Prices of raw materials did not rebound as expected from the slough into which they had begun to fall in late 1974. There had been reason to anticipate throughout the year that the inventory liquidation, which had earlier accelerated the price slide, would eventually reach a point where consumers of raw materials would have to begin replenishing their stocks. However, inventories that might be considered low in a boom period proved to be ample during limited recovery.
U.S. industrial production did pick up during the second and third quarters, and output of materials followed suit. As of October, however, industrial output was still some 6.5 percent below its level of the year earlier and roughly 8.5 percent below its late 1973 peak. The primary processing industries, which had reduced their use of capacity from a peak of 90 percent in mid-1973 to 67 percent in the second quarter of 1975 in an effort to sustain prices, were still operating at under 71 percent of capacity in the third quarter. At the same time, the capacity utilization index for all major materials was 78 percent compared with its first-quarter low of 70 percent, but that for metals recorded a new low of 67 percent.
With purchasers of most raw materials still buying for current needs, the softness in the market was reflected in widespread discounting from published prices and in repeated recisions of tentative increases.
Portents of the immediate future are usually most evident in the prices of scrap materials, whose volatility reflects something of a balancing role in the demand for, and supply of, raw materials. Somewhat encouraging to suppliers was the behavior of waste paper prices, which after falling to a third of their 1974 peak began to rise steadily after April. Iron and steel scrap, on the other hand, which averaged less than $35 a long ton in 1972, rose to over $140 by early 1974 but plummeted to less than $60 in July 1975 and hovered around that level for a few months before rising slightly.
Both ferrous and nonferrous scrap (whose prices were also virtually unchanged) have been hit not only by domestic cutbacks, but by the loss of export demand in the face of worldwide recession. Declines in the "leading indicators," relapses in the unemployment rate both here and abroad, and sundry other statistical signals raised questions about the strength of the recovery from the 1974 slump. All the same, unless the economic recovery should be aborted, worldwide consumption of materials will, within a year or two, once more reach the point where it is pressing against the limits of production capacity.
With luck, and perhaps more adroit management, pressure on raw materials prices will not be exacerbated by the speculative excesses that occurred in 1973-74 in the wake of the major successes of the Organization of Petroleum Porting Countries (OPEC). Moreover, raw materials producers have in the aggregate kept a relatively normal rate of capacity expansion during the past couple of years, despite price reverses. But the expansion began to slow before the end of the year. Aside from the fact that recent expansion emanates from corporate decisions made during an earlier period of boom, the expansion has been managed in large part through huge (and for many companies, unprecedented) increases in corporate debt. It would take a sustained renewal of vitality the securities markets to change the prevailing consensus that corporate financing, over the next several years at least, will be a considerable problem. Add to this the difficulties that transnational companies have had maintaining, let alone expanding, their third-world operations, and the prospects for achieving the needed rate of continuing capacity expansion look anything but encouraging. Locational problems, financial capability, and lead times for introduction of new capacity do vary considerably from material to material, however, and the next world economic boom may thus see an increased juggling of competitive relationships among materials, which has become one of the more salient aspects of twentieth-century economics and technology.
A version of this article appeared in print in the Winter 1976 issue of Resources magazine.
