The U.S. economy and, consequently, the demand for minerals grew at more moderate rates in 1995 compared with stronger performances the previous year. Demand for metals such as steel and copper was relatively stable. For example, the decline in steel consumed in motor vehicle manufacturing (reflecting lower vehicle sales) for the first half of 1995 was offset by an increase in steel consumed in construction during the same period. More detailed information on events, trends, and issues in the mineral and material sector is presented below and in the commodity sections that follow.
The value of processed materials of mineral origin produced in the United States during 1995 was estimated to be $395 billion, an increase of almost 10% compared with 1994. The estimated value of U.S. raw nonfuel minerals production in 1995 was $38 billion, about 7% more than in 1994. The value of U.S. minerals production has increased in 30 of the last 35 years.
Total U.S. trade in raw minerals and processed materials of mineral origin was valued at $77 billion in 1995. Imports of processed mineral materials were valued at an estimated $49 billion, while exports of these materials were valued at an estimated $23 billion. Imports of metal ores and concentrates increased almost 12% to $1.4 billion and imports of raw industrial minerals rose 7% to $900 million. Raw minerals exports showed much greater variance, with metal ores and concentrates jumping 64% to $1.7 billion while raw industrial minerals exports increased by a more moderate 8% to $1.3 billion.
Demand for metals and other mineral-based materials used extensively in motor vehicle manufacturing declined slightly in 1995. Auto loan interest rates that increased more than 2% during the first half of 1995 and the recent shift from purchases of new to purchases of used vehicles were factors in the 2% decline in domestic car and light truck sales for the first three quarters of the year. This declining vehicle demand was interrupted by a large increase in August 1995 (comparable to year-earlier results) that was spurred by generous lease agreements and large cash rebates to reduce inventories. However, a month-long strike by union workers against operations of the Nation's largest automotive-carrier firm (accounting for one-third of U.S. cars and trucks transported to dealers), reduced September vehicle sales by as much as 50,000 cars (more than 4%). Auto firms that build cars and light trucks in the United States and Canada were expected to reduce fourth quarter production by more than 2% compared with the fourth quarter of the previous year. International monetary exchange rates continued to favor U.S. automobile manufacturers in 1995 (especially in relation to Japan). The motor vehicle manufacturing sector is a major consumer of other mineral-based materials as well as steel: chiefly aluminum, copper, lead, platinum-group metals, zinc, glass, and plastics.
The domestic construction industry provided for modest growth in minerals demand. The construction sector is the largest consumer of brick clay, cement, sand and gravel, and stone. Road construction expenditures in 1995 maintained the high levels of the last few years as a result of the 6-year Federal highway and mass transit program reauthorized in 1991. Large amounts of asphalt, cement, crushed stone, and sand and gravel are used in road-building. Apartment building construction, which jumped almost 60% in 1994 (largely resulting from a sharp increase in the construction of luxury apartments), grew an additional 10% in 1995. The apartment construction sector is a major consumer of brick clay, cement, sand and gravel, steel, and stone.
Responding to domestic and world demand for fertilizer nutrients, the domestic mineral fertilizer manufacturing sector operated at full capacity, which resulted in a strong demand for fixed nitrogen, phosphate rock, and sulfur. Although global fertilizer nutrient consumption increased substantially, crop yields at the farm level, where they are consumed, were lower because of adverse weather conditions in North America and other factors.
The Uruguay Round of the General Agreements on Tariffs and Trade (GATT) became effective January 1, 1995. GATT rules, such as those which address market access affected by tariff and nontariff market barriers, are significant to U.S. minerals producers. For example, GATT Uruguay Round agreements eliminate tariffs (during a 10-year period) on steel imposed by the United States and its trading partners, including the European Union and Japan.
