Major Market Mayhem May Result From "China Mulling Tighter Minor Metals Control"
By Jack Lifton
15 Sep 2006 at 02:21 PM
DETROIT (ResourceInvestor.com) -- The economic consequences of the failure of the United States government and of American industry to consider, much less implement, long-term strategic planning to prepare for a shift in the supply and demand of natural resources due to global growth has resulted in the headline “China Mulling Tighter Minor Metals Control,” from the American Metal market for Friday, September 8, 2006.
The world’s distribution of wealth and economic power and the cost of maintaining our American lifestyle are changing, because the minor metals over which the Chinese want to exert control are the major components of our industrial civilization.
The most chilling statement in the AMM report was the following quote by an official from a Chinese governmental agency, not from a businessman:
“We have unparalleled advantage in minor metals resources and are the most important provider to the rest of the world, but we don’t have a regime to effectively influence the pricing of the world market.”
The “minor metals” being discussed include, but are not limited to, antimony, bismuth, gallium, germanium, indium, magnesium, molybdenum and selenium.
The article quotes a senior executive at a U.S. semiconductor producer that buys gallium, germanium and indium from China: “We rely on China to feed our appetite.”
Michigan’s Saginaw (river) valley looks as if there has been a war. Its GM and Delphi factories are closed and the middle class life style of its remaining citizens is shattered. Meanwhile, in China, factories making everything for American consumption that used to be made in the Saginaw Valley are rapidly moving hundreds of thousands of Chinese people into the new Chinese middle class that for the first time can buy a car and a house.
The myopic philosophers, economists and snake-oil (dot.com, real estate) salesmen who keep reciting the mantra that we are in a post industrial age do not seem to have noticed that they are wrong. We are living in an age when industrial production and the wealth that it creates have shifted - first from North Carolina to China, then from Detroit to Japan and now to China. This has not happened covertly or secretly. But it has happened more rapidly than short sighted American politicians and businessmen could fathom the changes.
Our politicians have preserved wetlands (swamps that will breed disease if DDT is not re-invented) and miscellaneous unimportant animals (spotted owls, snail darters and some frogs), and failed completely to take note of modern mining technology, so that the elites of our nation could feel good about themselves. Our cash and carry and poll driven political elites ignore the devastation of the Saginaw Valley and point to the pristine air above the Ski Chalets or the momentarily unpolluted beaches of Malibu and the Hamptons, the playgrounds of the very few as justification for stopping the production of America’s vast resources of industrially necessary metals, minerals and wood from the treasure houses of Colorado, Idaho, Utah, California, Oregon, Washington, etc.
Look at the following chart produced by the United States Geological Survey (USGS) in 2005. It is not inclusive, it is just representative.
Please save the above chart on your computer, or print it. I am going to expand it in the next few weeks to include critical metals such as molybdenum and lithium, about both of which I have written here recently, and I am going to let you know regularly when something changes on it for good or bad.
Do not invest in the shares of any American company that manufactures a product from metal, if that company’s purchasing department does not use this chart, or the freely available information from the USGS website on which the chart is based, for long-term strategic planning for sourcing and containing the cost of raw materials.
In addition, please ask your financial analyst and the spokesmen for the companies in which you plan to invest if the fact that on September 15, 2006, the price of Chinese hot band steel products is more than 40% lower than American hot band products will affect their company’s ability to price their products at less than a Chinese competitor who has ready access to the minor metals that are necessary for manufacturing hot band steel.
A global economic shift in the control of natural resources has now occurred, but there has been no sign of a political shift. This means that the transfer of industrial production to China along with the growth of China’s domestic economy and the development by China of her natural resources and her acquisition of foreign resources has been accomplished without the conversion to “democracy,” American style that our national government believes necessary. The Chinese have learned from us how to shut down the processing of our domestic ores and the minerals necessary to maintain our lifestyle. They have simply bought up the ore concentrates, for example, of molybdenum and antimony, and shipped them home for final processing and consumption.
The current U.S. Secretary of the Treasury, Henry Paulson, comes from the very pinnacle of a Wall Street career, the exact same career, in fact, as one of his very recent predecessors, Robert Rubin, who served during the Clinton administrations. Both men were CEOs of investment house Goldman-Sachs. Both men earned 100s of millions of dollars for themselves during their tenure as CEO. Neither man would be likely to take advice on finance or economics from a Chinese person who is, by their standards, is very poorly compensated, and who in all likelihood didn’t go to an Ivy League university, and, on top of all that is a professed communist.
This is precisely why these two men are following the wrong path in dealing with the economic ascendancy of the Chinese People’s Democratic Republic as planned and supervised by the Central Committee of the Communist Party of China. The Chinese are telling them and us exactly what they are going to do, and we are simply ignoring them!
