Raw materials and global competition
by Stormy
(lifted from e-mail to me and MG)
Whether there is or is not a near peak in either of these two metals (copper and gold), we
should expect to see prices inexorably climb. The reason? The enormous
appetite of China for raw materials. However we look at it, China’s
ponderous entry onto the world stage has been the most significant economic
event in the last 50 years. (Rdan here…it looks like copper prices are driven mostly by demand to date according to the charts, not lack of supply reserves)
Now the question is: How will this affect the U.S. and Europe? Certainly,
there will be a race to secure raw materials, especially those whose supply
is clearly and perhaps measurably finite. Furthermore, this race comes at a
time when the U.S. and Europe are not exactly flush with cash.
Economically, I would say that this one of the biggest stories out there.
Problems such as Greece and U.S. debt must be placed in this context.
China’s massive workforce has been deflationary in terms of the cost of
labor. On the other hand, the actual cost of resources will climb, both
because of dwindling supplies as well as the increasing cost to bring them
into the production stream.
Stormy asks.
Rdan here: I found the following in the comments from Jon and Gail the actuary especially relevant for us novices:
Jon says:
“One gets a much better picture of the situation by actually reading the reports put out by the USGS. From the 2010 Minerals Yearbook section on copper:
World Resources:
Recent assessments of copper resources indicated 550 million tons of copper remaining in identified and undiscovered resources in the United States8 and 1.3 billion tons of copper in discovered, mined, and undiscovered resources in the Andes Mountains of South America.9 A preliminary assessment indicates that global land-based resources exceed 3 billion tons. Deep-sea nodules were estimated to contain 700 million tons of copper.
Substitutes:
Aluminum substitutes for copper in power cables, electrical equipment, automobile radiators, and cooling and refrigeration tube; titanium and steel are used in heat exchangers; optical fiber substitutes for copper in telecommunications applications; and plastics substitute for copper in water pipe, drain pipe, and plumbing fixtures.
Peak production and peak demand will be determined ultimately by peak price.”
Gail says:
” It seems to me we have a lot of different things going on with copper:
1. Extraction is very energy dependent, so cost of extraction tends to vary with the price of oil.
2. Ores are getting to be of lower and lower quality.
3. Techniques for extraction are getting better over time, using less energy (one of the true forms of energy efficiency.)
4. Other metals can be substituted for copper, if the price gets high enough.
5. Economies around the world have been growing, generally pushing up the demand for metals.
6. Financial issues affect demand. The easier it is to get credit, the more building will be done, and the more copper will be needed. (This is true for other metals as well.) Peak credit will likely determine peak demand. (Or perhaps the limit will be determined by net energy available for uses such as mining.)
It seems to me that most of what we are seeing can be explained by these factors.
What we see in the world production graph is continuous growth in copper use, as world economies grow. It may be that one area of the world grows faster than another, as one area reaches lower ore concentration, or has lower labor costs. I would expect costs and production to vary with the six things listed above.
It seems to me too, that the when the peak occurs and the shape of the downside of the curve, is likely to be defined by the above factors…”
(Rdan and re-cycling efforts over the globe….). Anyway, a neglected part of the puzzle at AB to consider.
Update: Barkley Rosser wrote a good piece on China here
You should note that there’s more to 3) than just extraction becoming more efficient. You also have people discovering entirely new methods of extraction. Copper is in fact the great Poster Boy for this argument for in the 1980s people finally cracked the SX/SW process (don’t ask) which allowed extraction of copper from sulphide ores (think I’ve got that right). So we moved from a world in which we knew there were lots of copper atoms we could get at but couldn’t use to a world in which we could use those copper atoms we could get at.
My day job is in metals (rare earths rather than copper) and the last year or so has been spent on entirely and exactly this issue. You’ll have seen the stuff around about how China produces most of the world’s rare earths and how they’re limiting exports. But what’s actually happening is everyone running around looking for other sources. And no, not just “some other mine”. But all sorts of ideas. Waste streams that contain rare earths for example. The waste from the aluminium making process contains some 20,000 tonnes of rare earths each year.
It’s not just that past prices made extraction unprofitable, it’s that past prices made thinking too hard about how you might extract them unprofitable. That is now changing of course. And this sort of thing goes on all the time in the metals industry. I have, and I’m being entirely serious here, seen a report that says that dust collected from Japanese roads has higher platinum content than major ore bodies (the platinum comes out of the catalytics convertors on cars).
