The Global Slump in Metals

Hans H. Landsberg

With relentless singlemindedness, recent U.S. minerals policy has focused on the so-called strategic and critical materials, conventionally defined at those that are essential to national security and that are imported in whole or in major part from "unreliable" sources. By a moderate stretch of the imagination, just about every metal and a few nonmetals qualify, as do many other inputs into the complex machinery of modern society, but cobalt, chromium, manganese, and the platinum group have received special attention as fitting the criteria most closely. There now exists a substantial literature devoted to estimating the likelihood of supply interruptions, the possible magnitude of damage to the U.S. economy, options to remedy the situation, and the costs of such options. In the meantime, markets for these metals increasingly have softened, and their producers and exporters have their minds set not on withholding them but on stabilizing their markets.

Preoccupation with the strategic and critical appears to have left little room even for recognizing that the rest of the metals industry has been on a downward slide for a decade, let alone for dealing with that trend. To put it mildly, policy-makers' attention has suffered from a grave case of imbalance. Ironically, those who claim most vociferously that failing to secure adequate cobalt or chromium supplies put the nation's future in jeopardy may have done real damage to the national welfare by inadvertently obscuring the slow but increasing erosion of the country's major metals industry.

What has happened is clear as far as the facts are concerned, but not when it comes to describing the causes. Among the most obvious facts are sagging prices and declining or, at best, stagnant consumption: these are true not only for the United States, but throughout the western world and, to the extent that data allow a judgment, for most of the planned economies. It is equally clear that the difficulty is not confined to one or two metals, but is general, and that within the depressed metals market, the U.S. position is especially weak.

Slumping prices

Let us look at prices first. It now seems like a fairy tale, but as recently as the spring of 1974, the price of copper on the London Metal Exchange was $1.51 per pound. That was in part a consequence of the OPEC oil-price shock, and the price quickly receded to the 60 cents, give or take 10 percent, at which the metal had been quoted before. Saving a brief second spurt in the winter of 1979-80, it has stayed at 60 cents, more or less. But when adjusted for inflation, the current real price, in 1974 dollars, is more like 30 cents. It is hard to think of another commodity whose real price has declined to that degree in the past ten years. One is tempted to guess that there is none, except perhaps another metal.

Not long ago, several metals firms appeared to be such bargains that they became the target for takeovers; within the last five years such major producers as Kennecott, Anaconda, and St. Joe were swallowed up by oil companies and other multinationals. That these purchases have given the buyers acute indigestion, depressed their profits, and set them to search for ways to disgorge the acquisitions testifies to the depressed condition of the metals markets (and the poor judgment of the purchasers).

Weak demand

In reviewing the record of a half-dozen metals over the past twenty years, what stands out starkly is that demand stopped growing somewhere around 1972-74. As figure 1 illustrates, the cumulative amount of demand lost is quite large when measured as the difference between actual demand and the demand that would have been generated by a continuation of the 1950-73 trend. Moreover, the thirty-year demand track reveals no period of declining demand, prior to 1972-74, that lasted for more than two years.

Figure 1. Western world consumption of major metals, actual and trends, in thousands of metric tons, 1950-82

Trend figures indicate how metal consumption would have increased in the post-1973 period had growth continued at the 1950-73 rate. Steel consumption figures for a number of years between 1951 and 1972 were estimated by extrapolation

Such comparisons are necessarily crude; they are made here merely to highlight the probability that we are witnessing more than an unusually long intermission in a continuing upward march. A number of factors come to mind to explain the cessation of growth.

To begin with, the past decade has witnessed a worldwide slowdown in income growth. But this factor is shared by all segments of the economy, unless it could be established that metals are affected disproportionately by income. More likely, the protracted and perhaps secular slowdown in investment has hit metals—the stuff from which durables are made. However, this is only a plausible explanation in that it is not based on statistical analysis. A research effort targeted at the 1974-84 period might yield some interesting results.

Intensity of use

Another factor is the intensity of metal use, that is, the amount of metal consumed per dollar of the gross national product, and, specifically, any changes in that intensity. Research by John E. Tilton suggests that for both aluminum and nickel nearly half the slowdown in consumption growth since 1974 can be attributed to changes in the intensity of use. Up to 1974, consumption of these two metals grew faster than the gross domestic product, but in the past decade it grew more slowly. In the case of copper, on the other hand, the opposite is true: the decline in the intensity rate was more rapid before 1974 than since, giving western-world copper consumption a slight growth rate in the past decade. Similar calculations for aluminum, copper, and nickel are shown in table 1.

Of course, intensity of use is only a convenient label that tells us nothing about the real-world shifts behind it. Just as is true in the case of energy, these are of two major kinds: changes in the composition of the nation's bill of goods, and more sparing use of metals for any given product.

In the first category, the main attention is focused on the economy's shift from goods toward services, although at times this is exaggerated (many "services" are associated with, or can only operate by way of, material artifacts, witness the thousands of automobiles used to carry spectators to places of entertainment, a major service industry). By and large, however, the goods-to-services shift is real, widespread, and well-documented.

Table 1. Western World Growth in Metal Consumption, Intensity of Use, and Gross Domestic Product

A second shift, alluded to above, is the decline of investment goods vis-à-vis consumables, nondurables, or whatever label one wishes to use. High interest rates and increasing uncertainties—both domestic and international—are two factors that in the past decade may have discouraged investment. There may be others. For example, radical changes in information technology may lead to a lesser degree of materials intensity.

The second class of factors relates to materials composition of individual products. Technological change at different levels can have a direct and significant effect on the overall intensity rate. That is, replacing a more materials-intensive with one less so, or reducing the amount of materials in the same item, or making a change that alters the product's lifetime, or that makes it more (or less) easily repairable—these and other changes all find their way into the aggregate intensity rate of use.

In turn, we can go below this level of aggregation and inquire into the reasons for declining material input for any given product. We will then discover such factors as "downsizing"—pervasive in automobiles, calculators, and throughout whole ranges of products—or the greater use of high-quality materials in which better characteristics substitute for sheer mass, as in high-strength alloys.

Nor does analysis end there. In the case of autos, for example, downsizing, moving from heavier to lighter metals, and from metals to nonmetals (plastics) are heavily motivated by improving fuel-efficiency—an objective supported in large measure by U.S. public policy.

Finally, there is that special consumer of metals, the armaments industry. Not so many decades ago, steel and war were popularly assumed to be close cousins, and critics pointed to the needs of the metals industry as mainsprings of war, with a predilection for those implements that expended their products without hope of recovery and recycling. To what extent have changes in defense technology depressed traditional metals markets? It is certainly a question worth asking.

The right medicine

One cannot help being struck by the magnitude and complexity of the research agenda and by the lack of attention that these matters have received in recent years. These commodities are, after all, the "bread and butter" of the minerals industry, and the metals industry is not one that a nation can afford to see slide into secular decline without even understanding the reasons, and without an effort to investigate the nature as well as the costs and benefits of remedial action. Without such understanding, gut reactions will prevail, including quotas and tariffs and associated mechanisms or subsidies. Yet, if not the United States alone but the world faces a long-run decline, beggar-thy-neighbor policies are hardly the right medicine. Therapy without prior diagnosis is a poor practice, no less in the art of healing societal as individual ills.

Author Hans H. Landsberg is senior fellow emeritus in RFF's Energy and Materials Division and co-director of its Mineral Economics and Policy Program. Program co-director John E. Tilton of the Pennsylvania State University provided many of the thoughts as well as the table and figure used in this article.

A version of this article appeared in print in the January 1985 issue of Resources magazine.

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