America’s Metals Problem

If talk turns to war in Korea, the United States should start thinking about its mineral sources.

The old saying is that trouble comes in threes (although, in this writer’s life, that is too modest a figure sometimes). But, to add to two problems (the deteriorating relations between Washington with both Russia and China), now comes the possibility of a shooting war with the crazies in Pyongyang.

This possibility has gone beyond idle speculation: overnight, Bloomberg filed a detailed analysis of the various possible scenarios of how such an armed conflict might proceed. And, one must say, both Pyongyang and Washington have got into a situation eerily like a game of chicken, with huge loss of face to the party that blinks first.

When Donald Trump was elected, one cartoonist pictured Kim Jong-un laughing and exclaiming that he was no longer the world’s craziest leader. Jokes aside, there are not many steady-handed players in this one. However, to give Trump his due, he is dealing with the consequences of his predecessor, Barack Obama, having totally failed to grapple with the North Korea problem.

Having written for two decades about rare earths and other technology metals, I have read many pieces over the years from various think tanks complaining about the fact that America has done too little to secure its supply chains of critical metals.

Minerals on which the United States is 100 per cent reliant upon imports (as of 2016): arsenic, asbestos, bauxite and alumina, cesium, fluorspar, graphite, indium, manganese, mica, niobium, quartz crystals, rare earths, rubidium, scandium, strontium, tantalum, and thorium. In 2014 the U.S. imported 9% of its gallium, 90% of its germanium, 87% of its antimony, and 76% of its tin. (Graphite is an interesting case in point: the last production in that country was in 1990, the year in which United Graphite closed its mine in Montana. There is now exploration going on, the most advanced projects being in Alabama and Alaska.)

You would have thought they would have learned their lesson in the Second World War when, suddenly faced with a shortage of various metals, Washington had to comb 11 Latin American countries for everything from tin to platinum, and lean on London to divert supplies from its mines in the African colonies (in all, 14 territories in Africa, including Belgian and French colonies, came to the party).

Now, looking at the present situation, just keep in mind that China can turn off supplies if its nose is put out of joint (as it did in 2010 to the Japanese; rare earth exports ceased over one of those disputed lumps of rock in the East China Sea). If China were to side with North Korea, no doubt critical metals would be seen by Beijing as a strategic issue.

This all comes to mind due to a story out of St Petersburg this week that Russia may retaliate for the new package of sanctions signed into law last week by Trump, Russian Prime Minister Dmitry Medvedev labeling the move as a “full-scale trade war”.

Russian companies supply uranium to American nuclear plants (including from the Russian-owned Willow Creek mine in Wyoming). The agency Tenex has supply contracts with 19 U.S. utilities. Russia is also an important supplier of titanium, and of aluminium; in return, America has been looking to build exports of pipes to the Russian oil sector.

As they have shown with gas supplies to places like Ukraine, the Russians have been prepared to cut off markets and lose sales to achieve political advantage.

China and Russia, if they side with Pyongyang (even if there is no shooting war), could make life very difficult for the Americans in terms of supply of important metals.

But, of course, should some sort of war break out it will have a devastating effect on the global economy. South Korea would be the main collateral damage, but such a conflict could also see Japan struck by the crazies in Pyongyang. Both countries are important to our mineral exporters.

In the end, everyone would be a loser.

Such gloomy thoughts are well-timed: yesterday was the tenth anniversary of the beginning of the global financial crisis. In the view of Capital Economics it was on August 9, 2007, that the first milestone was reached in the growing GFC when BNP Paribas Investment Partners announced it had temporarily suspended the calculation of the net asset value for three of its funds owing to “the complete evaporation of liquidity in certain market segments of the U.S. securitisation market”.

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