Legislation to reform the Mining Law of 1872 has been considered by the Congress and the Administration for the last several years; however, legislation to reform the Mining Law was not enacted in 1995. The Mining Law gives U.S. citizens and corporations the right to prospect for certain minerals on particular Federal Lands and confers the right to file claims that permit the claimants to mine and sell minerals found. The Mining Law does not provide for a royalty payment to the Federal Government for minerals that are mined. Under the Mining Law, claimants also may apply for a patent that transfers ownership of minerals and mineral lands to the claimant.
The Administration and Congress addressed a number of environmental statutes during 1995 involving domestic mineral issues. These included the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA); the Resource Conservation and Recovery Act (RCRA); the Clean Water Act (CWA); and the Clean Air Act (CAA). Efforts regarding RCRA and CERCLA took both environmental and economic concerns into consideration. Deliberations regarding reauthorization of pertinent statutes are expected to continue in 1996.
In Congress, the House approved a CWA reauthorization bill, which would revise and restrict the role of the U.S. Environmental Protection Agency (EPA) in wetlands programs and would change the approach used in managing storm water runoff. The Senate did not approve a reauthorization bill. A comprehensive safe drinking water bill was introduced in the House and was referred to the Subcommittee for Health and Environment. A Senate bill on safe drinking water was not introduced.
In May 1995, the EPA announced plans to develop a strategy to improve how it addresses environmental issues associated with hardrock mining. The strategy would cover future, current, inactive and abandoned mines, smelters, and associated facilities in the metal, phosphate, uranium, and industrial minerals sectors. It would use a multi-program/stakeholder, geographic approach. EPA stated that it intends "...to apply both regulatory and nonregulatory tools in a more effective manner, based upon clearly articulated goals..." and that the strategy "...should...help...avoid creating unfunded public liabilities with respect to hardrock mining sites." EPA will consult with stakeholders on the goals, objectives, and recommendations of this strategy to help ensure their input.1/
In June 1995, EPA directed its regional offices to develop strategies for fiscal years 1996 and 1997 that focus its enforcement and compliance assistance resources on the primary nonferrous metals, petroleum refining, and dry cleaning industries, which have been identified as "national priority sectors" because of "...noncompliance histories, Toxic Release Inventory releases, and transregional impacts." In addition, the EPA regional offices must develop strategies for at least two "significant sectors" including mining, iron and basic steel products, coal-fired powerplants, agricultural practices, industrial organic chemicals, and plastic materials and synthetics.2/
During 1995, the EPA continued to implement the 1990 Amendments to the CAA. It released the first 13 draft protocols under its "enhanced monitoring" program. These particular protocols address mineral processing. Under the "enhanced monitoring" program, owners and operators of sources of air emissions will be required to submit site-specific protocols with their applications for operating permits. EPA anticipates developing about 300 such protocols during the next 5 years. Mining and minerals processing operations are expected to be required to comply with the requirements of the "enhanced monitoring" program.
EPA also promulgated a final rule designed to reduce the quantity of emissions of lead compounds and other air toxics from secondary lead smelters. The final rule is estimated to reduce emissions from secondary lead smelters by about 1,400 metric tons per year. The implementation of this regulation is expected to result in an annual cost of $2.8 million, consisting of $1.9 million for installation of control devices and $0.9 million for monitoring, reporting, and record keeping.
EPA and the Chicago Board of Trade held the third annual acid rain allowance auction. The auction is part of EPA's program to reduce sulfur dioxide emissions by one-half, and gives powerplants, brokers, and private citizens the opportunity to buy and sell sulfur dioxide allowances.
In fiscal year 1995, the Defense Logistics Agency sold excess mineral materials valued at $414 million (See "Government Stockpile" in the commodity sections that follow). The Defense Production Act, which provides authority for priorities, allocations, and defense-related supply expansions, is expected to continue.
