3
BASIC M I N E R A L S
MINERALS INDUSTRY FACES A CRITICAL YEAR WILLIAM A. VOGELY, Chief, and BARBARA S. LLOYD, Economist, Division of Economic Analysis, Bureau of Mines, U.S. Department of the Interior, Washington, D.C.
One of the most volatile parts of a volatile economy, the minerals industry is being goaded to bigger and better things by a high level of demand for durable consumer goods, the insistent needs of the military, and the growing requirements for mineral products to make the machinery needed to fill the maw of a booming domestic capital expansion program.
The Government's
activities in this sector of the
T
he year 1966 is a critical one for the U.S. economy. Production continues at a record pace, demand for goods and services remains high, and business investment in new plant and equipment continues at levels beyond all expectations. Added to private demand, the war in Vietnam is influencing absolute levels of demand as well as expectations about economic activity in the near future. These demand pressures are straining productive capacity and putting pressures on prices of scarce materials. As new capacity comes on line, the pressures should ease, but the backlog of orders and continued demand will push gross national product to about $735 billion at current prices, or almost 9% higher than last year. At the same time, the Federal Reserve Board index of industrial production will approach 155 this year, compared with 143 in 1965 (1957-59 = 100). The forecasts contained in this article are the responsibility of the authors and do not necessarily represent the official position of the Bureau of Mines.
chemical and allied products industry have had mixed success in stabilizing prices, restricting product demand, and assuring adequate supplies.
The sector is in
turmoil, too, because of changing technology and the ever-present concern with pollution
44A
C&EN SEPT. 5, 1966
Refined minerals
Four years of rapid expansion in economic activity have brought us to a point where plant capacity is almost fully utilized and shortages are appearing in some sectors of the labor force. Near full employment, immobility of labor, and lack of training have forced companies either to make do with what they have or to train new employees, while the unit cost of labor continues to rise. These factors contribute to inflationary pressures because they limit the supply of goods. Retraining programs and expanded capital facilities should soon relieve some of these pressures. One of the most volatile sectors of the economy is the minerals industry. Its volatility is largely a consequence of the high level of consumer durables demand, the rising needs of the military for goods for Vietnam, and the growing requirements for vast quantities of minerals needed to make the machinery on order for capacity expansions. This year will see a new high in mineral production, with the value of refined minerals increasing 6.7%, to $32.8 billion. Physical pro-
duction increases will account for 5.7% of the gain; price increases will make up the remainder. The priority given to defense expenditures has led to an imbalance in the general economy and in the minerals industry so that even now some commodities, such as construction materials, are produced well below capacity, while there are shortages of other commodities. In addition, political turmoil and labor strikes in other countries have led to even greater shortages in some imported materials. These conditions, however, have only short-term effects. The most speculative area this year has been prices. Uncertainty about future prices and supply availability often leads to increases in inventories which, in turn, flash a warning light for inflation. However, this year inventories have not increased significantly, a fact attributable to one of two things—either confidence in the overall price structure or inability to increase inventories despite the desire to do so (some materials are being used as fast as they can be obtained). Concern about the uncertainty of prices, shortage of supplies, and volatility of the economy have led the Government to impose a variety of controls with varying degrees of effectiveness, both directly and indirectly, on the business community. Government
actions
One source of government action which has received a great deal of publicity in the past year is the use of guidelines. The guidelines are used by the Administration to determine whether proposed price or wage increases will create inflationary pressures. These have not been used as frequently in 1966 as they were in the last half of 1965 (in aluminum and steel, for example), but they are still proposed as a standard of government policy. Another tool which the Government has used this year to stabilize fluctuations in supply and demand is the stockpile of strategic materials. As availability of certain commodities, such as aluminum and copper, has decreased and prices have risen correspondingly, the Government has released surplus stocks. This has had the twofold effect of both supplementing supplies when shortages appeared and stabilizing prices. The Government also has re-evaluated some import and tariff controls to ease the pressures on the economy caused by shortages. Again copper serves as a prime example. Also, if pressures build up too fast, the Administration has the option of requesting tax increases to dampen consumer demand and business investment.
