America’s greatest inherent advantage in the production of natural resources is based on
- The variety of items in which North America can be self-sufficient,
- The safety of American natural resource production, and
- The productivity of North American mining technology and personnel.
The hypocrisy and sheer stupidity of those who want to stop producing natural resources in North America, so that we can get them from places where civil liberties are frequently nonexistent, productivity is low, safety is poor, women are treated worse than domestic animals, and the standards of living are appalling is simply beyond understanding.
I think that January 1, 2012 is as good a date as any to focus on the fact that maintaining a steady flow of affordable raw materials for energy production, food production, and manufacturing all at prices we can afford, which will let our economy GROW without lowering our standard of living is now the imperative.
The problem is that while we are trying to maintain production levels and costs the BRICS are trying to increase the production of the same materials at a rate never before seen in history. It is unlikely that America can ever again be a major supplier of extractive resources to an export led domestic manufacturing industry. We have waited too long and have simply lost the will and the capability to restore that capacity.
We can however conserve capital and reduce debt by becoming self-sufficient in energy and by again being entirely self-sufficient in metals and minerals for our domestic needs. The demand for technology materials of all kinds is ultimately now and in the future to be driven by the BRICS as all of them struggle to build military-technology-industrial complexes. The USA cannot hope to supply the BRICS with structural metal ores or fabricated products, because we waited too long to get into the game. Our structural metal industries cannot now, and have been unable to, compete with those of China or India on price since at least the middle of the last decade. The move to financialization destroyed any hope of American financiers creating truly global metals and minerals giants such as Rio Tinto or BHP. However there is still time remaining for the USA to become a technology materials powerhouse for ourselves and for the world.
The USA and North America are rich in the extractive resources of the metals and minerals that are critical to mass producing high tech devices for all uses civilian and military. The USA and Canada combined currently also lead the world in mining and refining engineering as well as technological innovation. The USA, however, is entering upon the last decade during which it has a chance to return to self-sufficiency and innovative leadership in technology. Once these opportunities are gone the world will have passed us by, and the result will be the slow erosion of our standard of living and of any further opportunities for growth. Canada has been a patient partner, our largest supplier of natural resources, but Canada’s population cannot support the creation of enough capital to move North America into the position of the world’s premier and central supplier of technology materials.
Small investors need to take note that the first decade of the 21st century saw more change in both the movement and the composition of the world’s metals markets than any other comparable period in history. The changes are permanent and their cause is an irreversible and fundamental change in the geography of the global raw materials trade. The driving center of the trade is no longer in the west; it is today in east Asia.
I believe that you can safely relegate the bulk of twentieth century
punditry and scholarship on the cycles of the production and prices of
metals in peacetime to the scrap heap. There they join such ideas and
common wisdom as “the end of history” and descriptions of China as a
third-world or developing country. In 2011 as in the prior decade, China
and the other “developing” countries of southeast Asia continued to
grow their GDPs at a rate of at least 3, and as much as 4, times the
pace of the US or Europe. And since their common target, not their
target in common, is to develop technology-military-industrial economies
with a per capita GDP at least equal to that of the pre-2008 USA the
rapidly growing economies of the nations of south and east Asia, and
soon, if not already, of Brazil are consuming, in an unprecedented
accelerated timeframe, the same volumes of base metals, mainly for fixed
infrastructure and for transportation, that the USA and Europe produced
and consumed in the from the beginning of the age of steel, 1867, until
now!
The strain this acceleration of and growth of demand has put on
the world’s productive capacity for the ores of the base metals has now
highlighted the differences among the base metals themselves by
resolving them, by use, into the structural metals and the enabling
structural metals. China alone today, in 2011, already uses 60% of all
of the iron ore mined globally and 33% of the aluminum ore. Huge
investments of capital in the ores of both of these base structural
metals have been made outside of China solely for the purpose of
supplying just China. Investors should note that unless the demand for
base structural metals grows in the other BRICS-the resource rich and/or
resource mega-demanding nations of Brazil, Russia, India, China and
South Africa- China could create chaos in the world iron-ore market
simply by increasing its domestic output to self-sufficiency, which is
in fact possible, although not today economical. This game changing
event, Chinese self-sufficiency in iron ore, which is actually predicted
by Rio Tinto to take place by 2020, would, without a buildup in demand
outside of China, throw global iron ore production into a vast
oversupply status thus collapsing prices. By simply, albeit expensively,
moving forward towards self-sufficiency China puts downward pressure on
global iron ore prices. Strategic investors should now look for the
most efficient low cost producers and fabricators of steel and aluminum
outside of China, because the creation of a massive non-Chinese demand
is absolutely necessary for the non-Chinese owned iron ore industry.
The ores of iron and aluminum are available in proven accessible deposits in great abundance. The proven resources of these ores are sufficient even at present global demand to sustain the global steel and aluminum industries for centuries. As long as energy is plentiful and relatively cheap the global production of steel and aluminum will continue, but continue to grow only through demand from the “developing” countries. Strategically I think that Russia is far from any meaningful development. I am looking at India and Brazil as demand drivers for iron and aluminum. Both are today self-sufficient in iron ore and both are world class exporters. Note well though that should either’s economy ever require the importing of iron or aluminum ore while at the same time Chinese demand were stable at today’s rate, or continued growing, there would then be a run-up in iron ore prices that would dwarf those of the last 10 years. In that case Australia would be the big winner. Australia’s demand for steel can never require more than a small fraction of its capacity to supply of iron ore. The unknown factor in all of this, in the long run, is China, which could become an exporter of iron ore in the 2020s.
