WOR 3 Marine Resources – Opportunities and Risks | 2014

Deposits and markets

Resources for the world

> At present almost all the metals and industrial minerals utilized to manufacture consumer goods and machinery are extracted from onshore resources. In an effort to become independent of imports and safeguard themselves from future supply shortages, some countries are contemplating mining such resources from the ocean. But underwater mining is still too expensive and there is uncertainty about its environmental impact.


Extra Info Rare earth metals

Ore, mica, sand and gravel

The manufacture of many high-tech applications and modern mass-produced electronic products such as photovoltaic installations, hybrid cars and smartphones requires abundant mineral resources. These resources include mineral ores from which metals such as copper, nickel, indium and gold are extracted, as well as nonmetallic industrial minerals such as fluorite, graphite and mica. Mica is utilized among other things as an insulator in tiny components for the microelectronics industry, and graphite is required for electrodes. Fluorite is used in the production of hydrofluoric acid to cauterize steel and photovoltaic components. Sand, gravel and stone for the building industry are also considered to be mineral resources. Nearly all the mineral resources used today are derived from onshore deposits. Depending on the deposit concerned, these are extracted from underground mines or open-cast mines using enormous excavators and wheel loaders. Sand and gravel are the exception, as these have for some time now been exploited not only onshore but also from shallow marine areas. For several decades we have also been aware of the presence of major occurrences on the sea floor which consist of many millions of tonnes of valuable metals. These have so far remained unutilized because onshore production has been capable of satisfying demand. In addition, deep ocean mining is still uneconomic because of the expense involved in harvesting the ores using ships and underwater robots. Unlike traditional onshore mining, the extraction technology has not yet been developed.

Fear of supply shortages

Experts assume that, despite steadily increasing demand, the onshore deposits will in most cases continue to satisfy our growing appetite for metals and minerals. They do predict future shortages of some resources, however. For instance, those resources which are available or mined in only small amounts – such as antimony, germanium and rhenium – could become scarce, partially as a result of the growing needs of the BRIC countries (Brazil, Russia, India and China). To compare, about 20 million tonnes of refined copper were produced worldwide in 2012, but only 128 tonnes of germanium.
2.1 > Mineral ores for metal production are extracted from huge open-cast mines such as the Dexing copper mine near the eastern Chinese city of Shangrao. The excavators are working their way deep into the earth.
2.1 > Mineral ores for metal production are extracted from huge open-cast mines such as the Dexing copper mine near the eastern Chinese city of Shangrao. The excavators are working their way deep into the earth. © picture alliance/CHINAFOTOPRESS/MAXPPP
Germanium is used for the radio technology in smartphones, in semi-conductor technology and in thin-film solar cells. There are concerns, particularly among the leading industrialized nations, that the supply of such significant industrial resources could become more precarious in coming decades. The following are some of the factors on which supply depends:
  • Rising demand due to new developments: Some innovation researchers predict that the need for certain metals will increase significantly in the years to come as a result of new technological developments. Rare earth metals, for example, are elements which could be required in rapidly increasing quantities in future for the construction of engines for electric cars and generators in wind turbines.
  • Rising demand and competition as a result of economic growth in the BRIC countries and emerging markets, as well as strong growth in the global population.
  • Limited availability: Many resources are by-products of the extraction of other metals. For instance, both germanium and indium – which is vital for the manufacture of LCD displays – are by-products of lead and zinc mining. They occur in only small quantities in the lead and zinc deposits. In order to extract more germanium and indium, lead and zinc production would have to increase substantially. This would be uneconomic, however, because the demand for lead and zinc is not high.
  • State monopolies: Many important industrial resources are found in only a few countries or are currently produced by only a few. These nations have an effective monopoly. For instance, China accounts for 97 per cent of the worldwide production of rare earth metals. Currently it is also the most important producer of other resources. Importing nations are concerned that China, or other nations, could restrict the availability of these resources by imposing high tariffs or other economic measures. The situation is aggravated by the fact that modern high-tech industries require resources of extra high quality or high purity. In many cases these, too, occur in only a few regions of the world.
  • Oligopolies as a result of industry concentration: In some cases resources are mined by only a handful of companies. Competition for some resources has intensified even more in recent years due to major resource companies having bought out smaller ones.
  • Political situation: Supplies from politically fragile states are also fraught with problems. One example is the Democratic Republic of the Congo which generates 40 per cent of worldwide cobalt production, but which has been destabilized by many years of civil war.
The availability of a resource to a country or company does not depend alone on the size of worldwide deposits, therefore, but on a combination of factors which determines the price. Of course, the price is also affected by the situation on the resource markets. For instance as demand for a resource grows, so does its price. In other cases resources may increase in price as a result of speculation alone, because markets overreact. One example here was the huge price hike of copper and other resources after 2006 when China snapped up major quantities of resources. At that time there could be no question of scarcity, however.
2.2 > Many metals today are mined in only a few countries, with China leading. The data originate from a comprehensive analysis of resources carried out in 2010, since when the situation has not changed significantly. No reliable figures are available for gallium or tellurium.
fig. 2.2 >  Many metals today are mined in only a few countries, with China leading. The data originate from a comprehensive analysis of resources carried out in 2010, since when the situation has not changed significantly. No reliable figures are available for gallium or tellurium. © Hein et al.

Extra Info How much metal does the ore contain?

Measuring uncertainty

Experts are trying to assess the certainty of future resource supplies. They take state and corporate monopolies into account on the one hand, and the political situation in the prospective mining areas on the other, to produce a “weighted country risk”. This weighted country risk is ascertained on the basis of 6 criteria (indicators) against which the governance and prevailing political situation of individual states are measured. These indicators have been defined by the World Bank as follows:
  • Voice and accountability: measures perceptions of the extent to which a country’s citizens are able to participate in selecting their government, as well as freedom of expression, freedom of assembly and a free media;
  • Political stability and absence of violence: measures perceptions of the likelihood of a government being destabilized by violence, political violence or terrorism;
  • Government effectiveness: measures the quality of public services, the civil service and the degree of its independence from political pressures;
  • Regulatory quality: measures perceptions of the ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development;
  • Rule of law: measures perceptions of confidence in and adherence to the rules of society, and in particular the quality of contract enforcement and property rights. It also measures the quality of the police and the courts, as well as the likelihood of crime and violence;
  • Control of corruption: measures perceptions of the extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as the influence of elites and private interests.
Numeric values are assigned to the 6 indicators, and these are totalled to reveal country risk values between +1.5 and –1.5. Values above 0.5 indicate a low risk, between –0.5 and +0.5 a moderate risk, and those below –0.5 are considered critical. Economists are using the Herfindahl-Hirschman Index (HHI), a measure of market concentration, as they attempt to assess the extent to which resource supply is influenced by state or corporate monopolies. This mathematically determined index considers the number of companies competing in the market and their market shares, from which they can calculate the degree of concentration of that market. In terms of figures, the Herfindahl-Hirschman Index ranges between the highest value 1 where there is only one market participant (indicating a monopoly), and the lowest value 0, which is achieved when (theoretically) an infinite number of participants have the same market share. For practical reasons the values are multiplied by 10,000 to effectively remove the decimal point. >