The American Metal Market’s report on Chinese attitudes towards the use of their pre-eminent position in minor metals to control world prices didn’t even get mentioned this week in any major English language newspaper. But discussions of the Chinese growing influence on the global economy proliferate. The current Economist in its featured story calls China (and India) “The New Titans.”
The Wall Street Journal and the Financial Times of London both address the Chinese economic boom story as part and parcel of American Secretary of the Treasury Henry Paulson’s trip to China where they say he has long experience and “connections” with high government officials. The papers say that he will pressure the Chinese to reduce their trade deficits and let the value of their currency move freely upward. Oh, I forgot, he will also pressure them to open their markets to foreign ownership. This is, of course, nonsense.
The moral relativists of America’s me generation who now rule Wall Street assume that they are safe behind their wall of cynicism. They blather about shareholder value and ethical corporate governance but the only rule they adhere to is make more profit first and foremost for themselves, and they assume that this is the natural condition of mankind, so that no matter which economic system prevails, capitalism, socialism, communism or any mix of them, in a country with which they do business, everyone’s goal is the same as theirs. They are wrong. The Chinese realize this and have successfully hoist Wall Street by its own petard while Washington has watched in blissful ignorance.
Until 1947, in a tradition dating from Magna Carta, a British aristocrat was entitled to demand a trial by his peers. The jury pool for a hereditary noblemen would be limited to those who were eligible to sit in the British House of Lords. The British parliament abolished this “right” in that year after an aristocrat accused of murder raised the right in the hopes of getting a more sympathetic jury.
This right to trial of your ideas solely by your social peers still exists in America for our self-appointed members of the establishment who rake in millions on Wall Street, or as CEOs, or who covet power as officers of our Federal departments of State and Treasury. All of these short sighted men simply make pronouncements about trade and statecraft and never ask for the advice of ordinary men and women living in the Saginaw Valley or of those who have studied economics or politics but do not hold seats on corporate boards or appointments in Washington. In addition they never consider the long-term consequences of their action or inaction.
How else can one explain how China’s announcement last week made no impression whatsoever on our establishment?
Washington’s totally out of touch bureaucrats and politicians blather on about conserving energy as the Chinese openly take control of our industrial base’s lifeblood. Our clueless businessmen talk about core competency as they ignore the loss of critical raw materials that are handed over to scrap dealers who line up to send “junk” overseas where its valuable metals are extracted and reused by Chinese who wonder how America can have fallen into the hands such short sighted “leaders.”
Wealthy Chinese businessmen take on American citizenship only to qualify as disadvantaged minorities and take business opportunities and taxpayer subsidies from Americans only to send the profits “home.”
The Chinese have learned how to game the system of environmental activism. They simply contribute to those who want to stop the construction of processing plants for copper, molybdenum, chromium and antimony. Not because of pollution that can be stopped or contained by modern technology but to preserve irrelevant species of fish, fowl and mammals and maintain swamps at the expense of America’s standard of living and quality of life! Anyone who questions why taxpayer subsidies and business opportunities are going to non-disadvantaged Chinese is called a racist immediately to divert the public’s attention from the perfectly reasonable inquiry.
China needs iron ore to make steel. They will buy it from Australia or Brazil, not the U.S. China needs all of the so-called minor metals in order to satisfy their domestic economy’s voracious growth and to make and sell products for a profit to countries from which they must still buy raw materials. They have pretty much exhausted America’s ability to supply raw materials, so their interest in our advice is waning. They are investing in Africa, South America and Asia to ensure that they control their raw material needs for the future.
America has served its purpose. It has financed a great leap forward with a success that Mao could never have imagined.
China has survived earthquakes, floods, conquest and bankruptcies many times in its long history. It will survive our attempts to pressure it to do what is in America’s best interest, because those things are of little interest to China’s long-term plans.
Any investment in any industry using a minor metal access to which is controlled now by the Chinese must be scrutinized for long-term strategic planning for sourcing and cost volatility. The electronics industry and the automobile industry are now affected.
All of the critical raw materials are now controlled by China. It is the same for fuel cell powered pure electric vehicles. The protestors who were angered by GM’s total withdrawal of its all electric powered car last year were the same short sighted environmental activists who have made sure that the necessary raw materials for those vehicles are now controlled by the Chinese.
Li-ion battery power has the same problem. Television flat screens need indium and the circuits need germanium. Both are byproducts of zinc and lead ores which are hardly at all now processed in the U.S., but of course are produced in China.
The chief economist of one of America’s remaining industrial giants has called Michigan “A depression in one state.” If we keep ignoring our long-term strategic interests in raw materials the depression will spread from the Saginaw Valley to the San Fernando Valley.
© Copyright 2006, Resource Investor.
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