The Future Markets for the Rare Technology Metals

by Jack Lifton on July 16, 2013 · 12 comments

in China, European Union, Japan, Metals & Minerals

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The most important and wide-ranging historical analyses of the economic consequences of our activities have simple yet globally descriptive titles. In the eighteenth century, Adam Smith began the modern study of global economics, with his famously titled seminal treatise “An Inquiry into the Nature and Causes of the Wealth of Nations.”

In the first part of the twentieth century John Maynard Keynes described the economic consequences to both the victors and the vanquished of World War I (known as The Great War in the days when it was hoped that it would be the last of its type), in “The Economic Consequences of the Peace.”

Keynes next deeply studied global economics and titled his masterpiece, simply “The General Theory of Employment, Interest and Money.” Milton Friedman then wrote “A Monetary History of the United States,” and Frederich Hayek penned “The Road to Serfdom” as his analysis of the then-raging battle between the consequences of socialism and capitalism. All of these twentieth century studies were written before the middle of that century.

In Smith’s day the richest nation on earth, in terms of what we now call gross domestic product (GDP), was probably China. Between Adam Smith’s death and the publication of “The Road to Serfdom”, the Industrial Revolution led to the pre-eminence, economically and globally, first of Great Britain and then of its intellectual descendant, the United States of America.

The wheel of history seems now to be turning again, so that we will surely see by 2020 at the latest, the return of China to its former place as the nation with the highest GDP. This return to economic dominance by China could not have been, and was certainly not foreseen in 1947, when America owned half of the world’s gold reserves and was the richest nation in history both in GDP and in per-capita income.

The last half of the twentieth century has seen the transformation of China from a third-world socialist economy, to first an export powerhouse and now a nascent consumer economy, under a hybrid version of capitalism that sees state control of the banking system used to control the direction and growth of capitalist institutions. The Chinese refer to this as “Capitalism with Chinese Characteristics,” but it is really just a very sophisticated state-controlled capitalism.

Chinese capitalism has created the greatest commodity-consuming nation in human history. Just with regard to metals, which is the economic sector that I study, we now live in a world where the Chinese economy consumes nearly 70% of the total output of all metals of all kinds, produced in the world each year. China at the same time produces more than 60% of all of the metals produced in the world each year. Thus any analysis of the markets for, and the future of, any metal – any metal at all – must assume that China is and will continue to be the major consumer of that metal. As it also turns out, China is probably going to also be the major producer of that metal too.

Great Britain in 1850 and the United States in 1947 held the titles of the world’s largest producers of iron and steel. The first because it was the home of both the Industrial Revolution and the birthplace of modern capitalism, and the second because as the victor and armorer of the world in the Second World War, it had by far the largest remaining iron and steel industry. It also had the pent-up demand not only of its 13,000,000 returning soldiers and sailors to satisfy, but also that of its 120 million additional and now richest in the world consumers, who had been saving enormous sums for a decade.

Now, in 2013, it has been not war but industrialization, mainly in China, that has produced a nation of voracious savers whose centrally controlled economy is moving to create the greatest consumer-driven economy in the history of the world. More than one billion Chinese consumers are being readied to continue the growth of the Chinese economy and its starting point is already that of the world’s second largest economy. I have no doubt that another two billion Asians, Indians, Indonesians, Koreans, Malaysians, and Filipinos will join the Chinese consumer boom by 2050, to firmly center the global economy in Asia.

What will this mean for the markets for critical and strategic materials? First and foremost it will mean, and already does, that civilian not military demands for structural and technology metals will be the dominant and overwhelming driver for the growth in their supply. It also means that the natural resources of both the wealthy and of the poorer of the resource-rich nations, which do not have enough population or industry to build the capital they need to produce or consume their domestic resources, will be developed by Asian capital and purchased for use domestically in Asia.

The currently wealthiest nations of the world in North America, Western Europe, and Japan are mature consumers of material natural resources. Their economies are not growing. Therefore the only material natural resources they need are to replace those lost through waste or mismanagement.

The economic power and growth of Asia’s economies will, I believe, mean that the rare technology metals will ultimately only be available to non-Asian (but still rich) economies through conservation and recycling. This is not a military-capability problem; it is a deep problem of the civilian standard of living. Because it is not a military-security issue there is a zero probability that governments in the West or Japan are going to finance mining to produce new supplies of rare technology metals. In any case, only in the USA are there sufficient deposits of such materials to make it worthwhile. Mining is today in the USA too politically expensive for our short-sighted politicians to even consider such a solution.

