In the mining business there’s always the risk of over-reach. Back in mid-2011, Citigroup Global Markets added up the 400 largest greenfield mining projects around the world and the capital commitment through to 2020 for those totalled close to $500 billion — or half a trillion, to put that figure in more dramatic terms. But the analysts also calculated that some twenty-four per cent of those projects were unlikely to be delivered. We await Citigroup someday going back to do an update. I bet the situation compared to their forecasts could be unrecognisable.
Should all those projects have gone ahead, they collectively would have delivered an additional nine million tonnes of copper, 684 million tonnes of iron ore and 380 million tonnes of coal a year. ‘Add that to the brownfields growth, and there is a sizeable wall of volume growth coming into the market,’ the report added. We’re nearly hallway through the report’s projection period and we seem to be still a long way from all those extra tonnes. And with coal prices being what they are, no one will be rushing into that space anytime soon.
But, of course, the whole point of the Citigroup analysis was that roughly a quarter of the new schemes would not happen by 2020. (And, it must be added, 2012 and 2013 turned out to be years when several projects were put in mothballs).
At the end of 2011, PricewaterhouseCoopers sent out a report under the attention-grabbing title of Minerals and Metals Scarcity in Manufacturing: The Ticking Time Bomb. It said the chemical, energy and auto industries were in a state of ‘red alert’ over disruption of supply. The most critical metals were beryllium (lightweight metal for missiles and X-ray tubes), cobalt (super-alloys and batteries), tantalum (mobile phones), fluorspar (glass, ceramics) and lithium (batteries for electric cars). The underlying theme: there won’t be enough to go around.
But it is important to differentiate between tight supply and apocalyptic. Just think about rare earths: in 2011 prices went through the roof but then, to almost everyone‘s surprise, then fell back on (not through) the floor. (Through the floor came later.)
In 2007, New Scientist magazine did some calculations of metal supplies as developing countries lifted consumption. They saw, for example, the world running out of indium within five years. Yet, even by 2011, reports suggested that indium demand had fallen due to declining purchases by Japanese electronics manufacturers (the largest customer group). No indium crisis, then. At a metals conference in March 2013, Malcolm Harrower, sales manager at Indium Corp was reported as saying ‘There is plenty of indium and gallium available to meet the demand’. New Scientist also projected silver would be exhausted in ten years‘ time (that is, 2017), antimony in fifteen years and uranium in nineteen years. You don’t hear much about those predictions nowadays.
That said, there is no doubt that pretty well all metals are going to be in shorter supply barring a string of large discoveries. There is a tendency, though, to be over-dramatic: back in 1970, the Club of Rome issued its now famous report, Limits to Growth, which forecast the world was about to run out of oil. Since then we’ve had ‘peak oil’ and still we keep jumping into our cars (automobiles if you’re American) — and we also now have shale oil (and gas) which was not foreseen 20 years ago (let alone in 1970); shale has confounded all the previous energy forecasts.
Not that this discouraged the Club of Rome. Their 2012 report, 2052 — A Global Forecast for the Next Forty Years, predicted the coming four decades will be the period when the human race has to tackle the consequences of its ‘decades long over-consumption splurge‘. By 2042 the globe will reach a population of 8.1 billion. But 186 poorer countries will still suffer from lack of take-off, the report stated. The booming economies will be Brazil, China, Russia, India, South Africa and the ten leading emerging economies (Indonesia, Mexico, Vietnam, Turkey, Iran, Thailand, Ukraine, Argentina, Venezuela, and Saudi Arabia). There will be 2.1 billion people at the bottom of the ladder who will be as badly off then as they are today. The report predicts such events as the inundation of Southeast Asia due to melting glaciers in Tibet, drying out of the rain forest in Brazil, and insects killing the boreal forests of Russia.
Given our experience with other forecasts (do you remember Antarctic ice disappearing — it turns out it’s increased by 7.5% since 1992) we should wait a while before we accept the club’s dire warnings. For example, Venezuela seems to be having a little difficulty becoming an economic power.
Michael T. Klare was professor of peace and world securities studies at Hampshire College and author of a book that attracted a good deal of attention when published in 2012. It was called The Race for What is Left: The global scramble for the world’s last resources. It is all about the looming shortages of just about everything, shortages that will lay the foundation for World War III. Klare is seeing a new world war being fought over the dwindling supplies, not only of food, but of coal, uranium, copper, lithium — you name it.
The book contains a chapter ‘Rare Earths and Other Critical Metals’. But this was written before the rare earth bubble burst: Klare quotes estimates that the demand for these elements would, between 2010 and 2015, increase by nearly fifty per cent. As 2014 began, that forecast demand seemed elusive. However, Klare does put his finger on the long-term picture, that many critical metals will be harder to find and produced in quantities sufficient to meet demand. In 1980 computer products typically used just eleven mineral-derived elements, yet within not too many years the Colorado School of Mines projects that computers will require up to sixty such elements.
Then there’s the ever-changing demand picture. Take one of PricewaterhouseCooper’s endangered metals, cobalt. Just a few months after the report was issued, the Japanese electronics maker NEC revealed it had devised a lithium-ion battery that would substitute manganese for cobalt (the latter being twenty times more expensive).
And, remember folks, we are still awaiting the day predicted by Goldman Sachs that gold is about to head below $1,000/oz.
We should always temper our trust in market commentators by remembering the words uttered in September 1929 by the United States’ then most eminent economist, Irving Fisher: ‘There may be a recession in stock prices, but not anything in the nature of a crash’. At the start of 2008, Denmark’s Saxo Bank — in its, admittedly, carefully labelled Outrageous Predictions — tipped that the China bubble would burst that year with the Shanghai Composite Index shedding forty per cent of its value. Saxo saw oil at $175 a barrel. The Danes do this each year with their tongues firmly planted in cheeks, but there have been plenty of seriously made predictions that have gone awfully awry.
Remember when eggs were bad for you? Now, not so much. And remember when the collapse of the Soviet Union heralded a new world order.
So as new predictions and warnings come every day, remember that not too many of them are borne out by subsequent events.