Potential gains from cartelization of minerals output is exceedingly complex when the only advantage to its membership lies in increased joint income. As business activity weakens, there are no opportunities to increase that income for the cartel as a whole. Hence each member must consider the prospect for his own income and the possibility or probability that non-member supplies may come into the market. High prices established by a cartel will encourage non-cartel sources to increase their supply and will press consumers to search for substitute commodities in the long run. Experience suggests that a cartel in minerals other than petroleum may not be able to maintain a stable long-run price for the product very much above the price that would prevail in the market were the cartel not in existence. In this regard, our recent experience with the oil cartel may prove the exception rather than the rule. A forthcoming Brookings study suggests the possibility that "as early as 1976 the world will see a buyer's market for oil-as production "possibilities," could exceed requirements by 25% and the potential surplus could rise to 60% by 1980".23 The Reifman study also accents the exaggerated fears that other OPEC's may develop as cartels. Given the availability of substitution for minerals previously employed and the dependence that most producers have on export earnings, Reifman concludes that "while the possibility always exists that a cartel of supplies of critical material may succeed in the future, they have always failed in the past." As for a cartel's influence over the price of minerals, it is more likely that efforts will be more often directed at preventing price from falling than in trying to raise prices. It is significant that the cartels in copper have not proved successful and, in the case of bauxite, resort has been made to an export tax technique for generating a price rise rather than an explicit agreement on output and price. How effective this procedure will be remains to be seen but it is unlikely to prove sucessful in the face of alternatives to bauxite; non-bauxite aluminumbearing minerals are widely available. One possible response of the U.S. to attempts on the part of foreign suppliers to raise prices is to do nothing and await the outcome of market forces to reduce prices. Another is to develop home supplies. Most minerals imported by the U.S. are found in substantial quantities in the U.S. The purchaser of imports can be encouraged to substitute alternatives or to locate home sources not subject to interrupted supply. More immediately, exports of these minerals, many of which are also imported from foreign supplies, could be curtailed by an export license system or export tax. An expansion of home supplies is a natural outgrowth of matching foreign price increases or threats of boycott. Significantly, only a fraction of the world's total resources are known with certainty. Shortages and higher prices stimulate exploration and the adoption of new technology. What were previously uneconomical resources can be developed at the higher prices-weakening cartel potential. In short, it is doubtful that mineral cartels can prevail for long. As can be seen from the following table the United States imports of minerals as a share of domestic consumption is substantial; but this does not mean the United States is vulnerable to reduced supplies 22 Quoted by Alfred Reifman in "U.S. Policy in a Changing World Economy, Foreign Economic Policies for the Second Half of the Seventies," Report of the Congressional Research Service, Library of Congress, August, 1974. from foreign sources. There are substitutes and more expensive sources that can be used in addition to stockpiles of materials to be employed were a boycott to develop. Of course the U.S. uses imports to meet a large share of its mineral requirements but it is not as dependent upon imports as are many other nations. The great growth of mineral imports in recent years was the result of a number of factors that may prove less significant in the immediate future. As the industrial nations expanded output they increasingly competed for raw material supplies. The expansion allowed the producing nations to utilize their resources to achieve economic gains and, in some instances, political change. Some mineral producing nations have sought higher prices (for petroleum, zinc, copper, bauxite, tin) and some have pressed for partnership, nationalization of productive facilities, and control over integrated operations. But the bargaining position of most raw material producing nations is fundamentally dependent upon the rate of economic expansion of the importing countries which results in higher sales volume and higher prices. At the present time, countries exporting raw materials are faced with a would economic slowdown, the repercussions of which place the producing countries in a poor bargaining position and in some cases leading to volatile changes in the prices of raw material they export. Wilfred Malenbaum saw no resource shortages developing in "an expanding world," and found no limits to economic growth from shortages of materials. In this he was supported by a study by Charles River Associates 25 and the World Bank. The National Commission on Materials Policy, on the other hand, projected import requirements for materials that are based upon economic growth trends not foreseeable in the near future. Furthermore, there is a lack of firm evidence that basic resources will require resort to the import of materials under unfavorable terms. 