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Competitiveness of the U.S. Minerals and Metals Industry (1990)

Chapter: 2. Supply, Demand, and Competitiveness

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Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
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Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
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Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
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Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
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Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
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Page 30
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
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Page 31
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
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Page 32
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
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Page 33
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
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Page 34
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
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Page 35
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
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Page 36
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
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Page 37
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
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Page 38
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 39
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 40
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 41
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 42
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 43
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 44
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 45
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 46
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 47
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 48
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 49
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 50
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 51
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 52
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 53
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 54
Suggested Citation:"2. Supply, Demand, and Competitiveness." National Research Council. 1990. Competitiveness of the U.S. Minerals and Metals Industry. Washington, DC: The National Academies Press. doi: 10.17226/1545.
×
Page 55

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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

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.

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.

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-

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

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

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

33 a) V~ . _ a) o v a) LL i a) - x ._ -, OJ ~ C C ~o V ,~ c V V O ~ Q v v a) o .. _ _ ~ O a) O X L~ ~ ~ .m a) v O a) v v o Q a V ~ V V o 1 ~ a) T' V > — Q) O v a) a V C ~ a, v a, ' Q > V ~V C~ ~ V O C ~ O a) :, O v a, O ~ _ ~0 ~ V a) ~ _ _ — (D ~4 o - ~o CO aQ) ~o Q ~ o0 V .. ,_ ~3 ~ ~ V ._ 7~ ~ a) ._ ~ _ ._ s CD O Q V O a) ~v Lii .m ~: ._ ._ 3 C~ o ._ C~ x ~: C) - o

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

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

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

SUPPLY, DEMAND, AND COMPETITIVENESS 37 projected to have the greatest rate of increase in the growth of their econo- mies. This growth will also have an effect on the distribution of the growth of metals markets in the future. Demand is also affected by the intensity of use (I/U) of a metal in a society's economy. I/U is measured as the amount of material consumed (usually) on a weight basis divided by the gross national product (GNP). I/ U use is dynamic, reflecting changes In the technologies used by the manufacturing sector and changes in the mix of agricultural, manufacturing, and service industries in the overall economy. In general, the I/U of metals rises as an economy develops. Once the industrial infrastructure is complete, however, the growth of I/U will slow, with the pattern for individual metals reflecting the particular mix of industries in the national economy. In a mature economy, growth shifts to the service industries, reducing the relative contribution of manufacturing and materials to GNP and causing a decline in the I/U of metals. Trends in Industry Use of Materials Domestic demand for metals can be estimated in terms of the cumulative demand across the major sectors of the economy. This approach provides 5.0— 4.5— 4.0— Q 2.5 a) 2.0— CL 3.5 - 3.0— 1.5— 1.0— 0.5 - 0.0— ~ 1 _ ~ ~ ~ 1 _ ~ ~ N1 1 ~ ~ ~ ~ ~ ~ ~x ~ ~ 1 ~ ~ 1 =~ ~ ~ NN =~ ~ ~ - ~ 1 ~ ~~ ~ ~ ~~ m ~ ~ ~1 1 ~1 ~ . ~ 1: I ~ I L Lee I 1 98~90 Developing Countries Ail Industrialized Countries 1990 - 95 1~ Centrally Planned Economies 1~1 World FIGURE 2-4 Projected GNP growth rates, 1985-1995. Source: World Bank.

38 COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY an understanding about the potential for demand changes in the future. The present domestic consumption by industry sector of aluminum, copper, iron and steel, lead, and zinc is shown in Figure 2-5. Automotive Industry. The automotive industry is a major consumer of metals and other materials, but the roles of specific materials are changing. Steel remains the principal material for the chassis, but composite materials and molded plastics have captured significant portions of the body and trim. Small parts and fittings that were once made of die-cast zinc are now generally made from plastic. Not all changes have led to reductions in metal use, however. Radiators, which once were copper, are now made of aluminum, and concern about rust and corrosion has led to increases in zinc coatings, virtually offsetting the decrease of zinc use due to reduced use of die castings. The changing role of materials in the auto industry is shown in Figure 2-6. Materials selection for the automobile remains quite competitive. The development of new steel alloys, with properties tailored to the needs of the automotive industry, has helped the steel industry retain this market despite competition from nonmetallic materials. The copper industry also is striving to develop manufacturing processes that will provide performance and eco- nomic advantages over current aluminum designs of automobile radiators. The future demand for metals by the automotive industry will continue to reflect the traditional criteria of performance, cost, and reliability. How- O 80 - ~ 70 _ z 60— 8 50 _ ~ 40- o LL 30— O 20— ~, 10— Q 0— Aluminum Copper Construction 1~1 Electrical ~ Consumer Goods m] Machinery Source: Data from Bureau of Mines Iron and Steel Lead ~l Transportation EN Packaging Zinc O Other

