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OCR for page 26
Supply, Demand, and Competitiveness
OVERVIEW OF THE MINERALS AND METALS INDUSTRY
This chapter identifies actions, policies, and technologies that may help
maintain or improve the competitiveness of the domestic minerals industry
and focuses attention on five metal subindustries—aluminum, copper, lead,
zinc, and steel—that represent three distinctly different situations. The U.S.
aluminum industry, for example, is oriented to the production of alloys and
specialized products; it depends on foreign production of bauxite and, in-
creasingly, alumina and even aluminum metal. The producers of copper,
lead, and zinc, on the other hand, concentrate on the mining of ore and the
production of metal for sale in commodity markets. The steel industry is
more oriented toward the processing of iron ore and scrap into steel alloys
but not to the degree of specialization found in the aluminum industry.
Together, these three different situations can provide insights into the range
of issues faced by the domestic minerals and metals industry as a whole.
The basic stages of exploration, mining, and processing are similar for
every metal product (see Box), but the particular form of these stages differs
from metal to metal, and each subindustry has developed a structure that
reflects the production and consumption of its products. (See Chapter 3 for
further discussion of these technologies.)
The world distribution of metal production and consumption reflects both
the mineral endowments of the producer countries and the investment poli-
cies of mining firms and national governments. Leading mine producers
are the developing nations in Africa and South America and large developed
26
OCR for page 27
SUPPLY, DEMAND, AND COMPETITIVENESS
27
OVERVIEW OF MINING AND METAL PRODUCTION PROCESSES
The process of locating mineral deposits is termed exploration. In the past,
exploration was accomplished almost entirely by examination of surface topographical
features and by the taking of core samples. While these methods are still
employed today, they have been augmented by remote (e.g., seismic) analysis
of deeper subterranean features, by analysis of photographic and spectrographic
data collected from aircraft and even satellites, by computer modeling techniques,
and even by biochemical analysis of organic material on the surface.
Mining is the process of removing ore from the ground, either by open pit or
underground methods. The next phase, often termed beneficiation, involves the
production of a form of the ore in which the mineral is more concentrated. This
may be accomplished by physical means, in which the ore is reduced to smaller
particles by mechanical crushing and grinding, followed by physical separation
of the mineral values from the ore to produce a "concentrate"—material containing
a relatively high percentage of the metal of interest. In other cases, the mineral
values are leached out of the ore by chemical means, a process known as
hydrometallurgy. Heap leaching, using a chemical as the leaching agent to
extract a mineral such as gold from a pile of ore or tailings (waste materials
from earlier mining), is one such method.
The products of physical separation and leaching are subjected to chemical
separation using either low-temperature (hydrometallurgical) or high-tempera-
ture (pyrometallurgical) means to yield a metal of suitable purity. Pyrometallurgical
processing involves a combination of heat and chemical or electrolytic treat-
ment of the concentrates in a process known as smelting. The resulting metal
may then be further purified by chemical and electrolytic "refining" techniques.
Depending on the nature of the ore and the metal, both smelting and refining
may consist of several discrete steps. Hydrometal/urgical processing involves relatively
newer techniques in which the mineral solutions resulting from leaching are
subjected to either electrical or chemical treatment.
With either method (gyro- or hydrometallurgical), the end product is a purified
metal that is then melted and cast into any of several forms convenient for use
and/or transportation—ingots, bars, slabs, etc. In some cases processing is
extended into the production of "semifabricated parts" such as sheets, tubing,
and wire, from which more complex shapes or products can be manufactured
by the end user.
The processing of many ores is complicated by the fact that they contain
more than one metal of economic interest. This has major implications for the
economics of the minerals and metals industry, since the "coproducts," while
less plentiful in the ore, may in some cases be nearly as valuable as the
primary mineral of interest. Copper mining produces substantial amounts of
gold, silver, and molybdenum as coproducts; about 5 percent of all domestic
gold production in 1988 was recovered through processing copper and other
base metals.
OCR for page 28
28
COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY
. Canada |
~ .
l'
Unfed States
_.
South&Central
America
I_~i
eastern Bloc
Europe
__F
Asia
Bauxite
Copper
Iron Ore
Lead
Zinc
~1
~ Africa
Aluminum
Copper
Raw Steel
. Lead
Zinc
Mine Production Metal Production
L
- Oceania
FIGURE 2-1 World distribution of mine output, metal production, and consumption.
