Australians used to say that when America sneezed, the Australian economy caught a cold. Yet, the US economy is currently bed-ridden and recording a feeble pulse. In contrast, Australia is in robust health and scaling new heights.
Clearly something has changed. That something can be summed up in a word: China. The sheer magnetic power of that emerging nation is forcing a realignment of global business, trade and political relationships (see
Mark Konyn on the Chinese-Japanese relationship). In Australia’s case, the country has the good economic fortune to be in the right place at the right time. China’s craving for iron ore and copper to build its infrastructure, and coal to power its factories and electrical grids, has escalated trade from AUS$113 million in 1973 to AUS$83 billion ($74.5 billion) in 2009 – 14.7% of Australia’s total trade (Australian Bureau of Statistics). It is not surprising that China has displaced Japan, the US and other Asian-Pacific nations to become Australia’s number-one trading partner.
Thanks to China, mining is good business right now – and not just for Australia. Since 2005, driven by China, India and other emerging markets, both precious and industrial metals prices have increased dramatically (see chart), but the unprecedented rate of resource consumption could give pause for thought.
By some estimates, the extraction of many metals has increased in excess of 3% per year through the last half-century. As resources are finite, it is reasonable to ask, is this sustainable? In 2007, a
New Scientist article on usage rates (“Earth’s natural wealth: an audit,” 23 May) – based on US Geological Survey annual reports and UN statistics on global population – provoked much discussion. It suggested large sections of the periodic table could transform into “unobtanium” this century. For example, indium has been consumed in massive quantities for LCDs in flat-screen TVs, laptops and cell phones. Known reserves are estimated at 16,000 tons. At the 2007 rate of consumption, New Scientist believed this would be exhausted within just 10 years. The issue of supply
But it wasn’t just indium. Hafnium, used in light bulbs and control rods in nuclear reactors, and germanium, used in fiber optics and infrared cameras, were expected to be depleted within 20 years. Reserves of zinc and silver could also be exhausted within three decades, while copper could be gone within 60 years.
The work of Armin Reller, professor of materials chemistry at the
University of Augsburg in Germany, was quoted in the magazine. He says the report was reasonable and valid, but, in retrospect, “I think we should be more careful about estimating years. Our discipline has a short history and there are many complex and variable factors involved.”
Indium Corporation, the largest producer of indium, responded the year after the
New Scientist article was released. It said that, with increasing recovery yields during extraction, recovery from a wider range of base metals (indium is a by-product) and new mining investments, the long-term supply of indium is “sustainable, reliable and sufficient to meet future demands.”
“If this refers to indium in the Earth’s crust, then I agree, but amounts of one part per million or less cannot be considered useful deposits,” counters Reller. “I believe we will have a supply problem with indium in the mid-term future if we continue consuming it at the current rate without recycling. The worldwide production of indium is 600 tons per year. Annual consumption is close to that and dissipation [loss through use] is considerable. This means recycling must be anticipated in any future strategies.”
He added that governments have recently realized the problem of a potential shortage of indium and other resources such as platinum, used in catalytic converters and laboratory equipment. For Europe in particular, which imports up to 95% of such critical resources, the issue of supply is becoming an increasing concern.
Economic damage of unregulated mining
Cast in this light, could last year’s rare earths issue be one of many to come as nations squabble over the planet’s dwindling resources? Mainstream media portrayed rare earth as a political matter, but issues of scarcity and environmental degradation underlined the topic.
While rare earths (lanthanides – elements 57 to 71 in the periodic table – plus yttrium and scandium) are more common than the name implies, a critical shortfall in heavy rare earths is emerging. This is particularly evident with dysprosium and terbium because of their use in the growing green-energy field.
China is both the world’s largest producer and consumer of rare earths, using some 51% of the world’s annual production. Its increasing focus on green technology means the country could struggle to meet its own needs, let alone fulfill global needs. Worldwide demand is 120,000 tons annually and expected to exceed 200,000 tons by 2014. By then, experts are predicting an annual shortfall of 40,000 tons (
Rare Earth Elements: The Global Supply Chain, Marc Humphries, 30 September 2010). In addition, when mining standards are lax, chemicals used in rare earth extraction can enter rivers and water tables. The water then poisons farmlands and fish farms. In addition, slurry tailings from rare earth ores can be mildly radioactive due to the presence of thorium and uranium.
As China transforms from a low-cost manufacturing hub and producer of raw material to a supplier of quality finished products, it was inevitable that attention turned to rare earth to both gain greater production value and to address the ecological damage of unregulated mining.
“The price of rare earth will become more expensive. The price is not reasonable right now because it doesn’t include environmental costs, and these will need to be increasingly factored in,” states Li Leming, director of the academic association of the
State Key Laboratory of Rare Earth Materials Chemistry and Applications in Beijing. Mr. Li acknowledges that balancing environmental concerns with commercial mining will cause supply constraints, but said environmental factors were an increasingly important issue for the Chinese government. “Since most of the current [Chinese] smelting-separation factories don’t meet environmental protection standards, improving standards will be one of the key points related to rare earth exploitation in the future,” he adds.
Betting on the future
Paul Ehrlich once paid $576.06 to Julian Simon after losing a famous wager. In 1980, Simon had Ehrlich choose five commodity metals and bet that their prices would be lower at any date more than a year away. Ehrlich believed humanity faced a demographic catastrophe in the near future, with the population outstripping growth in supply of food and resources. In the 10 years between the bet and payment, the world’s population rose by an estimated 800 million, the largest ever increase in one decade, but the price of all chosen metals dropped significantly. Simon argued that despite continuous population growth and finite physical resources, lasting benefits would be achieved into the future through ingenuity, substitutes and technological progress. Julian Simon died in 1998. The price of the five metals trended downward before rising in 2002. Copper, for example, set a record of $457.95 in February 2011.
