WORLD ALUMINUM TRENDS. World aluminum consumption has soared during the past three years, and in 1964 the last of the excess productive capacity initiated in the late 1950's was absorbed. With the prospect for still further growth, the question of where new smelter capacity will be located is raised anew.
The trend of events provides a few clues. There seems to be no marked tendency for new export smelters to locate in the less developed areas of Africa, Asia, and Latin America despite comparatively low-cost hydroelectric possibilities that have been identified there, and only two projects are now under way in such areas—those of Kaiser in Ghana and Alcoa in Suriname. On the contrary, Alcoa has let it be known that its future reduction plants will be located close to industrial markets and will use thermal power. And Kaiser recently announced its intention to build a new smelter in northern Germany.
The presence of local markets may also be the criterion for location in less developed countries, where the desire to save foreign exchange or realize local industrial potential may result in construction of plants of dubiously small size behind a tariff wall.
This does not mean that well located, low-cost power in combination with a favorable investment climate does not retain its attraction. Norway is a case in point. There, Europe's largest aluminum industry is being built up, even though its logical future market lies on the other side of the EEC tariff barrier.
Another development carried forward during the year is creation of a bauxite-alumina-metal complex in Australia and New Zealand. Australia, with the world's largest bauxite deposits, is building a major alumina plant and has the beginnings of a smelting industry. It is ambitious to increase its reduction facilities but lacks low-cost power. The nearest sources of such power are the hydro installations now being erected in New Zealand, and it seems likely that the first major export smelter in the area will be located there.
Growing adoption of improved electrolytes and potlining materials is permitting significant expansion of output at existing facilities. The year's developments thus add up to postponement of the question of how and where the long-term aluminum needs of Europe and Japan will be met. The longer the decision is postponed by interim measures the more likely it seems that when it comes it will be in favor of production in the major market centers rather than imports from less developed countries, for the prospective increase in supplies of moderately priced thermal power —whether conventional or nuclear —will diminish the attractiveness of remote hydro sites.
IRON AND STEEL In 1964 US steel production reached nearly 127 million tons, breaking the old record of 117 million tons established in 1955. Whether this represents an isolated achievement, caused by a unique combination of factors including the fear of a steel strike in 1965, only time can tell. In any case, it does indicate that the industry can lift itself beyond the annual 100 to 110 million ton level of recent years.
Of perhaps longer-run significance was approval by the voters of Minnesota of the so-called taconite amendment to the state constitution. This guarantees that taxes on the production of taconite will not be allowed during the next twenty-five years to rise above the general level of corporate taxes in the state of Minnesota. The iron ore industry has for a long time sought such a provision, maintaining that without it major investments in taconite m the state were unwise. The vote was followed immediately by a number of commitments by major producers to erect new plants or expand existing ones in northeastern Minnesota.
Enactment of the amendment has probably laid the basis for a much larger domestic iron ore industry than would otherwise exist; there are immense quantities of taconite and taconite-like deposits in Minnesota and neighboring states. It also exemplifies how a change in the cost conditions, sufficient to compel a resource into an immediately available reserve, can be brought about not only by gains in technology but by institutional or legal changes that affect profit expectations.
On the world scene, Japan emerged in 1964 as the world's third largest steel producer. Out-distanced only by the United States and the Soviet Union, Japan now ranks ahead of such old-establish steel producers as West Germany, the United Kingdom, and France. This is the more remarkable as Japan has only very limited domestic ore resources and has been drawing its ore imports from increasingly distant lands. The result has been that the average haul of iron ore to the growing number of steel works on the Inland Sea has now increased to over 5,000 miles; One of the means by which high costs have been avoided is the use of larger ships. Vessels of 58,000 tons are carrying pellets between California and Japan; 70,000 ton ore/oil carriers link Japan and Peru, and a new 79,000 ton vessel will shortly carry oil from Lourenco Marques to Japan.
NONFERROUS METALS Though differing in range and detail, prices of nonferrous metals rose substantially during 1964; ,especially during the latter part of the year. At the beginning of the year, for example, the producers' price of copper was 31 cents, and copper purchased from other sources was selling at about the same price. Toward the end of the year buyers from the producers of copper were paying 34 to 35 cents a pound. Other copper was commanding as much as 50 to 60 cents a pound.
For the most part, these price increases probably are the short-run result of a very strong demand flowing from high levels of economic activity, and in some cases of interruptions in supply from strikes, coupled with some error in planning increases in capacity. This interpretation is consistent with the behavior of the New York Commodity Exchange futures markets, at least for copper and zinc. As of November, 1964, copper for delivery in december was about 60 cents a pound, whereas copper for delivery a year later was only 36 cents. The corresponding zinc prices were about 19 cents and 16 cents.
While it is unlikely that the price levels reached by the end of the year will be maintained over the long run, a part of the current price increases for some metals may be left as a legacy over the long term. The long-run significance of the 1964 price increases to the terms of trade for countries exporting minerals likewise appears to be limited though the year has shown that the course of prices is not inexorably downward. The position of the supplying countries has been improved markedly by the strong demands of the past year.
The arrangements under which copper is mined—at least in three of the copper-producing countries—are undergoing major changes. In Zambia, which was Northern Rhodesia until its independence on October 24, planned changes will channel a larger part of the profit from copper production to the government treasury, although President Kaunda has stated that there is no intention of nationalization. In The Congo there will be a similar change in the flow of profits.
In Chile, the new administration has concluded agreements with the the US copper companies operating there which would give the Chilean government part ownership (in one case 51 percent) and insure expansion of the industry. These agreements await action by the Chilean Congress, probably in the first half of 1965. The effect of these changing arrangements on the division of profits between the companies and the government will no doubt be smaller in Chile than in Zambia and the Congo.
Developments in these three countries are examples of a general problem that arises wherever minerals are exploited on a concession basis. At the time concessions are first negotiated both the government and the mineral corporation may be highly uncertain about the prospects for success. In an effort to induce exploration and mining activity, concession terms are often quite generous. Later on, successful discovery and production of minerals lead in many cases to demands for revision of the original terms. These pressures tend to be particularly strong where the operator is a foreign corporation.
A version of this article appeared in print in the February 1965 issue of Resources magazine.
