With the onset of the Second World War, government control was once again exercised to regulate metal prices throughout the war period. After the war, which had been even more destructive than the Great War of 1914-1918, temporary supply shortages as a result of increased demand from war recovery programmes and other civil activity raised metal prices. The supply squeeze was unaffected by recycling activity.
But the expected subsequent slump in prices did not occur as Cold War activities ranging from arms manufacturing to directed massive aid programmes, created a demand for metals and prices inflated.
During the same period, worldwide activity in terms of ‘social planning’ was evident, from Entitlements, through the various guises of the Welfare State, to the centrally planned economic system of the Soviet Republic. Government ‘leadership’ through state-owned enterprises and other subsidy-supported activities was an integral part of these programmes, providing a sympathetic ideology to combine with decolonisation actions, leading to nationalisations and other protective programmes. This created a heavy demand for products, and the massive, debt financed investments involved obscured the price-levelling effects of business cycles.
The build up of prices in the 70s was in no small measure due to speculation, resulting from the abandonment of the gold standard and a general mistrust of credit currency in the light of runaway inflation. Metal prices were bolstered further towards the latter part of the decade by unrest in various parts of the world leading up to the invasion of Afghanistan and the second oil crisis.
A 35% slump in metal prices during the 1980s, while being a part of the long postponed adjustment within the recession of 1980/83, was exacerbated by state owned enterprises. A number of state controlled mines had been coming on stream over previous years and governments maintained production levels, in spite of decreasing demand, to obtain foreign exchange. Also, the second oil cartel crisis was further lowering demand for metals due to the general heist in costs.
Metallic institutions had also played their part, in a more direct manner. A measurable part of the metal price rise seen during the period leading up to the 80s was due to various efforts at market regulation by representative organisations, largely backed or indirectly countenanced by various governments. While these efforts were fairly widespread, three of the metal associations experienced particularly noteworthy effects from their market intervention.
The price of aluminium suffered a major downswing in 1973 while most metals were experiencing large increases in prices. Aluminium dropped substantially that year as the government members of the International Bauxite Association convened to fix prices. Lower cost non-members, private companies in a position to trade freely, as well as apparently some members meanwhile, all used the market to undercut this price, secured the business and created the dip in price.
Nickel producers, through a producer price mechanism, had helped defend themselves for a number of decades. The mild drop in price in 1978, due to a brief abandonment of the control mechanisms, gave warnings that were not heeded at an operational level. However, the establishment of LME quotes proceeded in 1979 and were formally accepted as a legitimate reflection of value in 1982. These actions, combined with the depths of the recession prevailing at the time, forced a large number of producers to either close or to implement cost-cutting initiatives. When demand finally began to increase through 1987 the excessive shortage of producers created the exaggerated price rise. Nickel prices are now back down to more reasonable levels, many operations having carried out long postponed productivity improvements.
The International Tin Council had been supporting prices through buffer stocks since the 1950s. However, increasing prices promoted substitution, turned buffer stocks into excessive supply and attracted new low-cost producers to enter the market who, particularly in new tin countries, brought in up-to-date technology. In the recession these new entrants were the principal survivors and by 1985 the price support system collapsed totally. Thus, in the space of just five years, a 160% increase in tin prices achieved over the previous twenty years had been totally wiped out, and prices are continuing to fall.
In 1987, a sharp rise in metal prices initially sparked fears of a repeat of the 70s when such a surge was followed by a major slump in prices as a result of speculation. As it turns out, this latest upturn in the cycle appears to have been largely market controlled. Metal prices peaked in 1979, fell by around 50% during the 1983 recession, peaked again in 1988/89 (albeit at a lower level than in 1979) and almost halved again by 1994. Indeed, prices may still be adjusting downwards in a reaction by the markets to real and expected improvements in operating costs.
Aluminium, silver and gold are shown in Figure 3, against the average development of the other five metals; their individual performance shows wider price variations for various reasons.
Aluminium, very much a metal of the 20th century, is a prime example of the application of technology to reduce production costs in order to gain market share. Most notably, these technological changes have happened with a speed and effect that has far overridden the inflationary effects of various government policies.
In the 1850s, aluminium was fetching precious metal prices, in the order of US$25,000/lb (in present day terms), although these were drastically reduced with the introduction of electric furnace processing. Meanwhile, the opening up of new trading areas around the globe permitted an exponential increase in demand which offset the lower price for the metal. The inauguration of the Grand Coulee hydroelectric system and the enormous consumption of aluminium in the fabrication of combat aeroplanes saw the US become the principal producer by 1942 at a further reduced price, that has held fairly steady till today.