If we’re honest about it there’s no shortage of any metal on the planet. The twin shortages are energy for extraction and the ingenuity to create methods of extraction and recylcing.
Automotive is big on copper wire harnesses. In 2006, we were paying $3.4/lb on $1/lb contracts with the big 3. Automotive made it especially difficult to renegotiation costs in light of the rising proce of copper. With all of the gadetry in cars and trucks, the guage of the wire is getting bigger and bigger to support the need for more and more current (ever notice how a 15 amp motor run on a 12 amp cord heats the cord up?). To run the devices properly in a car, you need larger guage wire. Copper adds to much weight to a car.
Many of the wire harnesses manufacturers have been exploring fiber optics and 42 volt systens in cars to minimize weight and improve performance. Aluminum corrodes over time and is not a good substitute for copper in many cases as its efficiency declines. I do not believe there to be a good substitute for copper in wire yet.
Thank you all for teaching me -and I suspect others-a little bit about copper and rare earths
Hi Tim. Thanks for adding to my little knowledge of the subject. Part of the frame is that while petroleum is ‘used up’, metals are only transformed physically and remain to be used again.
Nice point about pricing and attitudes about pricing being different.
The US so far appears to be complacent about re-cycling from appliances and such, as shipping containers going back to China are filled with junked appliances from our market. Of course such reclamation is highly toxic to humans as done in China from what I read.
Interesting. In New England there is stealing of copper flashing and drain spouts off old buildings and fancy houses, water pipes stripped out of empty houses, etc. Price makes a difference.
Aluminum is not a simple substitute for copper, I agree.
***If we’re honest about it there’s no shortage of any metal on the planet.***
Gold, maybe. It’s almost the ideal metal for a wide variety of electronic applications being an excellent conductor (second only to Silver as I recall), soft, and not oxidizing. If Gold were as common as Copper, the wiring in our houses and cars would probably be Gold, not Copper.
In any case, we need to remember that there are four or more billion people — and more coming — in the developing world outside China, and they are going to want/need resources also. Supplies of industrial metals probably are going to be tight for much of this century. … and don’t get me started on petroleum.
Here is a question for those who actually know something about metals. I have heard–like in 8th grade science class almost a million years ago–that seawater contains trace amounts of all kinds of metals. As the world shortage of potable water continues to grow it would seem like there should be more and more reasons to build desalinization plants. Of course those plants need a lot of energy and I always have thought that wind power would be an ideal source of that energy because unlike electrical needs– where you need a constant source of power- you could shut down or run such a plant at low capacity when the wind is not blowing because you can store the fresh water. The question I have is could you economically recover viable amounts of metals from such facilities?
Tim — I have been concerned about the metals used in electronics. A number of these are supposed to be very rare. You don’t see a problem in the future?
Yep. In the last century, much of the world’s Magnesium came from sea water although nowadays, it is mostly mined … in China. I vaguely think that Bromine is also produced in commercial quantities from sea water or brines — too lazy to look it up. The Japanese believe they have a viable technology for extracting Uranium from sea water although they haven’t proven it yet.
Wind power for metals extraction? The economics of an industrial plant powered by an erratic power source are probably tricky. Maybe someone who knows more about process design than I do (which would be a very large number of people) can comment intelligently on that.
“Extraction is very energy dependent, so cost of extraction tends to vary with the price of oil.”
its not just price…we are also approaching a physical limit to our ability to extract the oil we find…to simplify, the “easy oil” such as we were extracting in the 30s, cost about 1 energy input for each 90 energy outputs…most new oil today, such as deep ocean well drilling, cost us 1/3 of the expected output in energy inputs, and that ratio is rising……that is complicated by the fact that some of the largest unconventional sources of oil, such as the alberta tar sands or the bakken shale, for example, take large quantities of fresh water to extract, which is left polluted after the fact; the tar sands are an environmental disaster and if bakken is to be viable, water will need to to trucked from the missouri river system…
But to take one example technological change has reduced the demand for silver in one field drastically, photography. With digital imaging no silver is needed, whereas in film photography silver is a key componet (in fact essential as silver compounds are the key to chemical photography). In Telecom we have reduced the demand for copper by moving to silicon.
