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The Trump Metals Act

Yogi (It looks like its déjà vu all over again) Berra would have been proud. It seems like the revs with which metal history repeats itself are in warp drive. No sooner has the U.S.’s hope of rare earth independence, Mountain Pass, drained down the plughole into Chapter 11, here we are again on the edge of another U.S. political intervention into the metals markets.*

Sponsored by Rep Congressman, Duncan Hunter, of California, the bill placed before Congress on March 7th 2017 is called the H.R.1407 METALS Act.

One thing both the European Commission and Congress can agree on is that they both appear to like an acronym. The M-E-T-A-L-S act is short for ‘Materials Essential to American Leadership & Security’, (if you count the ‘to’ in the title). Or, you could just dub it – ‘American Metals First!’.

So, has it any chance of success? And how will it work?

Rather like the circumstances that lay behind the rare earths boom between 2008 to 2011, the bill is stimulated  by the idea that the U.S. is vulnerable to the rest of the world for metals ( and metal related products) for its critical (mainly military) needs.

If we do not count elements following neptunium, a rough count of the metals the law seeks to cover represents 36% of the periodic table. Once again, the mind of America is focused on rare earths and pre-supposes that enemies of the U.S., such as the People’s Republic of China, intend to hold back metals needed for weapons systems. Secondly, it proposes to encourage domestic production of threatened elements in the USA and, if more expensive, to subsidise the price difference (especially in weapons systems programmes).  What it does not do, rather wisely, is suggest stockpiling.

It would nevertheless appear that the nationalisation of atoms is moving apace.

In search of the mindset that might gestate such law, I googled the opinions of the bill’s sponsor. It turns out that Duncan Hunter has some original views on climate change;

“Nobody really knows the cause…it could be caused by carbon dioxide or methane. Maybe we should kill the cows to stop the methane, or stop breathing to stop the CO2”. (Wagner, 2013)

Or, how about this;

“Thousands of people die every year of cold, so if we had global warming it would save lives…we ought to look out for people. The earth can take care of itself.”

Whether we are in safe hands or not, we shall have to wait and see. What might be problematic is that, from what I can find, there is little suggestion that either Hunter, or his co-sponsors, have any professional knowledge of the metal trade.

The philosophical question it thus raises is actually one for all governments with a tendency to control-freakery – the EU included. That is – the extent to which lawmakers can or should intervene directly in markets to protect their interests as opposed merely to setting the circumstances in which trade can best take place.

A glance at the complexity of the supply chains of the elements, under discussion, should really provide the cure to intervention. Back on the menu, as mentioned, we have all the rare earths (remember some of these elements rose in price by factors of between 10 and 30 last time the U.S. highlighted its private concerns via the The National Academy of Sciences report in 2008. (Nd metal for NdBFe magnets went from $20/kg in 2007 to $550/kg by 2010 – a rise of twenty-seven and a half times). Lithium, the metal of the moment, is of course on the list but, strangely, not cobalt, although cobalt base alloys are. Could this be because the Defense Logistics Agency (DLA), until recently, spent much of the last few decades selling stockpiled cobalt? To be buying back would be just embarrassing. Uranium is on the list, various special steels. Oddly, zirconium, a metal in which the U.S. (via companies, ATI and Western Zirconium), is the largest global producer – and yet it is present too. Antimony and tungsten are there – because China is the dominant producer of both. Tantalum is on the list – perhaps because a large proportion of its raw material, tantalite, originates in the Congo and is sent to China for processing. Alloys consisting of nickel, iron-nickel and various special steels and vanadium are all there too. And there are many more.

The proposed law approaches the issue of U.S. foreign dependence in a new way  that has almost a Harold Wilson 1960s ring about it – to promote domestic output of the identified metal, and then to restrict and retain the output of the same within America. A sub clause proposes to restrict “transfers to foreign entities”, aimed at preventing foreign companies, with U.S. subsidiaries, from benefiting from the US governments’ largesse. Where the law starts to get deeper into xenophobic territory is when it selects two countries to be banned from eligibility for loans intended to increase production on US soil; and from exporting, without express permission from Congress. These two are the Russian Federation and the People’s Republic of China.