Petroleum products
liiiiP Output (millions of barrels)
I ^ S f f l l i H H K l l i M barrels):
IIIPI
^
1963 1964 1965 l i l l Source; U.S. Depa rtroent of;tf>©ljit#U>r
;, Source; U'3&
t^MSS^90^^^^^^^M
SEPT. 5, 1966 C&EN
45A
Bituminous coal consumption Electric utilities Billions of net tons
The Federal Reserve Board began using monetary policies, such as setting higher interest rates, to combat inflation late in 1965 and these policies continue to restrict the availability of money for further investment. The greater effect of higher interest rates has been on the residential construction industry, an effect that tends to emphasize the imbalance in the economy caused by expanded defense expenditures. However, construction is also an area of rising prices and wages. Thus, slower growth in residential construction lessens the overall impact of inflation.
Billions of net tons
1963 1964 1965 196£
Metals The most acute shortages have occurred in the nonferrous metals industry, the area where most of the government action has taken place. Prices of aluminum, copper, lead, tin,, and zinc have increased substantially in recent years, but consumption has not declined because the demand for raw materials is derived from the consuming industries which are continuing their growth. These price changes account, along with food prices, for a major part of the inflation reported early this year. Copper shortages have been particularly critical because expanding world demand, combined with production setbacks from strikes and political turmoil in Chile, Zambia, and the Republic of the Congo, caused wide price swings in foreign markets, on the Commodity Exchange, and in secondary markets. The foreign market price for copper has been almost twice as high as the domestic producer's price which was maintained in response to government actions and pressures. The Government has released copper from the stockpile to assure availability for war demand, eliminated the 1.7 cent-per-pound tariff on imported copper, restricted exports of copper and copper products, and imposed a 13% set-aside of domestic refined copper at the producer's level to meet defense needs. Another nonferrous metal which has 46A
C&EN SEPT. 5F 1966
received a lot of government attention is aluminum. Defense requirements for the metal have nearly doubled with increased activity in Vietnam and the aluminum industry has been operating near capacity. Announcements of price increases in late 1965 were met with stockpile releases by the Government to preserve a stable market. Molybdenum came into the public view in July when a price increase was announced. The metal is used in the production of specialty, high-grade steel, and the proposed price increase would have exerted upward pressure on specialty steel prices. Within a week, however, the increase was rescinded at the specific request of the Government, which described the increase as "totally unjustified." Other nonferrous metals have not
faced such critical situations. Where there were some shortages last year, stockpile disposals and other corrective actions have taken place to ease the strain. The short supply of silver, for example, has been somewhat relieved by last year's changes in the silver content of coins. Ferrous metals will show another year of high production, although levels may not reach the highs of 1965. Increased demand for steel to fill heavy machinery orders and defense requirements has been counterbalanced by a reduced demand for automobiles. Fuels Domestic demand for fuels has continued to grow with the general economy. No shortages have appeared,
Minerals: U.S. production and value
All money figures in thousands of dollars Production