The immense resources of rare technology metals contained in the existing American and European “inventories” of end-of life consumer and military scrap are already being mined by Asian entrepreneurs for their own benefit. I believe we are already at the stage in the USA where producing rare technology metals from scrap is the only remaining hope of obtaining a secure supply of the lowest possible cost materials, to feed a total domestic supply chain to satisfy our domestic (replacement) demand for such materials.

It is now sixty years since the great twentieth-century economists explained where the global economy came from and where it stood. We have been annotating these great works of economic analysis and theory for nearly three generations, as academics advise ever more poorly educated politicians on how to create wealth equitably. it seems to me that this instruction passes right over all of their heads, and it has become accepted as inevitable that the rapacious accumulation of wealth and power is the natural state of human endeavors.

It is obvious, however, that the avoiding of polarization into “haves” and “have nots”, by the waste of productive capital through its pointless accumulation, is the major purpose of government. Such accumulations reduce society to oligarchy and the protection of the oligarch’s wealth, the protection of which then supersedes a society’s economic growth and fair distribution as economic policy.

If we have to beg the oligarchs to follow a path that provides the most wealth for the many, we are already lost.

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1 Cam July 16, 2013 at 5:18 pm

You didn’t write that mr jack lifton

That’s far too Complex for your type of dribble…

Where do you get that from. That’s not your original idea, something translate from Chinese perhaps????

Ni Hao!

2 Mike Niehuser July 16, 2013 at 5:24 pm

Jack, nice thought, let’s hope they are listening, of course I am an optimist, thanks.

3 Brian Hunter July 16, 2013 at 5:48 pm

WOW!! Fantastic article Jack. You really nailed it with those last 3 paragraphs. Would you agree that this is everything the Chinese are trying to avoid? i.e. Capitalism without greed.
I see hints of this when they impose heavy taxes on multiple ownership of apartments, to scare off the speculators. Or the new Bautou Rare Earths Exchange to create a more open market, but derivatives trading is prohibited. If the Chinese hold true to their Communist ideals, which by definition means equality for all citizens, I believe they will show the world a more viable, certainly a more productive form of Capitalism than the world has yet seen.
A Canadian optimist.

4 Veritas Bob July 16, 2013 at 8:26 pm

“A Monetary History of the United States, 1867–1960” was written by Milton Friedman and Anna J. Schwartz, and published in 1963, which was after the middle of the 20th century.

You wrote “we will surely see by 2020 at the latest, the return of China to its former place as the nation with the highest GDP”. Using 2012 nominal GDP figures of USD15.68 trillion for U.S. and USD8.23 trillion for China, in order for China to overtake the U.S. by 2020 would require 8.1% higher compounded average growth rate for China vs. U.S. (technically the ratio of GDP growth per year between China and U.S. needs to have a geometric average of at least 1.081). If the U.S. manages a 2% growth rate, then China would need 10.2%. Even if the U.S. had zero nominal growth rate, China would still need 8.1%, which exceeds its current growth rate. Therefore I find your proposition, while not impossible, rather dubious.

5 Allan Branch July 16, 2013 at 11:11 pm

This is excellent writing, the kind that I love, filled with thought and opinion, with sufficient historical information to put any argument into context. I also like reviews like this that put so much divergent data together in a tight summary. Thus for me are the paragraphs suggesting that China will dominate not only demand but also supply, and the paragraph predicting that Asia will dominate by 2050, hence the term “emerging markets.” I think China has crept past the “nascent consumer” level and we have just started realizing it.

“Saving” is often caused by a reaction to a crash, so a financial crisis such as a great depression implores people to stay out of debt including by saving instead of going into debt. There is a lull before populations are confident enough about their economies to get back into debt, so that dynamic will be interesting to watch, as the West is very slowly coming out of a crunch and China is just entering one. I loved the, “… ever more poorly educated politicians …”

By far the most important thing to monitor in my opinion is the internalization of allocation of resources; whether China keeps everything it digs up for itself or not. If not, the impetus for the rest to recycle is less. Even Keynes noted that a market economy is finite and outgrows itself, which had not happened in his life time.