OCR for page 29
SUPPLY, DEMAND, AND COMPETITIVENESS
TABLE 2-1 Categories of Metals
Base metals
Copper
Lead
Zinc
~-
1ln
Steel industry metals
(iron and ferroalloys)
Iron
Manganese
Nickel
Chromium
Cobalt
Molybdenum
Tungsten
Vanadium
Columbium
Light metals
Aluminum
Lithium
Magnesium
Titanium
Platinum group metals
Platinum
Palladium
Rhodium
Ruthenium
Iridium
Osmium
Precious metals
Gold
Silver
Electronic materials
Silicon
Cadmium
Gallium
Germanium
Selenium
Tellurium
Tantalum
Indium
Rhenium
29
countries, principally Australia, the United States, and Canada. While ores
may be treated and processed near the mine, refining of metals and produc-
tion of commodity products or specialty alloys takes place predominantly in
the developed nations. This is illustrated in Figure 2-1, which shows the
distribution of production and consumption of the five subject metals for
the United States and other regions of the world. Current global trade
patterns are the product of a gradual evolution, as mineral resource bases,
technologies, politics, and economics have slowly changed throughout the
world.
The subindustries are generally categorized according to type of metal,
as shown in Table 2-1. The base metals copper, lead, and zinc have
long comprised a substantial market. Iron ore, pig iron, and steel together
comprise an enormous industry worldwide; they are usually considered as a
single category, separate from the nonferrous metals. The steel industry
metals, often referred to as ferroalloys- manganese, chromium, cobalt, mo-
lybdenum, nickel, tungsten, vanadium, and columbium are those that are
commonly combined with steel to make alloys having special properties as
well as being used in their unalloyed metallic form.
Another category consists of the light metals aluminum, lithium, mag-
OCR for page 30
30
COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY
nesium, and titanium. These are metals that because of their high strength,
low weight, and other special properties have replaced steel for some uses
over the past century and particularly in recent decades. Aluminum is the
second most widely used metal in the world. Magnesium and titanium, by
contrast, are high-value materials with relatively small annual world pro-
duction levels. Lithium is used in small amounts as an element in new
aluminum alloys that have high strength-to-weight ratio, but these alloys
are not yet in wide commercial use.
The precious metals comprise a separate category. Although these met-
als have important industrial uses, they are also traded for investment pur-
poses
The platinum metals are similar to precious metals in that they have an
investment purpose, but they are also used as catalysts in chemical reactions
and for pollution control purposes.
The newest category of metals is termed electronic materials, a reference
to the role they play in the computer and communications industries and
other electronic applications such as batteries and switches. The category
includes silicon, cadmium, gallium, germanium, selenium, tellurium, tanta-
lum, indium, and rhenium. With the exception of silicon, the electronic
minerals and metals are relatively scarce. They often occur in combination
with other more common metals and are produced as by-products of the
mining and refining of those metals.
TRENDS IN MINERAL AND METAL PRODUCTION
Aluminum
Aluminum is produced in a two-stage process: the raw ore, bauxite, is
converted into alumina, the principal oxide of aluminum, which is then
smelted to produce aluminum metal. The two stages are independent and
can therefore be located at different sites. Bauxite is mined in over a dozen
countries, with much of the ore located in the equatorial latitudes. Bauxite
is often processed into alumina near the deposit, reducing the amount of
material to be shipped and allowing the host country to share in the value
added by processing. Since the production of aluminum from alumina is a
highly energy-intensive process, the availability and cost of electricity are
major factors in the siting of smelting facilities.
For many years sufficient electrical capacity was available only in the
industrialized countries. This began to change in the 1970s. As petroleum
prices rose, so did the cost of electricity, causing drastic changes in the
economics of aluminum production. One result is that future smelters are
likely to be located outside the United States, probably closer to the mine
OCR for page 31
SUPPLY, DEMAND, AND COMPETITIVENESS
31
site. The U.S. aluminum industry previously had the competitive advantage
of low-cost electric power, but now such countries as Brazil and Canada are
capable of providing electricity at prices that are low relative to those charged
in the United States.
The U.S. aluminum industry will retain other advantages resulting from
low-cost transportation on inland waterways and proximity to markets as
well as a base of existing facilities. Because aluminum smelting is capital
intensive, existing smelters can continue to compete with new smelters in
other countries. Finally, the aluminum industry extends far downstream to
include the production of specialty alloys in forms desired by the consumer.
Firms in the aluminum industry compete not only on metal price and production
costs but also on the ability to deliver desired products.
After several decades of expansion, however, it appears that domestic
production of aluminum has peaked. Due in large part to the high cost of
electric power in the United States, it is unlikely that there will be significant
investment in new domestic aluminum plants. As the cost of operating
domestic smelters increases due to increases in domestic energy costs or
other factors such as fitting pollution control systems to existing facilities,
even the current level of domestic smelting capacity is likely to decline.
The U.S. aluminum industry will likely remain strong because it is vertically
integrated and can combine investment in overseas mines and processing
facilities with domestic alloy production and production of semifabricated
products.
Steel
The huge steel industry has evolved into two independent components.
