DETROIT (ResourceInvestor.com) -- Today’s, August 2, 2007, London (UK) Financial Times has an op-ed comment, of which I think that every reader of Resource Investor should take notice. It is entitled, “We must count the true cost of cheap China.”
American investors are under the mistaken impression that free market capitalism is the ultimate agenda driving the global production and acquisition of natural resources. Because of that impression they look for guidance on demand trends to the American heavy industrial end users of natural resources who beginning in the last three years of the second world war were, for two generations, the world’s largest consumers of all of them, but which are now, in this last decade, rapidly being marginalized, both with regard to demand and supply, by the explosive growth of the BRIC (Brazil, Russia, India and China) economies.
America, which for two generations, was self sufficient domestically in most of the major metals, and through domestic production, economic and political influence was able to meet its demand for any and all of the minor metals our economy needed, has now become for the first time in American history dependent on the kindness of political entities many, if not most of which, are strangers to both the free market and to democracy itself.
All of the debate on peak oil and peak resources in general overlooks that what is peak for the gander may not be peak for the goose. This is overlooked not because it isn’t obvious, but because the American financial establishment doesn’t want to face the political aspects of local and relative peak resource problems caused by environmental activism domestically and resource nationalism abroad. American financiers disguise their lack of interest in the future welfare of America by telling us that all markets are now global, and one has to go with the flow.
The temporary salvation of America’s economy is the fact that we are the first industrialized country to reach major natural resource equilibrium. We, in America, already have most of the permanent metal product infrastructure that we need and we recycle on a massive scale, so that we need new metal only incrementally.
This is the result, as I pointed out a few weeks ago, of the fact that American heavy industry has, for example, produced, so far over its 150 year history - I date the beginning with Henry Bessemer’s first forced air steel (blast) production furnace constructed in Wyandotte, Michigan, shortly after the Civil War - for the use of the 300 million living Americans 16.5 tonnes each of steel most of which still exists in America as railroad engines, cars, and rails, bridges, buildings, reinforcing bars for concrete, automobiles, trucks, ships, appliances, nails, tools and so on. In addition our domestic copper industry has provided wiring, motors, water pipe and the like while our domestic lead and zinc industries have poured rivers of metal into mountains of molds.
The amount of steel produced per living person today, in our history, just measured out for the citizens of Grand Rapids, Michigan, is enough, 4 million tonnes to have created the mightiest navy afloat and, in terms of tonnage, the equal of the major surface combat units of the combined fleets of all of the rest of the world’s navies.
Our mostly private, consolidating daily into fewer and fewer but larger and larger companies, American scrap industry diligently collects, separates by metallurgy and forms, bundles and dispenses American scrap metal, the world’s largest supply of secondary first class metals, into which a huge amount of energy and the best metallurgical technology has been invested, to the highest paying buyers anywhere.
You cannot even begin to imagine the delight taken by a Chinese steel mill operator as he feeds scrap bought from America, which is better quality than any new steel he currently produces, into his furnaces thus lowering his need for the (very expensive) total energy needed to make steel from iron ore only. The scrap already contains the energy of its creation from the reduction of ore to iron and the addition of carbon and of expensive alloying elements that must first, in new steel, be alloyed with additional energy added to the ordinary reduction process.
America’s steel industry, the world’s best and largest only a generation ago, now produces around 80 million tonnes annually, while China’s produces a massive 400 million tonnes annually. Yet there is no shortage of steel in America. It might have been better for us if there had been. Our financiers decided and our industrialists agreed, mistakenly, a generation ago not to use their access to our accumulated wealth to back American companies in acquiring steel mills and iron ore assets overseas, or for that matter, to acquire copper, zinc, lead or any of the minor metal industries or raw materials overseas except to buy the output of foreign owned companies and mines only as necessary for American domestic production. The idea of supplying other countries with American goods tailored to their economies and societies never seems to have entered our industrialist’s minds.
The American consumer market had exploded after World War II, ending the great Depression, which had nearly overwhelmed capitalism in America, and the short sighted American industrialists decided that the burgeoning domestic market was so huge that the overseas markets were simply not worth the effort and risk. This short sighted philosophy still prevails in the diminishing American heavy industrial sector. We sent money to China for cheap underwear made by Chinese companies instead of investing in places like Africa, South America, East Europe and India where abundant natural resources and low labour costs were prevented from developing by a lack of the capital that we wasted in places like China where we are customers not partners and where quality and environmental issues that have never been a secret are now exposing the true cost of the China price in particular to the OEM American automotive industry, processed food industry, and consumer goods retailing sector.
America has achieved, through its domestic natural resource base, creativity and productivity a form of resource equilibrium, perhaps even in the energy sector, due to the simple fact that American resource production and use only needs to balance an incremental domestic demand. Yes we produce around 14 million new cars and trucks each year-the rest are imported-but we scrap nearly the same number of vehicles annually. The American road carries 200 million vehicles!
Many American electric arc furnace mini-mills use this scrap exclusively and our BOF (basic oxygen furnaces - Bessemer’s children) use it to balance iron ore feed primarily to produce cold rolled steel to make more cars. Those who have seen mountainous piles of scrapped cars from the highway in America are a diminishing breed. What we don’t need here any more is hungrily sought by foreign steel makers, because, again, it is the largest source of top quality already formed steel scrap on earth.
It is the same for lead. Nearly 90% of the lead now used annually in America is used to make new lead acid storage batteries for not just cars but also for electric fork lift trucks and storage of power produced during off-peak hours. The U.S. imports very little lead as compared to the amount it uses, because it recycles mainly old batteries to get 75% of its annual needs.
I will have a chart later in the month showing how for the critical metals resource demand equilibrium in America affects the peak resources debate.
Keep in mind until then that the U.S. is far and away the most technologically advanced society on earth. This means that we move information more efficiently and cheaply than anyone else. We foolishly waste resources by charging almost nothing, by world standards, for someone to sit in 3 tonnes of SUV using a gallon of gasoline to go 9 miles to get bottle of Coca Cola. We foolishly waste metal and energy by not creating above or below ground mass transit in our cities or on our intra - or interstate highways.
We are now embarking on a wasteful and stupid politically inspired transfer of wealth from ordinary taxpayers to wealthy farmers and agricultural products companies in order to waste food grains to make a fuel we don’t need, because although we could produce oil from our own shale and electricity from our own abundant domestic uranium and thorium reserves neither fuel has political support from our, think-only-of-the-moment-of-re-election, politicians.
We are living in a dream supported by the fact that everyone else in the world is trying to play catch-up and looking for the natural resources to build what we have already built. We only need to maintain our infrastructure.
American technological know-how has not created and sustained us American money or even our best-in-class armed services.
I think there will need to be an awakening in America, and I think it hasn’t yet happened. I think there will be a dark period during which Americans think that the world has passed us by. But in the end it is a fact that we have ours and there may not be enough to go around for everyone to have and sustain our standard of living. The BRIC nations and some of our friends in Europe and the Americas are having a natural resources usage orgy.
When it is over, and it will end with clouds of pollution, political crises of unfulfilled governmental promises, and inefficient technologies, which need maintenance and replacing, then I hope that Americans will come to their senses and produce what we need for ourselves first and then and only then help out the rest of the world.
We have survived the global explosion of commodity prices and diversion of new resources away from us, because it has so far had very little apparent effect on our standard of living, even though we are now massively dependent on imported natural resources, because, in fact, we actually need very little in addition to what we already have. It is this not a miracle that has allowed us to escape inflation so far.
We have enough domestic resources of metals, energy and creativity; time will tell if we have the will to help ourselves.