The automakers know how to fix a bit of this, move to a 42 volt electrical system, which has been under discussion for 10 or more years. More voltage = less current= less copper. Recall that the price of copper was one of the reasons Edisons original direct current system lost out to Tesla and the alternating current system.
Melt value on nickels now over 6 cents (25% nickel, 75% copper)
That’s why our Fiat Money Fraudsters (the Feds) have made it illegal to melt down pennies and nickels…
http://www.usatoday.com/money/2006-12-14-melting-ban-usat_x.htm
What say you, soft, easy money minions?
Do you really trust some political hack in DC not to debase your paper-based savings through excessive debt and inflation?
Then why ban coin smelting?
For exactly the same reason that gold ownership was outlawed in the 1930’s (http://en.wikipedia.org/wiki/Gold_Reserve_Act)…
Fiat monies cannot compete with “inefficient” commodity monies when the predictable perversion of politicians is taken into account…
Re sea water. Yes, you can indeed extract pretty much anything from sea water. It really comes back to the energy thing. What’s the cost in energy of getting the metal out? As noted above, the Japanese uranium extraction method is around and about there (within the right order of magnitude at least). Mg extraction, well, yes, but not so much from sea water as from very salty sea water (usually called “brine”). I’m pretty sure there’s still a magnesium extraction plant on the Dead Sea….which uses shallow ponds and lets the Sun burn off the water then collect the salt afterwards. Just like salt extraction pans for regular table salt in fact.
You’ll have seen, no doubt, the stories about Bolivia and the provision of lithium for car batteries. That’s to come from salt flats…..an old sea that has evaporated. The Sun has essentially done all of the energy intensive bit in getting rid of the water for us.
Now, if we either had cheap energy or a cheap method of evaporating the water out of sea water (in essence, the same thing) then we could indeed simply mine the seas for most metals. I wouldn’t put too much emphasis on this number but I dimly recall that it would be profitable to extract gold from it at a price of around $5,000 an ounce using current technology.
Re desalination plants. Well, yes, this might be a place to start except the technology we mostly use these days doesn’t in fact extract all of the fresh water from sea water. We don’t take a tonne of water and extract the 1 or 2 kilos of salts (salt salt is sodium chloride but any metal compound is known as “a salt” and salt in sea water is in fact a complex mix of many different “salts” even if the majority is “salt salt”). What we do is take our tonne of water and extract perhaps 100 kg of fresh water and have left over 900 kg of slightly saltier water. So while it’s a start it’s not really all that much help.
More specifically for Eleanor. Yes, many of the metals used in electronics are “rare” in one sense. We don’t “make” many of them. But this comes back to those economic factors about extraction costs again. There’s no shortage of atoms of these metals around. There’s a shortage of ores where they are concentrated, possibly, a shortage of technologies for extracting them at a price people are willing to pay perhaps. But no shortage of actual atoms.
Now this isn’t exactly true. One of the rare earths, promethium, we reckon that at any time there’s about 40 grammes on the entire planet. But this is because it is radioactive and decays quite fast. And it’s produced by the decay of another, larger, radioactive atom. So it’s being continually created and destroyed. Leaving aside very special cases like that there’s no shortage of the atoms.
A couple of examples. Way back when Gallium (very important in electronics, gallium arsenide making chips for phones for example, also used in solar cells sometimes) came mostly from a mine in the Congo. This is pretty much mined out. But a few decades back it was noted that there’s some gallium in bauxite (the ore we use to make aluminium). And by chance, in the process of turning the bauxite into aluminium oxide (or alumina) the gallium concentrates in a particular part of the process. It’s not too tough to add an extraction circuit to that alumina plant. And some of the 35 such plants around the world do so….but most do not.
So, if we wanted more gallium (virgin production is around 60 tonnes a year I think, while recycling provides another 200 or 300 tonnes…maybe not quite the correct figures but not far off) we could simply add those extraction circuits to the plants that are already running. We’re already processing the ore anyway. Ten million tonnes a year or so and even at 0.01% gallium that’s a lot of gallium.