24 Domestic resources appear in short supply for two commodities, chromium and tungsten, but the quantity of these resources available is highly dependent upon both the current price of the materials and the expected future prices. Both sets of prices are expected to trend downward, and the success of the OPEC countries in raising the price of oil is unlikely to be repeated by future OPEC-like cartels to control other raw materials. It is important to remember that U.S. imports of crude materials other than petroleum rose only minimally in volume during the 1960's. The supply/demand situation in oil, it seems was unique and itself may not be repeatable. The situation regarding potential formation of materials cartels, with the prospect of controlling the output of future commodity supplies, has been discussed in the press with reference to bauxite, tin, copper, lead, nickel and chromium. It is useful to summarize the world demand and supply outlook for these commodities briefly. It is useful to bear in mind the general proposition that, in the absence of a political embargo, ocean freight is very efficient in the delivery of goods, and it has been estimated that very minor changes of prices on the London Metals Exchange can generate movements in commodities from producing to consuming countries. Further, there are few commodities that are in world-wide short supply, unless noneconomic considerations are governing. According to a study by Alexander Land, in 1970, with few exceptions, more than 90 percent of the bulkiest metallic minerals. 26 Malenbaum, Wilfred, "Resource Shortages in An Expanding World", Wharton Quarterly, Winter 1973. Also his Appendix to the National Commission on Mineral Policy (March 1973). Charles River Associates, testimony of Vice President, C.R.A. before the Joint Economic Committee, July, 1974. Lang, Alexander, "A Crisis in Commodities", Columbia Journal of World Business, Spring, 1973. and scrap originated in Canada, Latin America and the Caribbean and could be easily transferred." Despite major U.S. dependency on imports of many non-fuel minerals, there remains a basic self-sufficiency in a number of important minerals that are available in substantial amounts." During the first two decades after World War II, prices of minerals generally increased in line with production costs. However, the per unit input of materials entering into final product has declined. The prospects for the future are difficult to predict, but a recent market analysis allows us to comment on the prospects for future supply and demand. As has been pointed out, demand projections are generally based on extrapolations of the rather rapid rate of economic growth recently experienced in industrial countries, and supply estimates tend to be conservative, since they are based on proved reserves that can be economically exploited at present prices. Changes now underway in the most advanced countries are likely to reduce the demand for such material intensive goods as automobiles, which are approaching a market saturation point. In other words, recent projections may overestimate demand and underestimate domestic reserves. For useful statement see "Commodity Data Summaries (1974)". Appendix to Mining and Minerals Policy, Third Annual Report of the Secretary of the Interior under the Mining and Minerals Policy Act of 1970, C.S. Bureau of Mines, U.S. Department of the Interior. SECTION 6 COMMODITY SKETCHES On a commodity-by-commodity sketch the following conclusions concerning minerals markets seem warranted. Iron ore The U.S. is dependent upon imports for 30 percent of its demand. but has sufficient reserves to meet its needs for decades. While there is some dependence upon foreign supplies there is little prospect of a producer cartel or association restricting supplies. Copper The U.S. imports 9 percent of its copper. The U.S. has large reserves one quarter of the world's total-and could become selfsufficient. Any producer combine would be ineffective. Aluminum The U.S. has a substantial dependence on imports of aluminum (including bauxite and alumina). These imports account for more than 85 percent of total supply. While the nationalization of important bauxite mines and processing facilities holds the promise of increased prices and reduced supplies, major supplies of bauxite are faced with the possibility of increased U.S. production from new technologies that can produce aluminum from domestic clays and ores, which would no doubt be hastened by the development of a cartel or concerted price increases. Cobalt Cobalt is widely used in the development of steel alloys. The cobalt resources in the U.S. identified as of 1973 are very large but the U.S. continues to rely on imports of cobalt to meet demand. U.S. imports of primary cobalt accounted for about 3/4ths of consumption in 1972. The identified cobalt reserves in the United States are very large and the world supply enormous. The world's hypothetical and speculative resources of cobalt in manganese modules on the sea floor amount to millions of tons. The possibility of increasing production in the U.S. and other developed countries and of accumulating sizable stockpiles would make a producer combine ineffective. Lead The U.S. imports 25 percent of its lead and has large reserves. It is not dependent on foreign suppliers to meet its needs. Manganese Manganese is an essential ingredient in its principal use as a desulfurizing agent in steel making and as an alloy ingredient. Its use is important to assure such qualities as hardness in steel. There are not satisfactory substitutes for manganese in its principal use and there |