The U.S. economy is expected to continue to grow at a moderate rate for the near term, providing a mild stimulus to the Nation's materials-consuming industries. Inflation is expected to remain low, thus permitting a continuance of low interest rates conducive to an expanding economy. Although motor vehicle sales have declined slightly from their 1994 peak, relatively strong sales can be expected to be maintained because of moderate auto loan interest rates and advantageous monetary exchange rates (especially in respect to Japan). The 6-year Federal highway and mass transit program reauthorized at yearend 1991 will continue to provide an impetus for consumption of stone, sand and gravel, and steel through 1997. The demand prospect for mineral fertilizer materials (e.g., fixed nitrogen, phosphate rock, potash, and sulfur) is expected to be robust in the coming year because low world grain and oilseed stocks should stimulate increased planting.
The global economic restructuring of the past few years continued in 1995 as protectionist policies were replaced by investment incentives and by mining law and business reforms in recognition of the importance of natural resource development to the economic health of all countries. Lesser developed countries in South America, Africa, Central Eurasia, and Asia also encouraged domestic and foreign private investment in the development and ownership of mineral resources. North American companies shifted many of their operations from the United States and Canada, where they perceived a deteriorating business environment to countries world-wide that were seeking to attract international mining companies. According to a recent survey by the Natural Resources Industry Institute, North American precious-metal mining companies spent about 80% of their 1988 expenditures within the United States. Since 1992, however, only 39% of total expenditures were spent in the United States.3/
The North American Free Trade Agreement (NAFTA) and Mexico's new investment law, both in their second year in 1995, prompted more participation by Canadian and U.S. mining companies in exploration and mining development projects in Mexico. Benefits to North American industry were matched by a revival of the Mexican mining industry, which was able to sell products at increased world market prices.
Throughout the world, mining laws were increasing and becoming more strict in response to increasing sensitivities of potential environmental damage. Requirements for environmental impact assessments and operations monitoring by companies were becoming more common; but often, resources were unavailable for strict governmental enforcement of these requirements. Even though exploration and mine development were increasingly encouraged, these activities were made more difficult and costly by unclear and unevenly applied regulations and by the involvement of bureaucratic units in lengthy project evaluations. In India, for example, opposition increased over the development of major bauxite mining and alumina refining projects in the State of Orissa, even though the Government of India was actively promoting increased mining investment.
In 1995, the International Labour Organisation agreed on standards for health and safety issues within the world mining industry, including mine design, operations, and maintenance. Of particular importance to employees was the establishment of the right of any employee to leave any location within a mine that appeared to be significantly dangerous. Several recommendations of the Leon Commission, which reviewed all aspects of mine safety, were adopted.
Mining investment by North American, Australian, and European companies continued to shift to South America where mining law and tax reforms have been progressing since 1988. Exploration regulations were revised, corporate tax rates were reduced, trade barriers were decreased, permitting processes were streamlined, mine-development regulations were made more favorable to developers, and allowable equity-ownership by foreign investors was increased. The Chilean Ministry of Mines reported that private investment in Chile's mining sector exceeded $3 billion in 1994, and additional investments totaling nearly $2.2 billion was projected through 1997. In Venezuela, gold exploration and mining activity continued at a rapid pace after British, Canadian, U.S., and Venezuelan mining companies spent $180 million in 1994. Reportedly, investments during the next 4 years in Venezuela were anticipated to increase to $1.5 billion. Peru anticipated $7 billion in new investments in the next 3 years. Mexico attempted to reverse a condition of excessive debt, inflation, and exodus of foreign capital by privatizing industry and changing mining and tax laws. Pemex, the State-owned petroleum company, announced that it would be selling its petrochemical complexes without any restriction to foreign ownership.
Mexico's membership in NAFTA was a significant factor in attracting foreign interest in the country's mineral resources; however, an unintended consequence to the Mexican steel industry was increased steel imports as Mexican protectionism declined, while exports to the United States decreased as protectionism there, increased. U.S. exports of steel to Mexico for the first half of 1995 exceeded pre-NAFTA levels, clearly illustrating U.S. firms' significant NAFTA-induced advantages over their competitors from Europe and Asia. NAFTA helped Mexico increase other exports and aided its economic recovery, thereby increasing its demand for U.S. goods and services. Nevertheless, critics in the United States continued to attack NAFTA after it went into effect on January 1, 1994.