Whatever commodity scenario one plots for the long term it is now
always Asian demand that is critical. America’s future is tied to
sophisticated supply chain developments for natural resources.
I
personally do not believe that China will become an exporter anytime
soon of iron ore, as a raw material, unless such action becomes
necessary to maintain employment in the Chinese mining industry and then
only after domestic demand is satisfied.
Additionally it should be noted by strategic investors that a China, self-sufficient, or in an ownership situation globally of resources to make itself self-sufficient, in iron ore, coking coal, limestone, bauxite, and cryolite could easily come to dominate the global supply of steel and aluminum.
It is ironic that monopoly capitalism with Chinese characteristics is the true threat to so-called free market capitalism, which considers monopoly capitalism to be counter-productive to the fair distribution of wealth because it concentrates wealth in too few hands and hands pricing power solely to the monopolist. Yet the Chinese have chosen state monopolized capitalism to ensure the distribution of the wealth created to the largest number of Chinese people. The Chinese system is as much a threat to western economic philosophy as it is a threat to western lifestyles and standards of living. The biggest problem is that even as production rate investments consume more and more western capital it is not at all clear that the prices for the materials so produced will be set by a free market. Thus such investments are high risk-in fact this is exactly the problem in the current rare earths production buildup. There has been almost no change in the geographic center of rare earth demand, China. This means that Chinese moves to regulate its environment, improve worker health, safety, and compensation, and to direct its economy away from being export led to being domestic consumer demand driven will be the drivers for rare earth pricing. When one takes into consideration Chinese moves into global finance are targeted so as to keep Chinese manufacturing competitive this means ultimately a convertible currency in which raw materials such as the rare earths are denominated.
So long as America is dominated by a Wall Street and Washington elite that believes that a man’s worth is measured by the capital he accumulates whether or not it is used productively to make products and create jobs there is no contest. China is winning.
How Does China’s Regulation on Rare Earths Impact the Recognition of Critical Technology Materials in 2012?
China’s regulation on rare earths in 2012 had global implications for critical technology materials. The limited export quotas raised concerns about supply shortages, prompting international scrutiny and government official response. This move shed light on the importance of rare earths in critical technologies and sparked efforts to diversify supply chains.
How Has The Recognition of Critical Technology Materials in 2012 Impacted the EU’s Stance on Raw Materials?
The recognition of critical technology materials in 2012 has had a profound impact on the EU’s stance on raw materials. Tough EU regulations have been implemented to ensure a secure supply of critical materials, reduce dependency on foreign sources, and promote sustainable production and recycling practices within the EU.
The RMI report, part 3 insights, plays a significant role in determining the recognition of critical technology materials in 2012. By providing in-depth analysis and data, the report helps policymakers and industry leaders make informed decisions regarding the allocation and management of these vital resources.
What Were the Key Technological Materials Recognized in 2012?
In the rare earth review in 2011, key technological materials recognized in 2012 included graphene, a super-strong and thin material, and perovskite, a promising material for solar cells. These materials held immense potential in revolutionizing various industries due to their unique properties and applications.
How Does the Recognition of Critical Technology Materials Affect the Pricing of Rare Earths?
The recognition of critical technology materials directly impacts the pricing rare earths. As the demand for these materials increases, so does the price of rare earths. This recognition raises awareness of the importance of rare earths in technological advancements, leading to fluctuations in pricing rare earths.
How Has China’s Control of Strategic Metals and Rare Earth Elements Impacted the Recognition of Critical Technology Materials in 2012?
China’s dominance in the rare earth elements supply chain has heightened concerns about the security of critical technology materials. The control of strategic metals has led to increased recognition of the vulnerability of supply chains and the need for diversification to reduce dependence on a single source.
How has the recognition of critical technology materials impacted the preliminary economic assessment of the Foxtrot REE Project by Search Minerals?
The recognition of critical technology materials, such as rare earth elements (REE), has had a significant impact on the positive preliminary economic assessment of the Foxtrot REE Project by Search Minerals. The growing demand for REE in various high-tech applications has elevated the project’s economic potential, creating a positive outlook for its future prospects.
How could China’s decision to cut off REE supplies impact the recognition of critical technology materials in 2012?
China’s decision to cut off rare earth elements halted could significantly impact the recognition of critical technology materials in 2012. With the majority of rare earth elements coming from China, this move could disrupt global supply chains and lead to increased focus on alternative sources and materials for tech production.
What Role Did The Communist Era Play in Shaping the Recognition of Critical Technology Materials in 2012?
The recognition of critical technology materials in 2012 was greatly influenced by the ree from communist era. The communist era played a significant role in shaping the global geopolitical landscape and the allocation of critical materials, contributing to the discussion and regulation of these resources in the modern era.
What Critical Technology Materials Are Being Mined in the New Mines?
The new mines are focusing on extracting critical technology materials such as rare earth elements, lithium, and cobalt. These materials are essential for producing various technological devices and renewable energy technologies. The 9 year mining project steps involve exploration, mine development, extraction, processing, and reclamation efforts to ensure sustainable mining practices.
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