6 Emil Georgiou July 17, 2013 at 3:07 am

I think that the article has correctly recognized the critical flaws of the political system in the West, in relation to the driving forces of the East…

7 Isak July 17, 2013 at 3:38 am

“the Chinese economy consumes nearly 70% of the total output of all metals of all kinds, produced in the world each year.”

Question: What about exports of products containing metals? I’m doubtful that China uses 70% of all metals world wide. China may use it and put it into products, but the products are used by the rest of the world.

8 nicolas pietrangelo July 17, 2013 at 9:41 am

Jack, I am not the historian you are, but did live history as you did with the genius Ovshinsky in Detroit. Innovation, innovation, innovation he surely had it and look what the greed monsters of Wall St/banking did to him. This country this city of Detroit had it all and North America with some outside help of non-chinese raw material cos in non-chinese areas like S Africa-Canada etc. Nickel-Iron-Cobalt-Copper-Rare earths from not only Mich and Minn mines but from Canadian sources. Everything and I mean EVERYTHING, NIMH batteries propulsion batteries and stationery power batteries(now controlled by GERMANY-BASF-R BOSCH/JAPAN-Prime Earth Energy(80% Toyota 20% Panasonic) and now CHINA under HUNAN CORUN NEW ENERGY making NIMH for cars like The Toyota Prius and the Honda Accord Hybrids to make and sell in CHINA. Not only the NIMH battery but the alloying of the essential metals for these batteries(fuel cells) @ Ovonic Materials/battery now Great Western Technologies-Troy Mich. You know better than most Lithium is a disaster-too expensive and an enormous propensity to ignite ask GM and Boeing in particular(HUBRIS the problem in those two big time). When you add the entire chain here Trillion $$$ industry(propulsion) for this supply chain of advanced batteries(NIMH). Now jump to PHOTOVOLTAICS and United Solar again Mich being one of the best performing solar cells in real world conditions. This will become TRILLION $$$$ industry within the next 3-4 yrs worldwide. As you know raw materials silicon and stainless steel. Then jump to memory-PCM phase change memory using germanium-tellurium(from Copper) will define the computing industry, best defined by IBM/MICRON/SAMSUNG/INTEL. All these TRILLION $$$$ plus industries using raw materials here in N. AMERICA. And a few comments on other materials for jet engines and gas turbines like YITTRIUM etc. So if this once great country doesn’t get over it’s GREED/HUBRIS/and lack of much of any MORAL CHARACTER/and choose leaders who have REAL VISION across the board (not just top offices but across the board leadership) it will FALL as you state for your reasoning into secondary-tertiary or worse position in the world. This country threw the modern day THOMAS EDISON-S.R. OVSHINSKY under the bus.

9 Aat Oskam July 17, 2013 at 1:09 pm

Jack, as ever, sharp as a knife!

May I recommend you the book “China Shakes the World:The Rise of a Hungry Nation” by James Kynge? I read it (and although it’s a litte outdated, 1st edition 2006) and found out that some of his predictions did happen.

Greetings from Holland, Aat

10 Amar Acharjee July 18, 2013 at 2:41 pm

That’s Jack Lifton’s original idea or something may be translate from Chinese, but it is good news for future markets.

11 Gary H July 22, 2013 at 1:34 pm

Hi, Jack,

I wonder if you’re familiar with “Winner Take All” by Dambisa Moyo? She feels (over-simplifying a bit) that China’s rapid acquisition of commodities and resources, world wide, was to be expected once their large population learned of Western living standards and upward mobility. She contends that China is making more effort to be good citizens during this process than most nations have historically – ie. trying to pay market prices, partner with producers where possible, etc.

Ms. Moyo seems to be considered a competent macro-economist (for what that’s worth in a world of governments determined to overcome normal economic forces). Personally I found her book a bit repetitive, and perhaps overly optimistic in spots, but quite readable. Your comments on her perceptions would be interesting.

Thanks.

12 Gareth Hatch July 23, 2013 at 6:52 pm

@Gary H: you might be interested in the interview that I did with Dambisa Moyo, just over a year ago, and available at the bottom of the page here: http://www.barnswood.com/tmr/wp/2012/07/dr-dambisa-moyo/

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