The dwindling resource argument
Resource depletion is not a new topic. The debate has raged for 40 years (see “Betting on the future” to the left). The pessimists often include scientists and geologists. The optimists tend to be economists who see no threat. The views of Dwight H. Perkins, the Harold Hitchings Burbank Research Professor of Political Economy at Harvard University, are insightful.
“I am 76 years old now and remember going to lectures as a teenager about how the resources of the world would run out. Then came the Club of Rome with its report
in 1972 [it argued that exhaustion of mineral commodities could cause the collapse of the high living standards by the middle of the 21st century], but I believe the notion that we are going to run out of energy resources, as one example, has no fundamental basis in reality,” he explains. The Limits of Growth
“If we run shortages in particular areas, the price will rise. If prices rise, people use less, find substitutes or develop technologies for more efficient use. I don’t buy the argument that resources are going to run out or become a major drag on development.”
An example is provided by Petra Kühl, senior analyst with RCM in Frankfurt, Germany. She notes that when zinc prices spiked in 2006, automotive manufacturers discovered they could make do with less. It turns out that zinc, an anti-corrosive used to protect steel and sheet metal, is still effective when a thinner layer is applied. “Of course, the easy innovation or substitution, the replacement of a metal with another plentiful metal or materials such as plastic, was made in 2006-2007. With prices rising again, now such substitutions will be more difficult and take longer to implement.”
While Kühl acknowledges prices are climbing, she has little time for the dwindling resource argument. “It is a supply-and-demand issue,” she explains. “For decades, up until the beginning of this century, the price of metals was falling, so investment in mining was low. Suddenly, we are faced with huge demand, but this is not easily met.
“Mining is not manufacturing, where output can quickly ramp up. For example, it takes up to 10 years to bring a medium-sized copper mine into production. There are also considerations beyond economics. For example, a lot of copper reserves are in politically unstable regions, such as Afghanistan or the Democratic Republic of the Congo.”
A different perspective is offered by Robert Gordon and Thomas Graedel of
Yale University, and Marlen Bertram of the Organisation of European Aluminium Refiners and Remelters in a 2006 paper “Metal Stocks and Sustainability” for the US National Academy of Sciences. In an analysis of copper, zinc and other resources, their data indicated that current technologies would “require the entire copper and zinc ore resource in the lithosphere [the part of Earth between the crust and outer mantle] and perhaps of platinum as well,” if the large part of the world’s population was to enjoy a modern “developed world” quality of life.
China is where the ground between the views of the doomsayers and optimists is being tested. China’s legitimate objective to raise its citizens from poverty could not only push to the limit the sustainability of Earth’s mineral resources, it could also tip the planet over the edge in terms of unsustainable consumption. At least that is the view of Jonathan Watts, author of
When a Billion Chinese Jump: How China Will Save Mankind or Destroy It (Faber & Faber, 2010).
Guardian’s Asian environment correspondent, traveled 10,000 miles across China, from the consumer excess of Shanghai to the deserts of Inner Mongolia and the heights of Tibet (see “A leap into the unknown”). What he found was vast ecological destruction as China replicated the “pollute now, clean up later” capital-driven growth that has spread across the globe. The problem with the model is that it has expanded without consideration for the finiteness of the Earth’s resources.
And now along come 1.5 billion Chinese, ahead of two billion people in other emerging economies, to add to the demands. “It isn’t all bleak,” says Watts. Since writing the book, he has seen many encouraging signs. “It seems the Chinese government could be starting to think about overall limits to growth, of recognizing that land and resources are finite,” he says, adding a sentiment from his book: “The United Kingdom taught the world to produce in the 19th century. In the 20th century, the US taught the world to consume. And in the 21st century, if there is any hope for us, China will have to teach the world to sustain.”
The outlook seems good for commodities
With metals such as copper, gold and silver recently hitting record highs, and the share prices of various mining firms well exceeding those of 2008, the outlook seems good for commodities. Particularly if, as expected, the growing world population and growing wealth in emerging markets results in a “super-cycle” of permanently high commodity prices (see
Yet there are concerns that such prices may be reaching euphoric levels – a presage for bubble territory. But Petra Kühl for one isn’t buying the opinion of the bears. “I believe over many years the price of metals will remain high. That doesn’t mean that there won’t be corrections of 5-10% upwards and downwards,” she explains. “What will play a crucial role in price is the supply side. Resources where production can be quickly increased, such as aluminum, could prove more volatile than resources such as copper, where supply cannot be significantly increased quickly.” With the development of China and other emerging economies, humanity may get to resolve its own mineral bet within this century. According to an OECD presentation given at the Conference on Sustainable Materials Management in Taiwan (September 2009), annual resource extraction will increase to 80 billion tons in 2020, up 48% from 2002. At that time, demand for metal ores will be greatest and “debates about resource scarcity will increase,” adds Kühl.
It could well prove within the next 50 years that stocks of some metals will prove inadequate to sustain the modern “developed world” quality of life for all people under contemporary technology. As Gordon, Graedel and Bertram note, two key questions will then emerge: do we really envision a “developed world” quality of life for all of the people of the planet? If so, are we willing to encourage the transformational technologies that will be required to make that vision a reality? The answers could well hold the major challenges and opportunities for human life on planet Earth in the 21st century.