Global Competition for Metals and Minerals Expected to Drive Prices Even Higher

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Despite near historic price levels, resources like copper, palladium, coal and rare earth elements "are severely underpriced, which is why I am extremely bullish" on the future of the mining industry, Russell Ball, executive vice president and chief financial officer at Newmont Mining Corporation (NYSE:NEM) (Denver, Colorado), told about 1,000 attendees at the keynote session of the annual meeting of the Society for Mining, Metallurgy, and Exploration (SME) in Denver on Monday.

"I'm not a Malthusian," Ball said. "We'll continue to innovate to meet society's needs." But there is a "global war for resources" going on, and U.S. policymakers haven't been paying much attention, he said.

For example, U.S. imports of metals and minerals rose from $51 billion in 1995 to $120 billion in 2010, speakers told the SME keynote session. A lot of these imports are rare earth minerals. The U.S. imports 100% of nearly 20 different rare earth minerals, most of which come from China, which controls an estimated 97% of rare earth reserves. Rare earth elements are essential ingredients in cell phones, renewable energy projects, cars, consumer electronics and a wide variety of other applications.

"Today, when Toyota wants to assemble its cars, it can't procure the rare earth minerals from China to build cars in Tennessee," noted Vince Matthews, director of the Colorado Geological Society. "The Chinese will sell them rare earth minerals only if Toyota agrees to assemble the cars in China. People have been gradually waking up to this over the last year."

Years of dramatic economic and population growth in China have transformed the global economy, agreed the SME keynoters. "In 2005, China opened 70,000 supermarkets," Matthews said. "Think of all the steel you would need to build 70,000 supermarkets. In 2006, China became the world's third largest national car manufacturer. In 2008, it became the world's number two car market. The next year, it became the world's largest car market and the world's largest car manufacturer. It is now the world's largest car exporter, the world's second largest economy, and the world's largest creditor."

"In China, they're trading in their bicycles for BMWs, which means more demand for steel and minerals," Hal Quinn, president and chief executive at the National Mining Association, told the SME attendees. Quinn and other speakers noted that in China, India, Brazil and other developing countries, millions of people are abandoning the rural areas and flocking to urban centers. The ensuing dramatic infrastructure changes are pushing up demand for, and the price of, many minerals.

"By 2030, China's urban areas will increase by over 300 million people, and by 2025 China will use more copper in one year that the whole world produces today," predicted Newmont Mining's Ball. He said he expects a global copper deficit by 2013, and a "massive" coal deficit by 2018, as industrialized nations sharply increase their demand for the minerals necessary to satisfy consumer demands and operate an advanced consumer economy.

Matthews added that China imports more than 82% of its copper, which has helped drive up copper prices by more than 450% since 2003. Copper now fetches about $4.50 per pound in global markets, up from about 65 cents per pound in 2003. Matthews also noted that prices for a wide variety of metals and minerals have soared over the last two years.

Click on image at right to view how prices have increased for more than two dozen minerals since 2009.

"America has had a failed minerals policy," the CGS director told SME attendees. "Our nation has been like Nero, fiddling while Rome burned." Dramatically rising prices for fertilizer inputs like potash and nitrogen have caused U.S. farmers to change their agricultural practices, which affects global food commodities markets, he said.

"The U.S. needs a revolution in public awareness of the essential role that mineral products play in our society," Matthews urged. "This will require companies to effectively deploy programs to gain such acceptance through sustainable and environmentally responsible mining." His charge to the industry was simple: "Get out of the mines and get into the communities. We need to avoid finger-pointing and partisanship. But we need to wake up U.S. policy makers."

The annual SME event, held in conjunction with the Colorado Mining Association's 113th National Western Mining Conference, drew an estimated 5,500 attendees, up about 10% from last year's event, event organizers told Industrial Info Resources.

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