Germanium is another electronics metal. Extracted as a by product from, umm, lead ores I think. But if we wanted to (ie, if anyone wanted to pay the price) we could extract it from coal, as was done in the 1950s. In fact, flue dust, of which we produce around 100 million tonnes a year globally, would be a good source as it concentrates there. It might only be there in 200 parts per million or so but when we’ve 100 million tonnes of waste that’s a lot of germanium (umm, global consumption is a few hundred tonnes a year I think).
Rare earths are used a lot in electronics. In fact, they’re what make a lot of them work. Permanent magnets (headphones, hard disk drives, windmills all rely upon them) use neodimium. Fibre optics use erbium (and germanium). Terbium makes CFL bulbs work. There’s lots of these sorts of things….lutetium makes MRI machines work.
Currently 95% of global supply of these comes from one mine in China. Most of my work in the past year or two has been scouring through old technologies and waste streams from other processes to see where we might be able to get such rare earths in the same way that we might gallium or germanium. And there are plenty of possible places. It’s really a matter of price….and as in my original comment, not so much just theprice of extraction, but a price that makes doing this thinking about it (and experimenting of course!) worthwhile.
That same aluminium production process could, in much the same way that we extract gallium, produce 20,000 tonnes a year of rare earths. About 15% of current global usage.
Or the metal that I’m really an expert in, scandium. the price in recent years, the last 15 or so, has been rumbling along at about $1,000 a kg and the world used maybe three tonnes a year. Now there’s a huge surge in demand from a new technology, solid oxide fuel cells (the Bloom Box doesn’t in fact use it but if it did it would be more efficient. And there are many competitors which do use it.) and people are running around trying to secure 50 tonne a year supplies. Which has led me to be running around looking at waste streams again which might contain it. And I have on my desk a plan, fully tested and worked out, to extract it from a waste stream at a price of around $8,000 per kg. Hundreds of […]
I want to thank Mr. Worstall for his posts on this subject. Have you ever been to Mountain Pass, Tim?
I want to comment that more aluminum than copper is already used for electrical wire. This is because for large utility conductors aluminum has been standard for years (since the 60’s). It is small gauge wire (in buildings and goods) where copper predominates, due primarily to the superiority of copper outweighing the cost in small quantities, and the disaster of switching to aluminum for house wiring for a few years back in the 60’s.
On Chinese copper demand, note that China is building up the same level of electrical infrastructure built over 100 years in the U.S. in a period of about 20 years. However, I’m pretty sure that a big chunk of current Chinese “demand” for copper is actually stockpiling (not showing up in world metal stocks) rather than immediate use.
On copper supply: I’m convinced that Chile is acting (in the mid term) to produce less copper than profitable at current prices in order to keep from depressing prices. This hasn’t prevented prices from cratering in the past, of course. I think that commodity stockpiling is actually one stimulus the U.S. SHOULD be using to boost employment now. Rural Arizona would certainly benefit from buying the full additional output of their copper mines off market at market price.
I am pretty sure that energy cost is not the reason for the link between copper and oil prices. This has more to do with general economic conditions and demand for the two commodities being correlated. It may also have something to do with speculation in the market (though I don’t insist on that). Most energy use in aluminum and copper production is not petroleum. Coal and electricity prices would be far more relevant to production costs. High energy prices do increase copper share of the conductor market by increasing aluminum costs (which has significantly higher extraction energy cost).
Although I won’t claim to know anything about process design, I would suspect that it would be cheaper to build sufficient excess electricity production and storage than to run an industrial plant at low capacity factor on an unpredictable schedule. Building wind and pumped storage would be relatively cheap in the U.S. if done under the market model used to create most of the existing hydro in the U.S. and the world (government or regulated utility ownership). I estimate that we could in the U.S. build 200,000MW of wind at $750/kw (yes I know that isn’t what it costs under the market model we are currently using) and 80,000MW pumped storage at $1500/kw, finance it federally at 4% amortized over 20 years, and produce 3 cent per kwh power (assuming 1 cent O&M) with the fastest ramp rate in the grid and base load cost. The pumped storage would also reduce cost of existing generation, so the net cost would be lower. The energy production would amout to about 1/6th of current U.S. consumption
Not been to Mountain Pass, no. When I did live in California the mine was out of action. But I know about it of course. And I also know more than I probably should about the attempts to get government money to get it open again but that’s another matter.