Once dominated by large integrated facilities, the industry is now segmented
into "mini-mills," which rely on scrap steel for input and produce basic
steel as an output, and large facilities that continue to produce raw steel,
both for processing into semifabricated products and for further processing
into specialty alloys.
The industry's raw materials iron ore and scrap steel are commodities
that can be obtained from a variety of sources. As a result the competitive
basis for the steel industry depends less on the cost of raw materials and
more on the costs of processing them into steel and steel products. To a
greater degree than the base metals, steel has some specialized markets
where a firm can compete based on the quality of the marketed product.
Base Metals
Base metals copper, lead, and zinc are commodity products. The bulk
of production is processed into standard forms, such as wire, slab, ingot or
OCR for page 32
32
COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY
billet, and sold either on contract or through commodity exchanges. These
products are produced to meet consumer standards, and to the degree that
the products meet those standards, price is the principal measure of compe-
tition.
Copper
Over the past four decades the copper industry has evolved from one
dominated by a small number of private firms to one in which much of the
world's production is controlled by national governments. Decolonialization,
nationalism, and Third World development programs have all contributed to
the expansion of capacity in developing countries.
The domestic copper industry operates with two distinct disadvantages:
low ore grades and high labor costs. In addition, domestic mines operate
under stringent environmental regulations that incur substantial costs that
are not borne by mines in most other countries. Despite these disadvantages
the domestic industry has been able to maintain a significant share of the
world copper market. This is the result of two factors: the economics of
surface mining and a large base of existing copper smelters and refineries.
U.S. copper production is based to a large degree on low-grade copper
porphyry deposits. Domestic deposits are made competitive through the use
of large-scale open pit mines, combined with technology that can be used
near the mine to concentrate the copper-bearing minerals into a concentrate
averaging above 30 percent copper. This copper concentrate can be transported
economically to smelters located farther from the mine and then to refiner-
ies for purification and sale. Finally, the markets are nearby via efficient
distribution systems.
Increased energy costs during the 1970s raised the cost of smelting and
refining copper. New environmental regulations also increased operating
costs, particularly at the smelting stage. Over the decade from 1975 to 1985
these cost increases led to the decline of copper capacity in older plants, but
this was partially offset by the introduction of solvent extraction/electrowinning
(SX/EW) technology as an alternative to the smelting process (see Figure 2-
2) for suitable ores. This technology proved invaluable to the competitiveness
of domestic copper producers. As a result of the closing of the most costly
facilities and deposits and the introduction of new processing facilities based
on SX/EW technology, the copper industry was restructured into one that
could compete in the world market.
Lead
The domestic lead industry is the largest producer in the world, account-
ing for 11 percent of the world's mine production. Lead is generally mined
OCR for page 33
33
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OCR for page 34
34 COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY
Solvent Extraction/Electrowinning Plant at San Manuel Mine, Arizona. (Courtesy
Magma Copper Company.)
using underground mining methods. Crushed ore from the mine is hauled to
mills in preparation for smelting and refining. Lead coproducts include
zinc, which is usually recovered during the milling stage, and silver and
copper, both of which may be by-products of the refining process.
The discovery and development of significant new lead deposits in Mis-
souri strengthened the industry during the 1960s and 1970s. This region
now accounts for over 90 percent of U.S. production. Although the Mis-
souri ores are relatively low in lead content, they are easily amenable to
mechanized mining, beneficiation, and smelting. As a result, energy and
labor costs in the domestic lead industry can be as low per pound of lead as
they are in other producing countries; the relative simplicity of mining,
processing, and smelting provides an advantage to offset the higher grade
but mineralogically more complex ores of foreign producers. Thus, the
industry can compete with foreign producers, at least in the domestic market
where foreign producers must also face shipping costs.
Most foreign lead production is tightly integrated with the production of
other metals. Thus, foreign lead production can be affected by changes in
demand for other metals, particularly silver and zinc. Domestic producers,
with less by-product production, are less sensitive to demand variations in
other metals. At times this may work to the competitive advantage of the
domestic industry, while at other times it may hurt profitability.
The lead industry must comply with environmental and safety standards,
both in the mining and processing of ore and in the disposal of tailings and
waste products. Health and environmental regulations have been a burden
to the lead industry, although less than to the copper industry, which required
major investments in new smelters. Even so, regulation of the lead industry
has added some costs, and when, as now, standards are set more strictly in
OCR for page 35
SUPPLY, DEMAND, AND COMPETITIVENESS
35
the United States than in foreign locations, they reduce the competitiveness
of the domestic industry relative to foreign producers. The industry must
identify and apply cost-effective means of complying with these standards
in order to avoid losing a competitive edge to other producing countries that
do not apply such standards. At the same time, capital costs of new smelt-
ing methods, coupled with problems in plants presently implementing these
technologies, have deterred their introduction in the United States.
zinc
Zinc is produced both by itself and as a coproduct of lead production.
