The Future Markets for the Rare Technology Metals

The most important and wide-ranging historical analyses of the economic consequences of our activities have simple yet globally descriptive titles. In the eighteenth century, Adam Smith began the modern study of global economics, with his famously titled seminal treatise “An Inquiry into the Nature and Causes of the Wealth of Nations.”

In the first part of the twentieth century John Maynard Keynes described the economic consequences to both the victors and the vanquished of World War I (known as The Great War in the days when it was hoped that it would be the last of its type), in “The Economic Consequences of the Peace.”

Keynes next deeply studied global economics and titled his masterpiece, simply “The General Theory of Employment, Interest and Money.” Milton Friedman then wrote “A Monetary History of the United States,” and Frederich Hayek penned “The Road to Serfdom” as his analysis of the then-raging battle between the consequences of socialism and capitalism. All of these twentieth century studies were written before the middle of that century.

In Smith’s day the richest nation on earth, in terms of what we now call gross domestic product (GDP), was probably China. Between Adam Smith’s death and the publication of “The Road to Serfdom”, the Industrial Revolution led to the pre-eminence, economically and globally, first of Great Britain and then of its intellectual descendant, the United States of America.

The wheel of history seems now to be turning again, so that we will surely see by 2020 at the latest, the return of China to its former place as the nation with the highest GDP. This return to economic dominance by China could not have been, and was certainly not foreseen in 1947, when America owned half of the world’s gold reserves and was the richest nation in history both in GDP and in per-capita income.

The last half of the twentieth century has seen the transformation of China from a third-world socialist economy, to first an export powerhouse and now a nascent consumer economy, under a hybrid version of capitalism that sees state control of the banking system used to control the direction and growth of capitalist institutions. The Chinese refer to this as “Capitalism with Chinese Characteristics,” but it is really just a very sophisticated state-controlled capitalism.

Chinese capitalism has created the greatest commodity-consuming nation in human history. Just with regard to metals, which is the economic sector that I study, we now live in a world where the Chinese economy consumes nearly 70% of the total output of all metals of all kinds, produced in the world each year. China at the same time produces more than 60% of all of the metals produced in the world each year. Thus any analysis of the markets for, and the future of, any metal – any metal at all – must assume that China is and will continue to be the major consumer of that metal. As it also turns out, China is probably going to also be the major producer of that metal too.

Great Britain in 1850 and the United States in 1947 held the titles of the world’s largest producers of iron and steel. The first because it was the home of both the Industrial Revolution and the birthplace of modern capitalism, and the second because as the victor and armorer of the world in the Second World War, it had by far the largest remaining iron and steel industry. It also had the pent-up demand not only of its 13,000,000 returning soldiers and sailors to satisfy, but also that of its 120 million additional and now richest in the world consumers, who had been saving enormous sums for a decade.

Now, in 2013, it has been not war but industrialization, mainly in China, that has produced a nation of voracious savers whose centrally controlled economy is moving to create the greatest consumer-driven economy in the history of the world. More than one billion Chinese consumers are being readied to continue the growth of the Chinese economy and its starting point is already that of the world’s second largest economy. I have no doubt that another two billion Asians, Indians, Indonesians, Koreans, Malaysians, and Filipinos will join the Chinese consumer boom by 2050, to firmly center the global economy in Asia.

What will this mean for the markets for critical and strategic materials? First and foremost it will mean, and already does, that civilian not military demands for structural and technology metals will be the dominant and overwhelming driver for the growth in their supply. It also means that the natural resources of both the wealthy and of the poorer of the resource-rich nations, which do not have enough population or industry to build the capital they need to produce or consume their domestic resources, will be developed by Asian capital and purchased for use domestically in Asia.

The currently wealthiest nations of the world in North America, Western Europe, and Japan are mature consumers of material natural resources. Their economies are not growing. Therefore the only material natural resources they need are to replace those lost through waste or mismanagement.

The economic power and growth of Asia’s economies will, I believe, mean that the rare technology metals will ultimately only be available to non-Asian (but still rich) economies through conservation and recycling. This is not a military-capability problem; it is a deep problem of the civilian standard of living. Because it is not a military-security issue there is a zero probability that governments in the West or Japan are going to finance mining to produce new supplies of rare technology metals. In any case, only in the USA are there sufficient deposits of such materials to make it worthwhile. Mining is today in the USA too politically expensive for our short-sighted politicians to even consider such a solution.

The immense resources of rare technology metals contained in the existing American and European “inventories” of end-of life consumer and military scrap are already being mined by Asian entrepreneurs for their own benefit. I believe we are already at the stage in the USA where producing rare technology metals from scrap is the only remaining hope of obtaining a secure supply of the lowest possible cost materials, to feed a total domestic supply chain to satisfy our domestic (replacement) demand for such materials.

It is now sixty years since the great twentieth-century economists explained where the global economy came from and where it stood. We have been annotating these great works of economic analysis and theory for nearly three generations, as academics advise ever more poorly educated politicians on how to create wealth equitably. it seems to me that this instruction passes right over all of their heads, and it has become accepted as inevitable that the rapacious accumulation of wealth and power is the natural state of human endeavors.

It is obvious, however, that the avoiding of polarization into “haves” and “have nots”, by the waste of productive capital through its pointless accumulation, is the major purpose of government. Such accumulations reduce society to oligarchy and the protection of the oligarch’s wealth, the protection of which then supersedes a society’s economic growth and fair distribution as economic policy.

If we have to beg the oligarchs to follow a path that provides the most wealth for the many, we are already lost.