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September 10th, 2009

Who has the strategy for strategic materials?

Published on September 10th, 2009 | By: pwray@ceramics.org

Lithium, bauxite, rare earths? As ACerS corporate member Don Bubar, of Avalan Rare Metals, told CNBC yesterday (in something of an understated way), “There is a global scramble to secure supplies of raw materials . . . and we need to think a little bit longer term than we have in the past.”

Don’s point is well taken. But the real issue is, who is doing this strategic thinking and within what framework? It is one thing to look at it from the relatively narrow confines of a single minerals corporation, which also may be different that the perspective of a multinational corporation, which also may be different than the interests the businesses that consume these materials, all of which may be different than the concerns of a particular nation, such as the U.S.

This distinction is not minor. The U.S. government has many, many more tools at its disposal to address strategic raw material concerns including vast intelligence mechanisms, formal and informal diplomatic efforts, foreign aid programs, not to mention policies that encourage efforts by NGOs and nonprofits.

What seems to be happening, however, is that it is unclear that the government is doing that kind of thinking, or if it is, that it is being done by the right set of people. For example, the most vigorous and visible government thinker about lithium (who argues there will be no lithium shortage) is a USGS “commodities specialist.” I think it’s great that someone is vocal, but I don’t know if this guy is a geologist, a geologist/MBA, a trained intelligence operative or what. I do know, however, that he only provides one perspective. I’d feel a lot more comfortable with this if it was clear the USGS perspective just part of a broader array of analyses that also include experts on mining, diplomacy, public science, “black” science and industrial consumers.

The U.S. (and any other nation) assumes a huge risk if it gambles that the raw materials markets will resolve this. And by risk, I mean looking at the statistics that different outcomes may occur. I don’t even think these markets we are talking about are even “commodity” markets in the financial sense, i.e., that they are generic materials available in large quantities in near-perfect markets.

China, on the other hand, seems to understand risk management in a very strategic sense. China is very good about developing its own internal raw material resources, but the Chinese government, for example, also has spent nearly five decades creating “good will” in Africa through various foreign aid projects, business development projects and military assistance. China is stepping up similar efforts in South America. This strategic risk management isn’t necessarily about a specific raw material. It’s about planning ahead and knowing the territory, the culture, the leaders, etc., well ahead of time. Does it work for China? Ask U.S. bauxite providers how well “the invisible hand of the markets” thing is working out for them these days.

One final comment: I don’t think the problem is that much of a big deal for the manufacturers who consume strategic raw materials. As events in recent years have shown, it is relatively easy to shift manufacturing and marketing from nation to nation. Furthermore, it is relatively easy – through futures, forward contracts and other financial products – for consuming manufacturers to hedge pricing and supply disruptions. These issues are, however, a big deal for the public and the nation as a whole.

We’ll keep following these issues, but another good resource is RareMetalBlog.com


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