Underground mining is used in all but a few foreign deposits using traditional
mining technologies and various techniques for separating zinc minerals
from gangue. Zinc metal is obtained from the concentrated ore by chemical
or pyrometallurgical means, then refined and cast into slabs or processed
into sheet, strip, or other forms for commercial sale.
The domestic zinc industry has two disadvantages relative to foreign
producers. The first is a low ore grade U.S. ores average less than half
the zinc content of foreign ores. The second factor is the low content of by-
and coproduct metals. In U.S. deposits zinc appears as the primary con-
stituent, whereas in other countries it is often part of a complex ore containing
significant amounts of lead and precious metals.
Domestic zinc production has remained competitive due to high domestic
labor productivity and capital facilities already in place. The competitiveness
of domestic zinc production would be greatly enhanced by the exploitation
of higher-grade deposits. Deposits with high contents of zinc and other
metals, like the Red Dog deposit in Alaska, could significantly change the
apparent competitive status of the domestic zinc mining industry, even though
the concentrates may go to foreign smelters.
TRENDS IN METALS DEMAND
Current Status of Materials Demand
Near-term projections of demand for metals can be derived from current
demand patterns and from projections for growth of major metal-consuming
industries. Such projections must be tempered by experience and a knowl-
edge of underlying trends in substitution, changing intensity of use, and
other relevant factors. Since it takes several years for major changes in
these factors to permeate industry, this methodology can provide usable
estimates for the 5- to 10-year time frame. In the longer term the demand
for metals will also reflect changes in system design, availability of new
materials and processes, and other factors that affect the intensity of use of
OCR for page 36
36
9000
8000 -
co
O 7000
8000—
UJ
3
I
5000
4000 -
3000 -
2000—
1 000—
O—
COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY
7
1 1 1 1
1 1 1 1
1 1 1 1
1
—Copper
Lead
Zinc
1 1 1 1 1 1 1 1 1
1965 1970 1975
1980 1985 1990
YEAR
FIGURE 2-3 Base metal consumption, 1965-1988 (world, excluding Eastern Euro-
pean socialist countries). Source: Metallgesellschaft, A.G. Metal Statistics.
metals in manufacturing. It will also reflect some of the profound political
changes now sweeping the globe.
Metal demand is driven by the requirements of the economy's manufac-
turing sectors (e.g., automobiles, aviation, and construction). It is affected
by substitution, both by alternative metals and alloys and by nonmetallic
materials (e.g., plastics and composites). Demand is also affected by con-
servation efforts, both intentional (as with recycling of scrap produced in
the manufacturing process) and side effects (as in the use of near-net-shape
forging and powder metallurgy).
Figure 2-3 illustrates patterns in base metal consumption over the past 25
. The period of stagnation
from the mid-1970s to the mid-1980s included two recessions, the end of
the Vietnam War, two major increases in energy costs, and a gradual shift
in the economies of developed countries from manufacturing to services. In
the past few years, however, metals consumption has begun to increase
more rapidly. This increased demand, combined with reduced capacity, has
resulted in higher metal prices, which have returned the minerals and metals
industry to profitability.
.
years for the Western industrialized countries
Near-Term Trends in Materials Consumption
Future demand for metals will be strongly affected by the growth of the
economy as a whole. As shown in Figure 2-4, developing countries are
OCR for page 45
SUPPLY, DEMAND, AND COMPETITIVENESS
17-
14
13
Bauxite
Nickel
Manganese
Chromium
Tungsten
Cobalt
Tin
45
53
o
o
o
o
o
o
l
1 1 1 1
. - r I T I T T I I l T I I I T T I T l
0 10 20 30
PERCENT
40 50 60
FIGURE 2-7 U.S. market share of world mine production, 1989. Source: Bureau
of Mines.
various minerals and metals in 1989. The change in net import reliance
across several years for selected minerals and metals is shown in Table 2-4.
Overall the decline in the value of the dollar and other factors have brought
the minerals trade deficit down to a level of $10 billion in 1989, compared
with $13 billion in 1987 and $15 billion in 1986. About half of the current
deficit is attributable to net imports of iron and steel. The domestic indus-
try is a net exporter of only five commodity metals: gold, magnesium,
molybdenum, metal scrap, and recently aluminum.
Competitiveness by Sector
The U.S. metals industry (with one or two relatively minor exceptions) is
no longer the dominant player in the world market. This is probably a
OCR for page 46
46
COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY
MATERIALS COMPETITI1:)N lN THE MANUFACTURING SECTOR
The design engineer in the manufacturing industries must consider a new
material and its associated fabrication process—in the context of replacing a
material/process combination that is already in production for a given component.
In some cases a totally new part is~designed or an existing part is extensively
redesigned to take advantage of the high-performance properties of the new
material and its process. In other cases several existing parts may be combined
into a single integrated component that can be produced with greater reliability
or at lower cost.