Clearly, a metal policy of this type plays well under the ‘America First’ banner. But, even if backed by reasonable motives, it would be surely right to question whether the geology of where certain minerals arise, and metals are made, is in its favour. Miners and producers might want to remind lawmakers that it is unlikely that any amount of money would enable the U.S. to produce all its critical materials on (and from) purely American soil. Assuming this to be the case, I can think of a number of unintended consequences that should temper the mind of Congress when it comes to the vote. Is it wise to antagonise Russia on metal, when Avisma, to take but one example, is the main aero-approved supplier of titanium billets to Boeing? Or China, who is essential to the supply of tungsten?

Even if we assume the law is sound, it seems to me a potential flaw in its proposal is the appointment of the DLA to put it into practice. The record here is not good. From its origins in 1949,  the GSA (whose work on metals and materials morphed into the DLA), motivated by the threat of communism, bought tin from south-east Asia, resulting in a stockpile of 340,000 tons by 1955*, which the DLA subsequently found difficulty re-selling. In its entire history, I can think of no examples of anything the GSA/DLA ever bought with U.S. taxpayer’s money that came to the relief of U.S. industry. But perhaps, some might argue, this is proof of the policy’s success – the knowledge that two years’ worth of DLA tin or mercury was stuck in warehouses across the U.S. was enough to remove fear of shortage for a generation.

However, for me, it is a sad fact, in recounting these matters, to think that politicians are advocating market interventions in the metal trade when there is no evidence that metals and minerals do not find their way to customers – at a price. Like it or not, metal merchants know that minerals and metals move between both friends and enemies – and not necessarily via a bullet. Examples could include the uninterrupted shipments of zirconia and rutile from Australia to the Soviet Union during the Cold War, the tungsten which flowed – via London – from China to Russia during the Sino-Soviet split during the 1960’s. Or, in reverse, is it not right to point out, in our present unsteady peace, that the profitability of supplying alumina, iron ore, copper, rhenium, tantalite, and other items to China, trumps any consideration of withholding metal from China in order to slow their economic progress?

Metal has, and will, flow across all political boundaries at all times, and will find its way, like water dripping through a leaky roof. I am sorry to have to tell Mr Hunter that his proposed law could well be futile.

Meantime, a number of metal, folk – myself included – will use the list as a crib sheet to anticipate a number of trading prospects that the implementation of this law will provide. The only question is – is this really how we want to make our money?

References:

•Wagner, D. (2013). Obama Urges San Diegans to ‘Call Out’ Rep. Duncan Hunter on Climate Change Denial. [online] KPBS Public Media. Available at: http://www.kpbs.org/news/2013/may/20/obama-urges-san-diegans-call-out-rep-duncan-hunter/[Accessed 28 Jul. 2017].

Congress.gov. (2017). Text – H.R.1407 – 115th Congress (2017-2018): METALS Act. [online] Available at:https://www.congress.gov/bill/115th-congress/house-bill/1407/text [Accessed 28 Jul. 2017].

Notes:

*The rare earth boom kicked off in 2008 in America with lobbyists close to the Armed Services Committee publicizing the idea that the USA was vulnerable to China for 97.6% of its rare earths. Politicians concluded the U.S. military could be compromised in the production of such things as permanent magnets requiring neodymium, dysprosium and terbium. There is no evidence that the military was ever compromised or that any parts, or elements needed for parts, were not delivered. But the hysteria ignited by the reports into U.S. fears caused a bubble.

** P100, Wolff’s Guide to the London Metal Exchange, 3rd edition, Published by Metal Bulletin Books Ltd (1987)

Published August 24th 2017 on www.lord-copper.com