Silver experienced a spectacular rise in 1980, to some 4 times its real term low in 1931. While this was partly attributed to a mistrust in credit currencies, the main reason for the rise is known to have been due to market manipulations. Once these manoeuvrings were discovered, prices quickly settled back to levels experienced before the incident and have continued to decrease over the long run.
Historically, since its demise as a formal currency medium, and in spite of its associations as a precious metal and protector of wealth, the general price trend for silver has been closely parallel to the base metal average and has been noticeably unreactive to crisis.
By the 1930s, the US had taken receipt of much of the world’s silver bullion against World War I expenses, as well as a considerable quantity of Chinese coinage. During World War II, shortages of base metals resulted in a boost for silver in terms of industrial uses in the US. Whilst these applications have grown worldwide, the fact that more than 30% of new silver comes as a by-product from various base metals weighs heavily with the market and prices have weakened accordingly, varying only under business cycle influence.
With gold becoming a fully traded commodity in 1973, refuge seekers from high inflation, ‘unprotected’ credit currencies and political unrest combined to cause an immediate and substantial price rise up to 1980. During this period, a number of mining companies turned ‘gold’ in order to benefit from the added value this commanded on the stock exchanges and to ease the difficulties in financing projects. However, the onset of the 1980/83 recession pulled gold (and other metal) prices down, since when it can be argued, in some general aspects, at least, that gold has been trading as a ‘normal’ commodity.
Of the estimated 116,000 t of gold produced over the centuries to date, more than one third has been produced in just the last 25 years and ore reserves continue to be established worldwide. New applications for gold in electronics, computers, satellites and new protective coatings have increased the industrial uses for the metal and the longer term diversification for industrial applications is likely to increase.
Since the price spike of 1980, gold has been noticeably unreactive to crisis situations and the price trend has begun to follow closely that of the composite for base metals. Considering that most civilisations over the millennia have independently found gold to be “noble”, it is more than probable that it will always carry an added value at any given time and continue to be an ultimate source of liquidity in a really major crisis. However, its strength as a long term protector of value is now debatable, as reflected by the actions of some central banks which collectively hold some 38% of the world’s gold stocks.
Government involvement in the market, whilst sometimes necessary under specific circumstances, always results in an artificial rise in metal prices (as is the immediate intention of cartels). In contrast, the market, when its powers are given free expression, brings prices down. In fact, the market is by far the stronger player being a reflection of society’s expectations – no matter what is being sold, the next time around everybody looks for better quality at a lower price, whether it be skate boards, microwave ovens or mineral sizers.
Metals are an integral part of everything and must make their contribution to satisfy these market constraints and, since it is impossible to improve on 100% pure metal, producers must focus on total operating costs or productivity. Technological development on all fronts is the major contributor to achieving this objective, and since mining companies continue to make reinvestible profits and maintain adequate supplies on a worldwide basis, it is being realised.
Productivity and Value
Improving productivity involves the application of the correct technology to achieve optimum economy in any aspect of a particular activity, whether this be in the areas of personnel, safety, communication, infrastructure, environment, mines or plants. Productivity is implicit in sustainable development, both requiring the optimum use of resources with the latter introducing the concept of total or real value to the cost of an action.
Reductions in energy consumption, reduction or better management of waste, the efficiency and cleanliness of operations as well as social impacts have been achieved over the decades for the basic economy imperative, or productivity; sustainable development and allied subjects became the next step in economic development. This is due entirely to in-place technology being able to define a problem, measure it and resolve it economically.
‘Economy of scale’ is a recurring theme for achieving greater productivity. Advances in this area include, to name but a few: the sophistication of low profile equipment units and 300 t trucks; semi-autogenous grinding and various new flotation techniques; biotechnology for copper, zinc, nickel, molybdenum, cobalt and silver recovery; instrumentation control giving greater efficiency in the use of energy; and alternative uses for and retreatment of tailings. On the social side greater safety, communications, transportation facilities and education are redefining and permitting greater independence and decentralisation of each individual property while providing head office a more precise and prompt overview as necessity demands. The single, smaller-sized mine, with employee families located in towns rather than capital cities, is rapidly becoming a sustainable economic scale.