The factors that affect materials selection decisions are key to understand-
ing the potential for changes in the intensity of use of specific metals in the
manufacturing industries. To make the discussion concrete, choices in the
automotive sector are discussed. Similar processes are generally followed in
other industries.
As a new model of automobile is designed or as innovations are introduced,
the designer may consider using a new material if it offers some benefit, such
as
.
higher performance (e.g., improved fuel economy andlor reduced engine
noise and vibration);
lower cost (e.g., less costly materials, less costly processing, lower tool-
ing costs, lower warranty costs, etch;
weight savings; and
styling (exterior and interior) flexibility.
The designer must be assured that the new material will provide equal or
better functional performance (e.g. strength, stiffness, crash durability) or reduced
material or production cost relative to conventional materials and processes.
This may be accomplished through prototype testing, computer simulation, or
other means of evaluation. If the testing supports the potential benefits of the
alternative material, further studies will be undertaken.
While performance, shape and packaging feasibility issues are being re-
solved, the designer also works with the manufacturing engineer to determine
the manufacturing feasibility of the part. In the past, designers often handed off
the component design to the manufacturing engineers at the completion of the
design process. As a result, manufacturing issues were not resolved until late
in the product development process. Today, however, designers work closely
with manufacturing engineers to resolve manufacturing issues during the early
design stage.
Often the first manufacturing consideration is whether the part can be made
utilizing the selected processing method. For example, high-strength steels
generally cannot be stamped with the same die shape used for mild steel.
Even with die modifications it may not be possible to form some complex shapes.
These issues must be resolved in the prototype trials, or alternative fabrication
processes must be selected.
Once manufacturing feasiblity is established in the prototype stage, a decision
has to be made as to whether the manufacturing system should be scaled up to
the pilot stage. This is done to gain confidence that the parts can be made with
very low variability at high production volumes. Since this is a critical step as
well as an expensive one, only a few projects are selected for this stage. Pilot
OCR for page 47
SUPPLY, DEMAND, AND COMPETITIVENESS
demonstrations are necessary in order to identify problems that could arise in a
full-scale production plant.
While functional performance and manufacturing feasibility are being as-
sessed, the costs associated with producing the new material/process combination
are being evaluated. As confidence in manufacturing grows, the cost estimates
become more accurate.
It is important to note that the materials cost is only one factor to be consid-
ered. One must also take into account all of the other costs involved in the
component subsystem and ultimately in the total vehicle system.
Even if the cost of an individual component made from an alternative mate-
rial is higher than the part currently in use, it may be used under certain condi-
tions:
.
if it contributes to a new product feature, so that it can be priced to retain
or improve economic profit;
· if it improves reliability, contributing to a favorable warranty impact;
· if it is required to meet government regulations and the additional costs
offset the costs elsewhere in the product; or
· if it is required to meet competition, and the increase in variable costs
could be offset either in the same subsystem or elsewhere in the vehicle.
Another important factor is the supplier infrastructure. Some industries pur-
chase about 50 percent of the materials for use in their manufactured products
either in the form of semifinished products or components and subsystems.
Since the automobile manufacturer is virtually dependent on its suppliers for the
ultimate quality of the products, it will prefer to use suppliers with an established
record of producing high-quality materials and parts at high production volume.
In introducing a new materials technology, it is quite possible that there is no
current established supplier, either external or internal, willing to take the risk of
investing in the new technology. Or a firm outside the traditional supplier
industry may promise to supply the new technology but lack a track record of
supplying high quality at high production volumes. There is a reluctance on the
part of many purchasing organizations to make agreements with such firms. In
other cases a start-up firm that has no established materials processing capability—
only a prototyping capability may be the potential supplier. This is the most
difficult situation of all, since it entails the greatest combination of uncertainties.
Based on the above analysis, the following conclusions are drawn regarding
changes in materials use in the automobile industry:
Radical changes in materials and manufacturing technology are unlikely
due to the huge investment in existing materials and processes and the requirement
that investment in new technology be profitable in the fairly near term.
New materials will be introduced in incremental fashion, building on existing
high-volume production processes that have either been developed internally,
by current suppliers, or by other industries.
Once a foothold has been established in one or two parts, diffusion oc-
curs in a part-by-part manner, as the new infrastructure builds.
While these conclusions are derived from the automobile industry, they are
based on principles common to all manufacturing industries. As such, they
provide a guide for evaluating the rate of change of metals use in the manufacturing
sector as a whole.