SUPPLY, DEMAND, AND COMPETITIVENESS 40 35 up m 30 o o ~ 20- LL In 15— at 3 10— 25 - o Copper .v \ Lead \ Zinc (die cast) Zinc (coatings) ~ , ............. 1 1 1 1 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 YEAR FIGURE 2-6 Automotive materials usage (base metals). Company. 39 Source: Ford Motor ever, increasing national concern about environmental quality and energy conservation is also likely to increase emphasis on fuel economy, emission control, and potential recycling of materials from obsolete automobiles, with possible implications for the selection of materials in the cars of the future. Aviation Industry. Selection of materials for use in aircraft structural components also involves the traditional factors of cost, performance, weight, reliability, and fabricability. Different applications may vary in the empha- sis they place on particular factors military aircraft, for example, often accept increased cost in order to achieve improved performance but weight and reliability are common concerns. Other goals pursued through materi- als selection include the following: Fuel savings. In large transports the use of lighter materials could pro- duce a savings of 15 to 20 gallons of fuel per year for each pound of weight reduction. Reliability and durability. Specifications for the redesign of the A6 In- truder wing using composite materials call for a service life of 8,000 hours, compared with 2,000 hours for the current aluminum wing.

40 COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY , . ,,,>.... Aluminum has replaced most copper radiators and is used extensively in the auto- motive industry. Pictured is an aluminum radiator produced by Ford Motor Com- pany. (Courtesy Ford Motor Company Research Staff.) Light weight and high payload. The low weight of the V22 Osprey tilt- rotor vertical take off and landing (VTOL) is achieved in part through the use of a composite airframe, the first aircraft so designed. Aluminum remains the dominant structural material for aircraft, but strong and lightweight composite materials developed in the 1960s have potential economic and performance advantages. As fabrication technology improved during the 1970s, these potential gains were exploited by designers of mili- tary aircraft. The experience gained in high-performance military applica- tions is now leading to increased use of composites in commercial applica- tions. At the same time, however, the demand for higher performance has led to significant advances in metals and metal processing technologies to meet the needs of the aircraft industry. These advances have come through three mechanisms: new alloys, alloy processing based on powders rather than melts, and precision casting and forging of large complicated parts. New alloys generally provide incremental improvements in materials properties

SUPPLY, DEMAND, AND COMPETITIVENESS 41 and allow the continued use of existing fabrication processes. More revolu- tionary changes are possible as a result of new alloy production processes based on powder metallurgy. By creating alloys from powders rather than from molten solutions, this technique can create components and systems with desirable properties that would be impossible to produce by conventional metallurgy. Advances in fabrication processes have also improved the competitive situation of alloys by (1) reducing the fraction of metal lost to scrap, (2) eliminating one or more steps in the fabrication and assembly process, and (3) improving the quality and reliability of finished parts. The lower cost of casting and forging large complex shapes in single stages will continue to give an advantage to metals for complex shapes that must be mass produced, at least until performance requirements necessitate the use of special coatings or anisotropic materials, such as particulate-reinforced aluminums. .. :: :~ ::~ i_ : : ~ Titanium metal matrix composite reinforced with continuous silicon carbide fibers. This extruded I-beam structure was fabricated by North American Aviation, Rockwell International Corporation. Scale shown is in inches. (Courtesy Rockwell Interna- tional Corporation.)

42 COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY Building and Construction Industry. Building and construction account for 50 percent of zinc metal consumption, 42 percent of copper, and 35 percent of iron and steel but less than 25 percent of lead and only a small percentage of aluminum. Demand in this sector could change in the future due to three factors: changes in the construction rate, changes in the mate- rials used, and/or changes in the mix of structures and facilities constructed. One major factor affecting future consumption in this sector is the im- pending need to rebuild much of the domestic transportation and utility infrastructure. A commitment to rebuild, rather than to repair and maintain, could result in a sharp increase in the consumption of most metals: steel in bridges, railroads, building structures, and reinforcing rod; copper in electric wiring and plumbing; zinc in plumbing and as a coating for steel; lead in wire sheathing, noise reduction, and additives in asphalt; and aluminum in road signs and roadside railings. Chemical Industry. The chemical industry is a heavy user of metals in structural applications as well as in piping, pressure vessels, and other chemical processing equipment. Stainless and alloy steels and surface-treated steels, brass, and bronze are all used in the production of chemicals. Similar materials are also required in large-scale production of biomaterials. In the future, hazardous waste treatment facilities will be a growing consumer of metals. Electronics Industry. Modern electronic transmission and storage sys- tems utilize a number of metals that are obtained as coproducts of the minerals and metals industry (see Table 2-21. Demand for these metals will continue to increase with the growth in consumption of semiconductors and electrc-optical devices. Demand will vary over time as specific end users adopt new technologies- for example, the telephone system shifting from copper wire (for the transmission of electric signals) to glass fiber (for the transmission of light). Magnetic materials are used in the long-term storage of information, including both consumer goods (audio and video recording tape) and com- puter storage devices (data tape and magnetic storage disks). For example, magnetic coatings containing 80 to 85 percent cobalt greatly increase storage density. Demand for these materials will continue to increase as new com- puters are designed with tolerances that can take advantage of this increased capacity. Long-term demand is less clear, particularly as optical storage systems begin to compete with magnetic media in computer workstations. The electro-optical systems now entering the market use a laser to heat a spot on a thin film of rare earth metal to a point where it can switch its polarity. This results in a system with extremely high information density: a single optoelectronic storage disk, for example, can hold approximately

