U.S. Mineral Dependence: The Case of Chromium

Throughout this century, chromite has been the quintessential strategic material. It has been the object of strategic stockpiling, national security subsidies, preclusive buying, political embargoes, and even rationalizations for invading other countries. Providing resistance to corrosion and oxidation over a wide range of temperatures, it is an indispensable ingredient of stainless steel and is also used in other specialty steels. However, because chrome deposits are relatively ample, in concentrations yielding 20 percent or more chromium, prices are relatively low.

Apart from metallurgy, 20 to 25 percent of U.S. annual use is for the chemical and refractory industries. Until recently, the three major grades of chromite (metallurgical, chemical, and refractory) needed to be considered separately in evaluating U.S. vulnerability and its dependence on foreign supplies, since the major sources were different. The USSR, Turkey, and Rhodesia (now Zimbabwe) supplied metallurgical grade; South African production dominated chemical grade imports; and the Philippines supplied most of the refractory grade. Now, with the new argon-oxygen decarburization (AOD) process, which utilizes high-carbon ferrochrome rather than low-carbon ferrochrome (which is richer in chromium content), what used to be called chemical grade can be used to make stainless steel, and as a result, the potential sources of ore are more varied.

The strategic significance of chromium stems from the fact that a relatively few sources have tended to dominate the global export trade at any one time, though over time the identity of the dominant supplier has varied. Moreover, of the major powers involved in international confrontations, only the Soviet Union can produce enough chromite to meet its needs. Recently, the struggle for majority rule in Africa has centered on the two largest non-Communist producers of chromite—Zimbabwe and South Africa.

Nevertheless, chromium has not been a particularly effective instrument of economic warfare in this century. The defensive measures taken by modern powers to assure chromium supplies appear to have represented substantial overkill. In neither World War I and II nor in the Korean conflict was any participant's war effort significantly hampered for lack of chrome; production incentive programs were cut back well before the end of World War II was in sight.

While large chrome-bearing deposits exist in the United States, they cannot be exploited at prices competitive with foreign ore bodies because of their low grade and high transportation costs. Throughout this century, the domestic production of chromite in significant quantity has required heavy government subsidies. The last period of subsidies came to an end in the early 1960s and since that time there has been no significant domestic mining of chromite. Peak U.S. production was reached in 1943 at 160,000 short tons with an estimated 48,000 short tons of chromium content —a level that would satisfy about 10 percent of current U.S. demand.

By 1975, the adoption of the AOD process had proceeded to the point that South Africa, with its high-iron "chemical" grade ore, was becoming the principal supplier of chromite to the United States, replacing the USSR, Rhodesia. and Turkey. At the time the United States reimposed its Rhodesian embargo in 1977. that country had only a minor share of the U.S. market. By 1976, Finland had become a significant supplier (10 percent) and South Africa was the source of two-fifths of U.S. imports. The South African share ran to 54 percent in 1977 but was back down to 40 percent in 1978. The Philippines continues to supply virtually all of the U.S. requirements for refractory grade ore.

At least under recent market conditions, the USSR seems to prefer to channel its output to Eastern Europe and its domestic market, both of which are sharply expanding stainless steel production.

South Africa and Zimbabwe together account for only a third of global production, but they have 95 percent of the world's reported reserves of chromite and about 97 percent of the additional known resources. Smaller quantities are reported by India, Brazil, Albania, Malagasy, Iran, Sudan, Mozambique, and Finland. While both the reserves and chromite resources of the latter countries are small relative to those of South Africa, Zimbabwe, and the Soviet Union, their production increased during the 1970s and their export capabilities could be enlarged significantly through investment in mining, inland transportation, and port facilities.

Brazil is the only Western Hemisphere country that currently mines significant quantities of chromite. Its output is exported to Japan or converted into ferrochrome within Brazil and exported in that form. Greenland has large deposits of low-quality ore that could be mined in an emergency but would not be economical at the current market.

For a decade after the mid-1960s, the United States steadily made disposals from the strategic stockpile it had accumulated during the Korean conflict period. By 1977, the stockpile had been reduced to about a three-year supply at current rates of industrial demand and remains at that level, which is roughly equivalent to the current strategic stockpile goal.