47
OCR for page 48
48
COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY
TABLE 2-3 United States and World Productiona of Selected Metals
1975-1989 (thousand metric tons, except as noted)
1975
1980
1983
1988
1989
Copper
United States 1,282 1,181 1,038 1,420 1,500
Worldb 6,962 7,630 8,044 8,453 8,830
U.S. share of
world production (%)
Iron OreC
United States
Worldb
U.S. share of
world production (%) 9.0
Zinc
18.4 15.5
78.9
877.6
12.9
69.6
873.6
37.6
729.6
8.0 5.1
16.8 17.0
58.7
916.0 943.1
6.3 6.2
Lead
United States 564 551 466 394 450
Worldb 3,438 3,520 3,367 3,420 3,450
U.S. share of
world production (%) 16.4 15.7 13.8 11.5 13.0
United States
Worldb
U.S. share of
world production (%)
426
5,562
317
5,745
275
6,246
256
6,977
345
7,040
7.7 5.5 4.4 3.7 4.9
aMine production.
bInclusive of United States.
CMillion long tons of ore.
SOURCE: Bureau of Mines, Mineral Commodity Summaries (various years).
permanent change of status. Most of the metals subindustries are still at-
tracting investment to existing facilities, but they are finding fewer and
fewer opportunities for new "greenfield" developments. The only clear
exceptions appear to be gold and silver and, on a much smaller scale, the
platinum group metals. The U.S. share of world gold production rose from
7 percent in 1986 to nearly 13 percent in 1988. The domestic share of
world silver production (mostly from coproduct mines) increased from 8
percent to 12 percent in the same 3-year period.
The domestic aluminum industry has adjusted to its changing economic
circumstances sufficiently well that its competitive decline is now only
gradual. Overall domestic capacity, which had declined steadily from 1983
to 1987, stabilized in 1988 when primary aluminum metal output rose by 17
percent, allowing exports to increase in 1989. The wrought aluminum sec-
tor should remain quite competitive; a start has been made on diversifica-
tion and exploration of new materials and products.
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SUPPLY, DEMAND, AND COMPETITIVENESS
49
Copper gained only moderately in comparison to other national indus-
tries a 1 percent gain in market share during 1988, with no further gain in
1989. With low inventories, lower labor costs, and continued productivity
improvements and restructuring, the U.S. copper industry is now somewhere
in the middle of the competitiveness range internationally. The long-term
outlook is for increasing materials substitution as well as increasingly strong
competition from foreign producers, who are expanding aggressively and
cutting costs. When demand turns downward, there may be a further shakeout
of producers.
Table 2-3 shows that the domestic lead industry lost substantial portions
of its market share during the 1980s. Domestic lead is in a period of
transition, with recycling of scrap (mostly from car batteries) edging out
primary refining of mine output. At the same time, world mine production
is increasing, and while domestic lead is produced from essentially mono-
metallic mines, much of the world obtains lead as a coproduct. Environmental
concerns also affect the lead industry. For both lead and zinc the outlook
Manganese
Bauxite and Alumina
Platinum Group Metals
Cobalt
Chromium
Tungsten
Tin
Nickel
Zinc
Cadmium
Silicon
Iron Ore
Copper
Lead
Manganese
Titanium
Aluminum
Molybdenum
E indicates net export
~ Do
20
E
1 1 1 1
86
1 ~ 61
i 1 1
. 1 1 1 1
1
0 20 40 60 80 100
PERCENT
FIGURE 2-8 Net import reliance for selected minerals and metals, 1989. Source:
Bureau of Mines.
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COMPETITIVENESS OF THE U.S. MINERALS.iND METALS INDUSTRY
TABLE 2-4 Change in U.S. Net Import Reliance for Selected Minerals
and Metals as a Percentage of Consumption, 1983-1989
1983 1984 1985 1986 1987 1988 1989
Aluminum 17 7 16 26 23 7 E
Bauxite 96 96 96 96 96 97 97
Chromium 76 80 75 79 76 77 79
Cobalt 95 95 94 85 86 86 86
Copper 19 23 28 27 26 13 9
Iron ore 37 19 21 33 22 18 20
Iron and steel 16 23 22 21 19 17 13
Lead 20 20 12 20 17 13 8
Magnesium E E E E E E E
Manganese 99 98 100 100 100 100 100
Molybdenum 7 E E E E E E
Nickel 75 69 71 73 75 68 65
Platinum Group 89 89 92 90 94 95 94
Metals
Silicon 31 18 25 36 33 29 23
Tin 73 74 72 74 74 78 73
Tungsten 52 70 68 70 79 76 73
Zinc 65 68 70 73 71 69 61
Notes: Net import reliance = imports - exports + adjustments for government and
industry stock changes. Apparent consumption = U.S. primary and secondary production
+ net import reliance. E = net exporter.
SOURCE: Bureau of Mines, Mineral Commodity Summaries, 1990.
for future competitiveness is clouded by vulnerability to substitution by
other materials and by higher-grade mixed deposits in other countries.
