Off the Critical List

The broad problems of natural resources are long lived, but the particularized ones, like old soldiers, sometimes do fade away. The sulfur pinch was one that in 1970 faded to the point where senators from the country's main sulfur-producing states took steps to arrest a price slide. The immediate target was imports—which as recently as 1968 were a welcome source of the then scarce material. The bill introduced in mid-1970 would put a ceiling on imports equivalent to average receipts from each foreign country in 1965-67, the peak period of sulfur shortage throughout the world.

What has happened to alter the outlook, so drastically, and what lessons, if any, does experience hold? The high price of sulfur that prevailed in the mid-sixties had two expected results: it sent producers searching for new sources of supply and customers for cheaper alternatives. On the first score one of the consequences, traditional in this context, was for producers of sulfur from underground domes (so-called "Frasch" sulfur) to reopen some older properties and start some new ones. On the second, there was recourse to such substitutions as hydrochloric acid in the pickling of steel and nitric acid in the production of phosphate fertilizer.

These moves might have brought a gradual easing of the shortage, even in the face of a simultaneous slowdown in fertilizer production —sulfur's principal customer. A third event, however, led to a pronounced slump. This was a rapid expansion in output of Canadian natural gas, which happens to be exceedingly sour and thus is a rich source of sulfur. Between 1966 and 1969 Canadian sulfur production rose from 1.8 to 3.6 million tons, the latter level equalling half of U.S. Frasch production on and in the Gulf of Mexico, in the past the world's dominating source of sulfur. In 1970 alone, Canada added a million tons to its sulfur capacity, and an additional 2 million were expected to come on stream in its western gas fields in 1971.

Rising sulfur production in France and Poland further extended supply in the face of essentially stagnant demand, and by mid-1970 inventories of nearly 4 million tons had accumulated in the United States alone (more than twice as much as three years ago), and worldwide stocks were estimated at more nearly double the U.S. stocks.

Nor is the end in sight. By 1970, production of "recovered" sulfur (that is, sulfur obtained as a by-product of natural gas extraction, oil refining, etc.) exceeded Frasch sulfur for the first time. Given the Canadian potential alone, and the inevitability of sulfur production if the gas is to be sold, it is difficult to see what could reverse the trend. Moreover, it is expected that in the more distant future sulfur supplies can be recovered from a totally new source: extraction—before or during combustion—from fossil fuels, so that their use will contribute less to air pollution. These supplies could eventually outpace all other sources of supply.

Prices have declined drastically the world around and half a dozen mines along the Gulf have been closed down, including a barely opened large offshore mine in Louisiana; some of this was offset, though, by the opening of one of the largest new Frasch mines with an annual capacity close to 1.5 million tons, or over 20 percent of annual U.S. Frasch production.

Price erosion began in mid-1968, and while the system of price quotations makes it difficult for the observer to be precise about it, the current level is probably around half of what it was at the peak of the shortage. Price pressure from Canada has been especially severe, as the by-product status of the Canadian sulfur permits far greater latitude in pricing.

All this is but part of a sweeping change in the structure of the industry. The small band of specialized producers that has mined the Gulf domes ever since the patents of Herman Frasch led to successful commercial ventures early in the century has been joined and out-stripped by a multitude of newcomers, both here and abroad, that differ in both technology and outlook; to them sulfur is a by-product, revenue obtained from it less crucial, and deliberate impact upon the market not a feasible objective. At the same time, the old-line producers themselves have been increasingly diversifying their business. Taken together, all this should have the effect of lessening the sequence of feast and famine that has in the past plagued the industry and its customers. In a more general context, recent developments are one more demonstration of how frustrating is the forecaster's lot, when new technology—and perhaps new societal goals such as pollution abatement—alter major parameters and turn potential resources into actual ones.

One is tempted to look at copper as another candidate to be taken off the critical list, but the analogy goes only a short way. True, high prices have played their traditional role in provoking a search for new supplies, with the result that mine capacity is expected to rise 7 percent per year at least during the first three and perhaps five years of the 1970s. Discoveries in North and South America as well as in such widely separated areas as Yugoslavia, Iran, the Philippines, and New Guinea have come or will be coming into production.

