I’ve been writing for some time in Resource Investor (RI) on my concern about a hidden U.S. dependence. Currently, oil has masked the equally as serious (if not more so) growing and now near total dependence on other imported critical raw-materials and direct sources of raw materials, e.g. minor metals and industrial minerals.
In particular I have been stressing the theme on RI, for the last three years, that the oft-voiced concern of our national lawmakers with regard to our growing dependence on imported oil as our principal source of fuel for our motor vehicles seems to generate no concern among them at all. Now there’s an even deeper dependence by America on imported critical and strategic metals and minerals that underpin our high tech industries.
It’s particularly incredible that Congress doesn’t even seem to care, or basically understand, that in order to break our dependence on imported oil, and take the next step demanded by environmentalists—the end of the use of hydrocarbons as fuel altogether—we must complete the development of both the electrification of our cars and trucks. And there must be a simultaneous change over—as much as possible—of our electric power generation from today’s dependence on coal, oil, and gas to wind, solar, geothermal, and nuclear.
I do not necessarily agree with this cobbled together agenda with its unclear choices, paths, and consequences. But it is the agenda of our elitist ruling classes for whom Washington has become a tool albeit hardly an sharp (intelligent) one.
An excellent example of the immediacy of America’s dependence and our vulnerability to manipulation is the recent Chinese action on the mineral, fluorspar. This Chinese action was discussed on November 11, 2008, in RI by Charlotte Mathews. She pointed out that:
“In recent years China has been attempting to grow its local industries and has imposed export quotas on a number of industrial minerals. Whereas five years ago it exported about a million tons of acid-grade fluorspar a year, this year it would export only 500,000 tonnes and it could reduce further next year…Acid-grade fluorspar is used mainly to make refrigerant gases and there is no practical substitute. Another third of the market is aluminium producers, which need aluminium trifluoride to reduce temperatures in smelters.
The remainder is used in uranium enrichment and lithium batteries.”
The total annual world production for this very important industrial mineral—calcium fluoride or fluorspar—is stated by the USGS to be 5.3 million tonnes. Of that, China produced half and the U.S. produced none in 2007.
Now look at the chart [see original] from the USGS Mineral Yearbook for 2007.
Take a moment to peruse the left column of the table. Note in the 100% dependence already in place in 2007 are bauxite, the ore of aluminum, and fluorspar. Note also way down the last that the U.S. only imports 26% of its aluminium needs. If fluorspar is necessary for processing bauxite to produce aluminium and if our imports of fluorspar from China and countries over which it has control economically or otherwise are reduced then either America’s dependence on imported aluminum goes up or the cost of producing aluminium in America goes up. Either result will advance the agenda of foreign producers of aluminium, such as China and Russia, which is, of course, it’s a free market isn’t it, to increase the dependence of America on imported aluminium. And fluorspar also sees end use in steelmaking (a slag formation agent), water fluoridation (a dental caries preventive) the manufacture of hydrofluoric acid.
So far, in the 21st century China, by itself, has managed to gain control of the global tungsten and magnesium markets quietly and efficiently by simply pricing foreign (to China) producers out of their own domestic and export markets. Then, after the non-Chinese producers closed and/or went bankrupt, Chinese producers would again raise the prices back to where they could make a profit without raising them high enough to trigger a restart of foreign production. China’s central planners of its economy knew full well that strategic self interest in the free-market economies would never trump the economics of greed exemplified by the Wharton School mantra, “Why should I produce it when I can buy it more cheaply elsewhere.” North American banks do not finance production of even critical raw materials—those without which an industry cannot operate—domestically if a foreign lower priced source is available. This despite how high the country risk—the possibility that political action in the producer country will curtail exports—where the material is produced. The attitude of bankers and institutional investors is that if the stuff is so important the government will intervene to subsidize its production, won’t it?
Now take a look again at the chart above and take notice of the fact that for any metal or mineral for which the U.S. is 100% dependent on foreign sources for its needs there is no European source that is not merely a refiner of ores from non European countries. The USGS identifies the point of origin rather than the country-source of the mined mineral or metal. Rare earths, for example, are listed as coming from China , France, Japan, and Russia. The fact is that 97% + of the rare earths are mined in China; the balance come from Russia and India. The French company, Rhodia, and many Japanese companies process rare earth concentrates into end-use products and forms. But not a single gram of rare earths is mined, or is known to exist, in either France or Japan. The rare earth grab by China in the 1990s was, in fact, the first test of the system of predatory pricing by China. It worked. It worked well; and it continues to work today. As we say in the West “If it ain’t broke don’t fix it.” Rhodia and the Japanese companies, such as Asahi Chemical, jealously guard their proprietary processes for refining rare earth metals. They know that Chinese industry is constantly looking for technology without having to bother to pay for its development in either time or money, so they can continue to employ predatory pricing where they have competition.
World economic agendas have been set and led by the U.S. ever since the end of the Second World War. China is fighting to create a new reality in which there is a question of whether or not the U.S. should continue to lead.
No one in Euphoria , D.C. has noticed the new agenda paradigm being promoted by China, but the E.U. has, and I will discuss their unusual reaction to dependence on foreign sources of critical raw materials next.