Despite moderate increases in production and profits, there has been only
slight expansion or even contraction of the existing capacity of the U.S
iron and steel industry's large, highly integrated facilities. A positive de-
velopment has appeared in the form of "mini-mills" or "market mills,"
which serve a selected geographic area by melting 100 percent scrap and
continuously casting billets to be made into merchant shapes. They have
captured a large share of the market for these less expensive materials from
the integrated mills and now have plans to move into the more technologically
demanding sheet market, an experiment that is being watched with interest
Meanwhile foreign competitors could further erode the integrated mills'
market share in the future.
In 1986 the Congressional Research Service noted "a gradual deteriora-
tion of competitiveness mineral-by-mineral." This does indeed appear to be
taking place, with uneven patterns of decline and resiliency across the
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SUPPLY, DEMAND, AND COMPETITIVENESS
51
subindustries. Despite the recent revival in prices, production, and profits
in many subindustries, U.S. competitiveness in the minerals and metals
industry appears to be continuing the pattern of gradual decline that has
held since World War II.
Comparative Advantages and Disadvantages of the U.S. Industry
Previous sections of this chapter have noted most of the reasons for the
competitive status of the U.S. industry and its subindustries whether growing,
holding steady, or declining. No single reason explains their current com-
petitive situations, even for those that are declining. However, some factors
are certainly more important and broader in their impact.
Table 2-5 summarizes the factors responsible for the current state of the
U.S. mining and metals industry. Factors are not listed strictly in order of
importance, although in general the more significant ones do appear earlier.
In all it is obvious that the list of disadvantages is far more extensive than
the list of advantages enjoyed by the industry. The comparative disadvan-
tages are both real and revealed—that is, some have a direct impact on
production costs at the mine or refinery, while others "tilt the playing field"
against the domestic producers. Of the advantages, the first three are real
advantages, while the other three are a function of government policies at
home and abroad.
These factors have an immediate day-to-day impact on the competitive-
ness of the U.S. mining and minerals industry, but the industry also faces a
number of longer-term background problems that are undermining its health
and overall ability to compete. One of the most significant of these is the
lack of an adequate science base to support mining and processing technol-
ogy development. It is not that the United States lags other nations in the
relevant science and technology, but rather that the domestic industry must
rely more heavily on technology to maintain its competitiveness. The prob-
lem is one of insufficiently imaginative research, exacerbated by poor com-
munication between academic researchers and the engineers who deal with
the real technical problems in the industry. (See Chapter 4 for a further
discussion of institutional roles in mining research and technology transfer.)
Financial factors present another difficulty for the U.S. industry. Com-
panies in sectors other than precious metals have difficulty finding capital.
This difficulty derives from the industry's poor investment image coupled
with the prevailing emphasis by investors on short-term earnings.
Technology and U.S. Comparative Advantage
Chapter 3 of this report addresses the role of science and technology in
the competitiveness of the minerals and metals industry. Nevertheless,
several points are relevant to this discussion of comparative advantages and
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COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY
TABLE 2-5 Factors Affecting the Competitiveness of the U.S. Minerals
and Metals Industry
The domestic minerals and metals industry has had to cope with a number of factors
that work to its disadvantage relative to foreign producers and processors. Among
these are:
.
· Decline in ore grades in domestic deposits, relative to the high-quality ores
being found in many developing countries.
Increasing development of facilities for downstream processing by foreign
producers, resulting in overcapacity and overproduction.
· Rapidity of international development and transfer of technology at moderate
cost, minimizing the comparative advantage in technology traditionally
enjoyed by U.S. producers.
Comparative disadvantage in labor costs, relative to the lower wage rates
prevailing in nearly all other producer countries. (Depending on the country,
this differential has shrunk and even disappeared with the recent drop in the
value of the dollar; indeed, the labor cost differential has shrunk steadily for
decades.)
· Relative decline in the size of the U.S. domestic market in comparison to the
world market.
· Fluctuations in exchange rates, which in the past have tended to favor
imports rather than exports of U.S. minerals.
Restricted access for some U.S. exports in some international markets.
Ready availability of capital from international lending organizations for
foreign mining and processing operations. (Lending institutions have
tightened criteria for financing resource development projects, so this factor
will be less important in the future.)
Readiness of some foreign governments to continue production at levels not
supported by the market in order to maintain jobs and income stream (i.e.,
production objectives not tied to price), whereas the U.S. government relies
primarily on free markets.
Presence of substantial coproducts (or by-products) in many foreign ore
bodies, yielding multiple income streams.
· Shift toward incentives for short-term financial objectives and planning
horizons of U.S. corporate management, along with injurious financial
. .
manlpu. .atlon.
Rising cost of energy relative to that of many other countries (especially in
the case of the aluminum industry).
Cost burden of compliance with environmental, land use, and safety regula-
tions that are more stringent than those borne by foreign producers.