SUPPLY, DEMAND, AND COMPETITIVENESS TABLE 2-2 Metals in Electronic Applications 43 Copper Cobalt Platinum group metals (platinum, palladium, rhodium, ruthenium, . . .. . 1rlalum, osmium Gold Silver Silicon Cadmium Gallium Germanium Mercury Selenium Tellurium Tantalum Indium Electrical wiring Magnetic data-storage devices Electrical contacts, multilayer capacitors, conductive and resistive films, crucibles for production of electronic materials and devices, dental materials Electroplating and wiring in integrated circuits and electronic devices Wiring and capacitors Semiconductor devices and photovoltaic cells Batteries Gallium-arsenide electro-optical devices, integrated circuits, and possibly solar energy conversion devices Infrared optical devices, fiber optics, windows for transmission of infrared light Batteries Photoreceptors in electrophotographic copiers Infrared sensing materials (mercury-cadmium-tellurium compounds), photocopiers Capacitors High-perfonnance solder, solar cells, and optical coatings 250 megabytes of data, compared with 20 to 30 megabytes in a similar size of hard disk unit. Growing demand for these high-capacity storage systems will continue to drive demand for advanced magnetic materials, but these materials will be applied in extremely small amounts per unit. Energy Industry. The energy industry is another major consumer of met- als. Aluminum and copper are the primary conductors of electricity. Steel is required for construction of power plants, and zinc is used to protect the surface of steel from corrosion. Demand for metals in the future depends in part on the future mix of technologies used to produce energy. If central fossil fuel plants are constructed, for example, demand will continue to be high for structural steel, zinc coatings, and aluminum and copper wire. If power-leveling systems are introduced on a large scale, however, require- ments for structural steel may decline while other metals, particularly lead, zinc, or platinum, may rise in demand for their use in power-storage systems. Small solar energy facilities for generating electricity or heating water could reduce the need for long-distance transportation of electricity, thereby reducing demand for aluminum and copper wire.

44 COMPETITIVENESS OF THE U.S. MINERALS AND METALS INDUSTRY Telecommunications Industry. Copper was the principal medium for transmitting signals from the development of the telegraph until the intro- duction of microwave systems and the communications satellite, and even then it continued to be essential in local systems and trunk lines. This use will decline with the growing use of fiber optic communication networks. Already in use for inter-city communication, fiber optic lines have been installed for trans-Atlantic communication and in the future may reach directly to local business and residential customers. However, the potential impact of the substitution of fiber optic materials is limited to the fraction of copper demand for telecommunications wiring, which is about 12 to 15 percent of total demand for copper. Even if fiber optic systems captured about 40 percent of this market by 1992, it would represent only 5 to 6 percent of total copper demand. COMPETITIVENESS OF THE U.S. INDUSTRY Competitiveness is frequently cited as a goal for U.S. industries in the world economy, but the concept of competitiveness is usually left undefined, both in general terms and with specific reference to individual industries. The committee's focus here is primarily on the competitiveness of the domestic minerals and metals industry vis-a-vis foreign industries and only second- arily on its competitiveness with respect to new materials and technologies. It is difficult to accurately assess the competitiveness of the U.S. minerals and metals industry as a whole. However, data on U.S. market share and net imports and exports provide a gauge of the revealed comparative advantage held by segments of the industry. (Revealed or apparent advantage refers to a company's or an industry's share of world production; real or actual advantage refers to relative costs of production.) Shifts in U.S. Competitiveness General Trends One measure of competitiveness is the share of a market held by a firm or industry and whether that share is increasing or decreasing (see Box). Figure 2-7 presents the U.S. market share of world mine production in 1989, including the five industries specifically examined in this study. Note that the U.S. share exceeds 10 percent for only 6 of the 15 items. Table 2- 3 shows that U.S. market share for four major commodity metals was lower in 1988 than it was in 1975 and lower than it was in 1980 in all but copper. This illustrates the point made earlier, that industries may cut costs and be profitable but still lose market share. Figure 2-8 shows the net reliance on imports to satisfy U.S. demand for

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

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

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

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.

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.

so 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

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

52 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. . . . . . .

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

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-

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.

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This book includes an assessment of the global minerals and metals industry; a review of technologies in use for exploration, mining, minerals processing, and metals extraction; and a look at research priorities. The core of the volume is a series of specific recommendations for government, industry, and the academic community, to promote partnerships that will produce a strong flow of new technologies. Special focus is given to the role of the federal government, particularly the Bureau of Mines.

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