Industrial stocks vary with market conditions, running in the aggregate to between six and twelve months of industrial demand. At the end of 1978, all private stocks reported to the U.S. Interior Department's Bureau of Mines were approximately equal to industrial demand over the preceding twelve months. With a new and untested government in Zimbabwe and uncertainties about events in South Africa, U.S. industrial users appear to have decided to maintain inventories sufficient to carry them over a complete supply interruption for a full year.

The possibility of a supply contingency stemming from the policies of the producing governments may be greater in the case of chromium than for any non-fuel mineral other than cobalt, platinum, and industrial diamonds. However, the government policies of concern are not of the type that have worried major powers throughout the first two-thirds of this century. Embargoes imposed by major producers for the purpose of influencing U.S. foreign or national security policy or denying the U.S. materials for defense are not likely to occur over the next decade. The higher probability of a supply interruption concerns an embargo that the United States may wish to impose on its principal supplier —the present government of South Africa.

As noted, global production capacity for the ores needed to produce ferrochrome is heavily concentrated in the USSR, South Africa, Zimbabwe, and Turkey. Tensions do exist between each of these countries and the United States and/or its allies. Nevertheless, the probability that any of them will embargo chromite shipments for the purpose of registering political displeasure or of forcing changes in U.S. foreign policy cannot be rated very high.

The USSR used this technique on two occasions without significant effect. The recent withdrawal of its high-chromium ores from the U.S. market gave no evidence of political purpose, nor was it accompanied by any shortage of supply in the United States. Rather, it appears to have been motivated more by strong demand within the Communist bloc and a declining U.S. market for high-chromium (the old metallurgical grade) ores. Indeed, 1979 U.S. imports of low-chromium ores from the USSR reached an historical high.

Despite disagreement with the United States over Cyprus, Turkey remains a member of NATO and depends on the United States for a substantial flow of military assistance. Even during the crisis over congressional reluctance to authorize a resumption of military aid, Turkey did not attempt to use its chromite as a bargaining tool. Turkey's economy is heavily strained, deeply in debt, and dependent on a continuing flow of economic assistance from Europe and the World Bank family.

There is a good deal of uncertainty surrounding the new government of Zimbabwe but, regardless of regime, the country needs to earn foreign exchange by continuing to export chromite in the form of both ore and ferroalloy. It is not likely to initiate a chromite cutoff, although a resumption of civil strife conceivably could result in mining and export disruptions.

Nor is the present South African regime likely to resort to an embargo of its chrome exports in order to gain support for its policies. Indeed, it is currently threatened by a UN embargo if it fails to honor its pledges concerning the granting of independence to Namibia (Southwest Africa). Hitherto, the United States has resisted demands for such an embargo from Communist and developing nation members of the United Nations on the ground that it would be more likely to retard than advance Namibian independence. Should the United States ultimately cooperate in the imposition of sanctions, it would be faced by a significant interruption in its imported chromium supply. In such an event, the price of chromite and ferrochrome may be expected to soar in the face of hedge buying and speculation. Such sanctions could be maintained for many months, without interrupting industrial production, owing to the large inventories of chromite in the hands of U.S. ferrochrome producers. High prices would probably stimulate both conservation and secondary recovery, and deliveries from other suppliers would undoubtedly be expanded. The combination of high prices and political advantage from supporting sanctions against South Africa might well induce the USSR to increase its exports once again.

Even if Namibian independence is achieved without resort to sanctions, a UN call for an embargo on South Africa looks like a recurring possibility until the question of majority rule in South Africa is resolved. The present regime is likely to remain intransigent and the United States may well feel at some point that its interests in the rest of Africa—and elsewhere—would be be served by enforcing UN-sponsored sanctions. The probability of such an event before 1985 must be rated high.