Value
Production
2,990,000 2,754,476 2,552,747 2,312,528
$1,495,000 1,349,693 1,196,013 1,039,812
Antimony, ore content
1966 est. 1965 1964 1963
837 845 632 645
$586 587 439 450
1966 est. 1965 1964 1963
Short tons $38,700 37,423 38,874 38,138
37,530 38,655 32,548 32,920
1966 est. 1965 1964 1963
$118,220 120,801 97,121 91,096
Phosphate rock, marketable
780,000,000 698,600,000 667,440,000 627,344,000
$27,300 24,451 23,360 21,957
Long tons 1966 est. 1965 1964 1963
30,400,000 26,440,000 22,960,000 19,855,000
$228,000 194,552 161,067 139,861
llmenite, shipments Short tons
Long tons 1,700,000 1,625,000 1,601,000 1,525,000
$20,400 19,500 17,875 17,234
Cadmium, shipments, metallic
1966 est. 1965 1964 1963
7,862 4,064 4,845 5,062
1966 est. 1965 1964 1963
$18,525 18,058 19,178 16,529
Potash, sales Short tons 1966 est. 1965 1964 1963
5,300,000 5,027,000 5,201,000 4,587,000
$131,175 121,161 120,284 103,828
Long tons $37,345 19,153 27,412 21,880
Cement, shipments
1966 est. 1965 1964 1963
88,856,000 85,811,000 85,184,000 73,564,000
$799,704 776,590 810,739 678,181
Short tons $1,381,120 1,239,680 1,209,470 1,156,890
1966 est. 1965 1964 1963
92,500,000 90,432,000 85,693,000 72,211,000
Silver Fine ounces 1966 est. 1965 1964 1963
Pig iron, shipments
Barrels 431,600,000 387,400,000 375,300,000 358,000,000
975,000 948,832 1,003,997 890,071
Iron ore, shipments
Short tons
1966 est. 1965 1964 1963
10,320,000 10,035,000 10,684,000 10,388,000
Cubic feet
Bauxite
1966 est. 1965 1964 1963
Value
Helium, shipments
Short tons 1966 est. 1965 1964 1963
Product/on Molybdenum, shipments
Short tons
Short tons 1966 est. 1965 1964 1963
Value
Gypsum
Aluminum
$5,272,500 5,154,624 4,991,306 4,222,468
40,549,000 38,555,000 36,334,000 35,243,000
$52,714 49,350 46,980 45,076
Sulfur, native shipments Long tons
Copper, recoverable
Lead, recoverable Short tons
Short tons 1966 est. 1965 1964 1963
1,460,000 1,351,734 1,246,780 1,213,166
$1,095,000 963,786 812,901 747,310
1966 est. 1965 1964 1963
310,250 292,968 286,010 253,369
$99,280 93,750 74,935 54,727
1966 est. 1965 1964 1963
8,617,000 7,251,000 5,859,000 4,995,000
$172,340 145,020 117,228 99,014
Uranium Fluorspar, shipments
Short tons
Short tons 1966 est. 1965 1964 1963
265,490 241,355 217,137 199,948
$12,213 11,064 9,723 9,001
Gold
1966 est. 1965 1964 1963
81,121 81,361 79,488 75,845
$57,190 57,360 56,040 53,471
1,856,000 1,684,000 1,456,000 1,454,000
1966 est. 1965 1964 1963
1966 est. 1965 1964 1963
$ 85,500 82,891 116,345 115,821
Short tons
76-lb. flasks $64,960 58,950 50,971 50,889
4,500,000 4,363,000 5,674,000 5,646,000
Zinc, recoverable
Mercury Fine ounces
1966 est. 1965 1964 1963
Short tons
Magnesium
20,058 19,582 14,142 19,117
$ 8,023 11,176 4,452 3,623
1966 est. 1965 1964 1963
606,638 610,059 574,858 529,254
$175,925 176,917 156,308 122,533
SEPT. 5, 1966 C&EN 47A
Fuels: U.S. values and production Anthracite
Natural gas Thousands of short tons
1966 est. 1965 1964 1963
Millions of dollars
14,000 15,400 17,184 18,267
$121.1 133.2 148.6 153.5
1966 est. 1965 1964 1963
530,000 510,000 486,998 458,928
$2,592.5 2,500.0 2,387.7 2,328.0
16,726.0 16,129.0 15,546.6 14,746.7
Millions of gallons
Millions of dollars $2,438.0 2,269.5 2,165.6 2,013.3
1966 est. 1965 1964 1963
Millions of dollars
19,346 18,545 17,744 16,837
$950.8 911.6 826.4 798.9
Petroleum, crude
Coke Thousands of short tons 1966 est. 1965 1964 1963
1966 est. 1965 1964 1963
Millions of dollars
Natural gas, //quids
Bituminous coal Thousands of short tons
Billions of cubic feet
66,200 66,466 62,145 54,278
$1,145.4 1,150.0 1,128.9 977.1
Millions of dollars
Millions of barrels
Millions of dollars 1966 est. 1965 1964 1963
2,960 2,848 2,787 2,753