NAFTA partners Canada and Mexico supported the proposal to make Chile the fourth member of the pact. Although talks between the three NAFTA partners and Chile were reported to be continuing, support for the proposal in the United States was mixed.
Asian and Pacific countries clearly recognized mineral resource development as important to their future economic health. Notable examples among developing countries were China, India, Indonesia, the Philippines, and Vietnam. With the exception of Japan, which experienced a major earthquake, notable minerals development progress was made throughout the region. The Government of India revised its national minerals policy, providing good news for local and international investors. Joint ventures were promoted, allowable foreign equity capital in joint mining ventures was increased to 50%, and restrictions were removed on 13 minerals once reserved for the public sector. The Government was considering proposals to increase the size of exploration concessions available to foreign companies and to change tax structures and royalty rates. Mineral resource revenues were a major factor in the robust annual economic growth rate of Indonesia, which has one of the world's broadest resource bases. In March 1995, Indonesia announced plans to build its first copper smelter and refinery near the industrial port of Surabaya, East Java.
New mining legislation in Vietnam also was expected to promote the interest of foreign investors who would be guaranteed the right to exploit mineral resources found. A major beneficiary would be Australian mining companies, which already had established interests in Vietnam. Earlier, Vietnam had joined the Association of South East Asian Nations (comprising Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand), which was committed to increasing economic cooperation with Australia and New Zealand.
The Chinese Government decided to cut export tax rebates to exporters from 17% to 14%. Originally, exporters could receive a rebate of the 17% value-added tax that they paid on their products for export, but alleged cheating on tax rebates caused the Government to make claims of lost revenue. However, rebates remained unchanged for contracts signed for the export of large turnkey equipment valued at more than $10 million and electronic products valued in excess of $1 million. The Chinese Government amended its rules governing royalties for Sino-foreign oil and gas onshore joint ventures. The amendments provided royalty exemptions for oilfields in Qinghai, Xinjiand, and Xizang, where annual production was less than 1 million metric tons of oil and 2 billion cubic meters of gas. Royalties for Sino-foreign oil and gasfields were reduced by 5% in other provinces and autonomous regions of China.
The Philippine Government welcomed international mining companies when it established a new mining law in early 1995. As a result, mineral-exploration permit applications tripled.
Australia continued to be a major player in the international minerals market place. Australia already ranked among the world's six leading producers of bauxite, bismuth, iron ore, gold, lead, lithium, manganese, mineral sands, silver, tantalum, uranium, and zinc. Mineral exploration expenditures for the year ending June 30, 1995, far exceeded expectations and, as a result, known mineral resources increased significantly.
The catastrophic earthquake on January 17, 1995, in the Kobe-Osaka area of Japan severely affected the mineral sector of the country by damaging much of the infrastructure in the area. In the mineral sector, iron and steel and affiliated galvanizing facilities were most affected by the earthquake, followed by lead and zinc smelting and refining facilities, and a steel rolling mill. Titanium sponge and high-purity silicon metal production facilities also were adversely affected. Although the impact on iron and steel production facilities was severe, operations returned to normal levels within 7 months. Distribution networks for all mineral products were not totally repaired by yearend 1995.
Mining development continued at a slow pace owing to the reluctance of foreign investors to risk funds because of political and economic uncertainties and poor infrastructure. In an effort to generate interest among investors, the World Bank's Multilateral Investment Guarantee Agency sponsored an African mining investment conference in Toronto, Canada, in May 1995. Meanwhile, investors informed representatives of African governments of changes in the political and economic climate that would be necessary to attract investors.
The exploration emphasis in Africa was still on gold, but interest in undeveloped copper deposits in the Zaire portion of the Copper Belt and in diamonds and nickel was increasing. South African companies were very active in exploration in Africa.