These are not small increments. Additions to come on line in 1970 are estimated at nearly 600,000 tons—a boost of over 10 percent in world capacity outside communist countries. For the four years 1970-73, aggregate net additions are estimated at nearly 2 million tons, or about one-third above 1969 capacity. Internal political or social problems could slow down this expansion, as is always likely in some of the copper-producing countries. Planned capacity may never be started, its start postponed, its construction stretched out over a longer span of time than originally contemplated, and some old capacity abandoned or new additions overestimated. Thus one should take with a large grain of salt recent industry talk of the emergence of a sizable surplus by 1975. True, prices have been declining, especially late in 1970, though sliding rather than tumbling as in sulfur. Achievement of even a major portion of contemplated new capacity would make a turnabout in that trend unlikely, but that is a far cry from a surplus situation.

Nonetheless, as in the case of sulfur, moves to stem the price slide are beginning to surface, initiated in this instance by the principal four producing countries outside the United States, banded together in the Intergovernmental Council of Copper Exporting Countries.

While copper has been discovered in old and new areas by the application of new geologic insights, and while large earth-moving equipment has made the mining of very low-grade deposits economically feasible, no upheaval is in sight equivalent in impact to the phenomenal growth of "recovered" sulfur or the possibility of salvaging vast amounts of sulfur from fossil fuels. Recycling is already being practiced on a fairly extensive scale, and while its impact can no doubt be enlarged—provided the price of primary copper stays high enough—this too would not amount to a major structural change in the demand-supply balance. While prophets of copper exhaustion have had again and again to push back their timetable as new finds raised the level of reserves and substitution eroded demand, one cannot be nearly as relaxed about the long-term outlook for copper as about that for sulfur. It is just that, once again, it has been a little premature to toll the bell—copper, brass, or bronze.

Timber was another natural resource believed by many in 1969 to be in critically short supply. During the late 1960s the wholesale price index for softwood lumber moved up rapidly: from 106 in 1967 to 128 in 1968 to a high of 170 in March of 1969. The price increase for plywood was even sharper. To some observers this signified basic imbalance between supply and demand. The evident and widely noted price increase provided opportunity for representatives of the timber industry, the construction industry, and government agencies to express concern about the adequacy of U.S. timber supplies. This led to the drafting of the Timber Supply Bill, which authorized increased cut on public lands, and would have effectively prevented their further classification for wilderness or, some feared, even for extensive recreational use. The bill drew heavy fire from recreationist and wilderness groups, and ultimately failed of passage, despite its being retitled "The National Forest Timber Conservation and Management Act." Through executive orders some intensification of timber management and harvest was achieved, but there remains substantial support for new legislation aimed at increasing cut.

The equally rapid decline of softwood lumber prices beginning in mid-1969 and the fact that no other wood product group experienced nearly as sharp a price rise suggest that causes other than basic supply-demand imbalance might have been responsible. In retrospect, bad weather and a temporary shortage of labor and box cars were seen as contributing to the 1969 lumber price behavior. While concern over timber supply adequacy has subsided, and timber appears for the moment to be off the "critical list," some important longer-run questions remain.

For example, recent high mortgage rates—a result of anti-inflationary monetary policy—have retarded residential construction. Both the accumulated backlog of unsatisfied demand and the increasing number of new household formations suggest that a great bulge in construction activity will occur when interest rates are reduced. The implicit conclusion is that these factors will greatly increase the demand for lumber, necessitating adjustments in policies covering timber harvesting on both public and private lands.

Here as with sulfur, the forecaster must contend with changes in basic parameters. Monetary conditions undoubtedly have dampened residential construction in recent years, but it is not at all clear that an extrapolation of past construction is an adequate basis for estimating future timber demands. Different types of housing use different amounts of wood, and the composition of new housing reflects the age structure of the population. The number of newlyweds and older people suggests a large number of multi-family units requiring substantially less wood per unit than single family houses. Whether the rapid incursion of mobile homes into the housing market will continue is not known. They use still less wood per unit. Prefabrication also has made substantial advances in recent years, and national housing policy, reflected in HUD's Operation Breakthrough, promises to stimulate further these technologies which often use wood substitutes. Just how these factors ultimately will affect the demand for timber remains to be seen.

On the supply side, both genetic improvements and more intensive management have potential for higher yields per acre. Imports from other countries—notably Canada—also provide some supply flexibility. Though timber may be off the "critical list" it remains a resource to be watched.