As in the case of Zimbabwe, the political character of a future regime in South Africa may be unpredictable and its economic policies even more so, but it is likely to need foreign exchange to pay for imports and finance economic development. It is unlikely to feel threatened by industrialized countries that want to import South Africa chrome even if political relations should become strained. At the moment, it appears that a successor regime could take power with considerable goodwill on the part of the principal chrome importing countries. Should relations deteriorate, a new South African government probably would realize that an embargo on chrome exports would be unlikely to change the policies of importing nations and would certainly damage its own economy.

Nor is the probability very large of significant disruption through cartel action in the period through 1985. It may have made economic sense for the USSR and Turkey to raise prices while they could for their high-chromium ores, but their position is now weakened by increasing use of the AOD process. South Africa, the dominant producer of high-iron chromite, and thus the principal beneficiary of the new process, cannot exercise monopoly power unless the USSR and Turkey cooperate or stay out of the market. Also, given very much of a price rise, less richly endowed suppliers of chromite would find it profitable to expand their exports. Rather than looking to high prices and supply restrictions, South Africa seems to be encouraging private investment in expanded capacity, with a view to increasing exports. As in the case of Saudi Arabian oil, South Africa's large mineral reserve position seems to be best exploited by sufficient price restraint so as not to stimulate conservation and substitution on the part of consumers and increased production on the part of higher-cost suppliers.

While political, labor, or military disruptions are conceivable in any of the exporting countries, the probabilities of a significant supply interruption on that account are rather low, except in the case of South Africa and Zimbabwe. Some amount of supply disruption from South Africa, as the result of persistent political turmoil, does seem probable between now and 1985 and could on occasion touch off a sharp price rise. A more difficult question is how protracted the actual loss of chromite or ferrochromium supply would be and, particularly, whether it would be great enough and long enough to exhaust U.S. private inventories. This extreme seems rather unlikely for chromite, since inventories are quite high and there is the ultimate backup implicit in the U.S. stockpile, but for the consumers of ferrochromium, the potential interruption could be great enough to have significant impact.

Past demand surges for ferrochromium have been strong, and the next peak in U.S. industrial output is likely to involve another such surge. However, both mine and ferrochrome facilities are today operating worldwide at levels well below capacity. U.S. ferrochrome producers were reported as of mid-1978 to be operating at only 60 percent. Thus, expansion of output to meet the next peak demand should be readily possible, even if the peaks are once again synchronized in the United States and other developed countries, so long as the surge is not coincident with disturbances in the principal supplying countries.

In the case neither of chromite nor of ferrochromium does there appear to be enough of a concentration of production and processing facilities, nor enough of a special vulnerability to natural disasters, to give the latter any significance as a potential source of significant supply disruption.

In sum, an amount of supply disruption from South Africa, as the result of political turmoil, seems probable between now and 1985. Should there be a violent transition to a new political regime, both chromite and ferrochromium supplies from South Africa would probably be interrupted for a period even if facilities were not directly damaged. The impact of this on U.S. industrial consumers would differ between the ore and the ferroalloy and would depend a great deal on whether or not the events in question took place at a time of high levels of steelmaking in the United States. As there is only a moderate possibility of such a juxtaposition, there is only a comparable probability that supplies of ferrochromium would be significantly interrupted, and this only for a limited period. The bottleneck, in such circumstances, would be U.S. and other Western ferroalloy capacity; so long as the situation in southern Africa looks precarious, it may be assumed that ferroalloy makers will continue to hold large stocks of chromite. In addition, there is the likelihood, in a protracted emergency, of releases of chromite from the U.S. stockpile.

Even during the supply interruption resulting from UN sanctions on Rhodesia, inventories were high, excess capacity was prevalent among ferrochrome producers, and prices were below the peak levels experienced several years ago. A significant supply interruption manifestly did not happen. Moreover, a variety of sources outside of southern Africa are expanding mining capacity and could increase deliveries above current levels. Nevertheless, the possibility of an embargo against South Africa has serious enough implications to warrant concern. Such an embargo would represent a significant supply interruption and substantial price increases would probably result. The higher prices would stimulate increased deliveries from other suppliers, probably including the Soviet Union, and thus mitigate the effects of a supply contingency, but would not erase it.