$8,643 8,158 8,017 7,966
Metals and minerals: U.S. consumption
although the Defense Department has had some difficulty in obtaining contracts at satisfactory prices for the jet fuel needed in Vietnam. Petrochemicals continue to be a sector of rapid growth, with naphtha showing outstanding gains in 1966. East of the Rocky Mountains imports of crude oil, unfinished oils, and refined products other than residual fuel oil continue to be limited to 12.2% of the estimated total production of crude oil and natural gas liquids. But restrictions on imports of residual fuel oil have been relaxed, with the Government maintaining standby power to reinstate them. The current concern with air pollution may have a significant effect on petroleum refiners. Efforts have already been made to limit the sulfur content of residual fuel oil to be used in urban areas. Also, studies of automotive emissions are being made to determine the relationship between gasoline components and air pollution. Fuels used to generate electricity are beginning to feel the impact of nuclear power in this field. In 1966, a large percentage of contracts for new power plants were awarded for nuclear facilities. Fertilizer
1966 est. Bismuth (short tons) Chromite (thousands of short tons) Cobalt (thousands of pounds) Copper (thousands of short tons) Fluorspar (short tons) Iron ore (thousands of long tons) Lead, reported (thousands of short tons) Manganese (thousands of short tons) Nickel (short tons) Petroleum, crude, runs to stills (thousands of barrels per day) Tin, primary (long tons) Tungsten, concentrates (1000-pound content) Zinc, slab (thousands of short tons)
1965
1964
1963
2,113 1,426 14,500 1,675 950,000 121,479 1,242 2,700 207,000
1,466 1,582 13,595 1,526 938,641 125,861 1,198 2,500 172,084
1,080 1,450 10,650 1,495 831,561 132,328 1,202 2,242 146,920
1,088 1,187 10,529 1,423 836,000 112,535 1,163 1,842 124,478
9,287 59,000
9,043 58,600
8,857 58,600
8,687 55,200
14,953 1,420
13,003 1,344
12,311 1,207
11,061 1,105
minerals
Increased demand for fertilizer, and thus for fertilizer minerals, has led to the search for new raw materials sources. The producers of potash are facing a large increase in production from Canada, and overcapacity will exist in this industry by year-end. In anticipation of this overcapacity, a struggle is on to claim world markets, and prices have weakened. The phosphate industry also may find new sources in the near future, as extensive exploration is now being conducted in Australia, with a high potential for success. Construction
Petroleum and natural gas: Chemical feedstock offtake 1966 est.
Natural, gas (dry) Carbon black Other Total natural gas
89.0 200.0 289.0
1965 1964 Billions of cubic feet
1963
97.0 190.0 287.0
117.4 170.0 287.4
106.8 180.0 286.8
Millions of barrels Petroleum LPG and LRG Naphtha (-400°) Still gases Miscellaneous (+400°) Total petroleum 48A C&EN SEPT. 5, 1966
138.0 33.0 10.0 24.0 205.0
126.0 24.0 9.0 23.0 182.0
108.1 24.6 7.7 25.3 165.7
103.8 22.0 7.8 22.6 156.2
materials
Higher interest rates combined with increased demand in other sectors of the economy have led to another slow year for construction, especially residential construction. The upturn anticipated for this year has been delayed at least a year because of the tight money market. Meanwhile, costs of construction, particularly labor costs, continue to rise. Construction materials, which have shown very slight price increases in recent years, are beginning to add to construction costs. Construction materials producers are still operating under capacity, but capacity continues to grow because new technology allows lower unit costs with larger plants.
