Mineral scarcity: myth or reality?

6 november 2009

Mineral relations are political relations, according to President Hu Jintao. And China knows what it is talking about. China is actively securing its supply of not only oil and gas, but also of minerals, through multi-billion deals with countries worldwide. For some African countries, Chinese investments in mining and mineral extraction are the biggest foreign investments in the country. Among the primary products purchased by China from Latin America are iron and copper. In addition, China has recently announced export restriction on so-called 'rare earth elements': naturally occurring materials that are vital for the production of green technology (next-gen batteries, hybrid cars), smartphones, and precision weapons. Mineral scarcity is no longer an issue of trade but of strategic interest. Are future wars about minerals rather than oil, territory or water? China has cash to spend. And it is buying minerals needed to oil its economic growth. Chinese investment flurry around the globe and its export quota suggest that minerals will soon be in short supply. Is this so? The Organisation for Economic Co-operation and Development (OECD) estimates global demand for minerals to double over the next 25 years. Will supply be able to keep up?

Research carried out by the Hague Centre for Strategic Studies (HCSS) indicates that mineral scarcity is not a matter of simply asking "how much is still left?" or, "when will this or that mineral run out?" In reality, only a small percentage (0,01-0,001%) of existing mineral resources in the earth' crust is extracted. The bulk of available mineral deposits is not (yet) exploited, due to technological or economic limitations, or because it would require too much energy to do so. In fact, the global reserves of minerals that can be exploited fluctuate but have remained fairly constant over time. Global mineral reserves today are at roughly the same level as one decade ago, even though demand and production have grown. But results from the past are no guarantee for the future. The question is whether, given the growing demand, this trend will continue. Scarcity of minerals in the 20th century has actually decreased. This is because mineral reserves shrink and grow in response to price shifts or technological advances. Recycling of materials and substitutes also influence the availability of minerals. Scarcity of minerals is not about depleting existing stocks but about the amount of extraction that becomes profitable under existing market conditions. Scarcity of minerals is therefore not a linear equation of quantity and time, but a relative economic concept. The basic fallacy of the scarcity debate is the assumption that mineral reserves are static. In reality, they are dynamic.

That is not to say mineral scarcity may not occur in the future. It might. But whether it will not only depends on the known quantity of mineral reserves but on a number of interrelated factors, including mining technology, demand and production, supply, the price of energy and the price of minerals.

Known mineral reserves are limited. The 'low-hanging' fruits have been picked and mining will have to move to ever remote and hostile environments. Developments in mining technology are slow. Demand is rising and supply inelastic. Likewise, demand is inelastic. Increase in price only slowly result in decreased demand, as substitutes might not be available or require extensive research. Energy price shocks may lead to increased production costs of minerals.

The control of scarce minerals is in the hands of a few countries and companies. Faced with the prospect of increasing demand and tightening supply of minerals used in critical applications, access to scarce minerals are increasingly framed as issues of vital interest. The US, China and Japan pursue mineral policies that secure supplies, assuming growing scarcity and economic disruption when supplies dwindle. Aggressive pursuit of such policies trigger their own dynamic, creating political alliances with bad regimes, distorting mineral market dynamics and tightening supply. China knows that who controls minerals, has the future.