Depletion and the Long-Run Availability of Mineral Commodities
John E. Tilton, 2005. "Depletion and the Long-Run Availability of Mineral Commodities", Wealth Creation in the Minerals Industry: Integrating Science, Business, and Education, Michael D. Doggett, John R. Parry
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The debate over the long-run availability of mineral commodities remains as polarized today as it was 30 years ago for three reasons. First, two different paradigms are used to assess the threat, which can lead to sharply contrasting conclusions. Second, the uncertainties regarding future changes in mineral supply and demand, which will govern the course of real mineral prices, are great. The geologic unknowns are particularly a problem in this regard. Finally, mineral commodity prices reflect only those social costs that producers pay. Just how much greater prices would be—and how their trends over time would be altered—if prices reflected all the costs of production and use is unknown. The available estimates vary greatly, and often reflect the values of individuals and groups rather than those of society as a whole. In light of the last two uncertainties, we simply do not know whether mineral commodities will become more or less available in the long run.
While this is disappointing, there is much we have learned about the nature of the threat from mineral depletion and its implications over the past several decades. For example, the world will not as a result of depletion abruptly run out of mineral commodities the way a car runs out of gas. If depletion creates problems, it will do so slowly over many years by persistently pushing real prices higher, and in the process making mineral commodities too expensive to use in one end use after another. We also know that this pessimistic scenario is not inevitable. If the cost-reducing effects of new technology more than offset the cost-increasing effects of depletion, mineral commodities will be more available a century hence, not less. Given the uncertainties, especially in forecasting technological change, we cannot predict with certainty the outcome between these two competing forces. However, a better understanding of the nature and incidence of mineral deposits that are, at present, subeconomic could provide useful insights.
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Global political and economic developments shape both the demand for minerals and primary metals and their supply. Overall, demand has moved broadly in step with economic activity over the past 30 years. Notwithstanding the collapse of the Soviet Union and Eastern Bloc countries, demand grew more rapidly in the second half of the period than the first. The performance of individual products within this general trend largely reflects the specific nature of their main end uses. The geographic center of demand has shifted away from the mature industrial economies of North America, Western Europe, and Japan toward the newly industrializing countries of the Pacific Rim, China, and India. Mine production rose with demand, but not always in precise step. New capacity was required not just to meet demand, even where that was static, but also to offset the continuing effects of ore depletion. There were also changes in the location of production in response to geopolitical forces, the depletion of ore reserves, and the changing economics of extraction and processing. The number of mines contracted, especially during the 1990s, and the scale of mining operations was increased in order to achieve the requisite cost savings. Prices fluctuated in response to changing balances between supply and demand, trending downward from the early 1970s until the early 2000s. Most products witnessed at least one sharp price spike during the period, usually with continuing repercussions. Prices picked up from 2003, but generally not back to their earlier peak in real terms. Profitability varied according to the products concerned. In many years the average rates of return on capital employed have been insufficient to cover the risks involved.