Environmental issues assumed a more prominent role in South Africa as they have throughout the world. Opposition increased to issuing exploration permits for alluvial diamonds in the Limpopo River border area between Mozambique, South Africa, and Zimbabwe. Such exploration would conflict with the proposal to combine the Kruger and Gorongosa Game Parks into a giant international park. Controversy continued over whether to issue a permit to mine large titanium and zirconium sand reserves at St. Lucia, near Richards Bay. Opposition continued to a proposed steel mill at Saldanha Bay on the western coast, which is a tourist area.
Saudi Arabia's new 5-year economic development plan, intended to slash public spending, diversify its oil-dominant economy, and to decrease its dependence on imports, predicted a 9% growth in the minerals sector; the most rapid rise expected for any sector of the economy. This exceptional growth would be the result of greater foreign and Saudi private sector participation in the mining industry. High-priority mineral development projects were the Khnaiguiyah zinc-copper deposits, the al Masane polymetallic deposit, a phosphate mining project, an iron-ore pelletizing project, construction of a zinc smelter, a new copper smelter and refinery, and construction of the largest gold refinery in the Persian Gulf region. Oman continued to pursue a plan to diversity its economy, even though oil and gas were expected to dominate its foreign earnings for the foreseeable future. Oman planned in 1995 to privatize its state-run mining concern, Oman Mining. The company's assets included a custom smelter at Lasail, in northern Oman, which processed copper sulfide concentrates, and two massive sulfide deposits, 100 kilometers south of Lasail, that were in advanced-stage development. The country also was seeking joint venture partners to explore and develop its gold resources.
The European Union (EU) increased from 12 to 15 members on January 1, 1995, when Austria, Finland, and Sweden were included. In June, three Baltic nations, Latvia, Lithuania, and Estonia, signed Association Agreements with the EU, which formally advances them toward eventual EU membership. In addition, Slovenia and the EU initialed an Association Agreement that was awaiting final signature at yearend.
After a period of slow growth and severe recession in most areas, Western Europe's national economies began to improve. Investment activity increased significantly during 1995. Support for high-cost production was withdrawn or significantly reduced by various Governments and privatization efforts continued. The Brussels-based association of mining industries, Euromines, announced its plans to promote minerals exploration, environmental issues, research and development, and energy/taxation policy in the EU. This major initiative was designed to stimulate new growth in the European mining industry that had been declining for the past decade. Mineral production at existing mines had been declining significantly and dependence on imports of foreign concentrates had risen steadily to what some had considered economically unhealthy levels.
A major problem facing the minerals industries of the countries of the Former Soviet Union (FSU) was the depletion of their raw material base and the fall in production capacity. This was caused by the lack of investment funds to maintain production and exploration. Domestic consumption of mineral products within the FSU continued to fall. This was coupled with an inability of FSU consumers to make timely payments for their purchases, which in conjunction with the rapid deflation of the ruble and rising costs for energy, transportation, labor and other inputs, created great incentives for FSU producers to export their output to hard currency markets.
The fastest rising minerals exports to world markets were aluminum, copper, ferroalloys, nickel, pig iron, and rolled steel. Since independence, Kazakstan had been privatizing the economy and making its markets and manufacturing operations more accessible to foreign investors. The number of joint ventures had grown since 1990 from 15 to more than 2,000 in 1995. During 1995, 18 state-owned enterprises were being readied for privatization. By late 1995, foreign companies managed dozens of large industrial enterprises. New laws, such as the recently adopted Law on Oil and the Law on State Regulation of Relationships, defined the rights of foreign investors regarding the extraction and sale of hydrocarbons, and precious metals and stones.
For additional information on international minerals events, please call (703) 648-7732.
1/Perciasepe, R., E. Laws, and W. Yellowtail. U.S. Environmental Protection Agency Letter. Washington, DC, May 12, 1995, 5 pp.
2/EPA Targets Refining, Dry Cleaning, Metals Sectors for Future Enforcement. U.S. Environmental Protection Agency, Inside EPA, v. 16, No. 26, June 30, 1995, pp. 1, 6-7.
3/Webster R. Mining Goes Global. Mining Voice, v. 1, No. 3, July-Aug. 1995, pp. 18-21.