A more pronounced shift toward alternative materials and less metal-
intensive products in the domestic economy than in other markets.
Loss of public support and confidence (poor image).
Changes in ownership of U.S. companies and erratic management perfor-
mance, at least in the recent past.
.
.
.
.
.
.
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SUPPLY, DEMAND, AND COMPETITIVENESS
53
The following factors operate to the advantage of U.S. producers, relative to those
of most foreign countries:
High productivity of the domestic work force (better use of technology is a
factor here, as are work rules that permit new flexibilities and multifunc-
tional workers).
Faster access to new technologies.
· Lower transportation costs in serving most of the large U.S. market.
.
Less interference by the government.
· Lower net tax burden (some foreign governments require substantial direct
payments copper, lead, and zinc are industries in which the United States
has a significantly smaller tax burden).
Market-determined input prices (i.e., some foreign industries pay arbitrary
prices for raw materials).
disadvantages. Technology can contribute to a competitive advantage in
three ways. The first is through exclusive access to a technology that
increases the productivity of a mine or improves the quality of the product.
Given the speed with which information travels between firms and countries,
this advantage is temporary, but the first firm or country to implement a
valuable technology may acquire a comparative advantage for several years
before it spreads to others in the industry. New technologies have their
greatest impact when they can be integrated into the design of a new facil-
ity, however, and most new mines and processing plants are being built
overseas.
The second way in which technology can contribute to a comparative
advantage is when it addresses conditions or circumstances unique to a firm
or country. Factors that affect U.S. industry to a greater degree than other
countries include high labor costs, low ore grades, and more stringent envi-
ronmental regulation. These factors therefore provide targets of opportunity
for research and development (R&D) that will provide a comparative ad-
vantage for domestic operations. Technologies to concentrate metal from
low-grade ores, to increase labor productivity, and to reduce the cost of
meeting environmental standards all would contribute more extensively to
U.S. firms than to foreign producers. Nevertheless, it may be somewhat
simplistic to believe that more R&D alone is the solution to the difficulties
of the domestic mining and minerals industry.
The third way in which technology may affect competitiveness is by
allowing metal producers to adapt to changing consumer demand by producing
metals that meet new quality and performance needs. Competition between
materials becomes most intense when systems undergo extensive redesign,
but such opportunities are not frequent; the automotive design cycle is about
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54
COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY
10 years in duration (component changes alone may take 3 or more years to
implement), and in aviation the design cycle is at least that long, especially
for commercial aircraft. Domestic metal producers may earn a comparative
advantage relative to both foreign metal producers and producers of nonmetallic
materials by collaborating with designers and fabricators in the development
of the next generation of manufactured products. In aviation, for example,
aluminum producers devote funds and personnel to efforts to develop alloys
and metal processing techniques that meet the requirements of the next
generation of aircraft.
Data Analysis for Materials Planning
Clearly, changes in technology will produce changes in the demand for
raw materials and for intermediate products, including alloys, metal powders,
and other metal products. Companies that wish to become or remain com-
petitive will need to anticipate future demand changes in order to respond
quickly when those changes occur. While there is no way for them to
accurately predict the future, it is feasible to project the implications of
technological changes on materials demand and to then base R&D, explora-
tion, and investment decisions on assessments of the likelihood of those
changes actually being implemented. This type of analysis is referred to as
indicative planning.
Data for indicative planning can be organized into input-output tables
that expose overall patterns of demand for primary materials and how they
change as consumer purchases of manufactured products go up and down.
Input-output models can also be used to evaluate the impact of technologi-
cal changes on demand for raw and semiprocessed materials. Such projec-
tions would be of substantial importance for assessing the capability of the
domestic economy to meet the requirements of public projects ranging from
military and defense programs to rebuilding the domestic transportation
infrastructure.
The ability to conduct this type of analysis rests on the availability of
current and reliable data about the manufacturing economy. Much of the
relevant data are obtained by the Bureau of the Census through the Census
of Manufacturers. Other relevant data have been generated by outside con-
sulting firms, such as Battelle Columbus Laboratories and SRI International,
and by university research projects and federal laboratories. The Bureau of
Mines, working with the Bureau of the Census and with public and private
research organizations, should evaluate the need for a consolidated, accessible
data base for purposes of indicative planning.
Government support for materials science should recognize that traditional
metal alloys will remain contenders for use in the manufacturing and infra-
structure sectors. Advances in materials science and engineering can con-
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SUPPLY, DEMAND, AND COMPETITIVENESS
55
tribute both to the performance and the competitiveness of metals and metal
products. Support for basic research should not be cut in order to transfer
funds to support research in alternative materials. Such research may be
deserving of support on its own merits in addition to, but not in place of,
support for minerals and metals research and the development of improved
manufacturing technology.
Representative terms from entire chapter:
foreign producers
