Pictures of the Future        Fall 2008

Valuable Raw Materials: Balancing Demand and Production

Raw materials are basic substances that enter production in an unprocessed state. There are plant and animal-based agricultural raw materials, industrial raw materials such as petroleum and natural gas, base metal ores such as copper and iron, and construction raw materials such as sand and gravel.

It is important to differentiate between reserves and resources. Reserves refers to those raw materials whose existence has been proved, and which can theoretically be economically obtained with today’s technologies. Resources, on the other hand, have either not been precisely geologically located, or else have been demonstrated, but the cost of their extraction remains uneconomic. A study conducted in 2005 by the Fraunhofer Institute for Systems and Innovation Research, the (German) Federal Institute for Geosciences and Natural Resources (BGR), and the RWI economic research institute concluded that rather than being depleted, the reserves of many raw materials have actually been increasing due to technological advances, exploration, and higher levels of recycling.

Global oil consumption at the moment is around 30 billion barrels per year; proved oil reserves are currently calculated at 1.1 trillion barrels. According to the Institute for the Analysis of Global Security (IAGS), the lion’s share of these reserves (66 %) are to be found in the Middle East, primarily in Saudi Arabia (23 %). The second and third largest reserves are in Canada (15.8 %) and Venezuela (7 %). After reaching a record high of $147 per barrel in mid-July 2008, the price of oil has fallen by nearly $50 per barrel, but future developments are unclear. There are several reasons for high oil prices. Demand is rising, especially in China and the U.S. This situation is exacerbated by financial speculation, the threat of political conflict, and OPEC ceilings. OPEC president Chakib Khelil says he expects the long-term oil price to settle at $78 per barrel, provided the dollar increases in value and the political situation in Iran improves. The head of Investment Strategy at SEB Bank, Klaus Schrüfer, believes prices will hover at just above $100 per barrel in 2009, while the IFP energy research institute in France expects oil to cost $200 per barrel by 2015. "That’s because the situation on the oil markets will remain tense, as supply struggles to keep up with demand," says IFP Director, Olivier Appert.

Demand for natural gas will also continue to rise. Germany accounts for 18 % of European gas consumption, making it the second-largest natural gas market in Europe after the UK (20 %). An analysis carried out in 2005 by Prognos and the Institute of Energy Economics at the University of Cologne predicts that natural gas consumption in Europe will increase from 480 bill. m³ in 2003 to 640 bill. m³ in 2020. The International Energy Agency reports that global natural gas consumption will increase by 1.5 % a year over the next two decades, reaching some 4.055 trill. m³ per year by 2030. Nearly 36 % of global natural gas reserves are located in Russia, which is followed by Iran and Qatar (approx. 20 % each). World market prices for natural gas are developing in a manner similar to oil price developments, except with a certain time lag. At the end of July 2008, for example, the price of natural gas moved to over $9,000 per ton, after having cost as little as $5,000 in 2007.

Prices for metal raw materials have risen even more dramatically than those for oil and gas. Consider copper, which is obtained mostly from iron sulfide ores, in which it occurs alongside metals such as zinc, silver, and nickel. Copper is used mainly in electrical cables because of its good conductivity, and can also be found in pipes for home construction and machines. With 3.67 mill. t, China accounted for just under 22 % of global copper consumption in 2005, followed by the U.S. (13.3 %) and Japan (7.1 %). According to market experts at the BGR, annual global copper consumption will reach 28.5 million tons by 2025 (as compared with 16.5 mill. t in 2004), whereby China’s share may total as much as 40 %.

The high demand for copper is primarily a result of rapid economic growth in Asia. China’s demand for copper is growing at a double-digit pace, for example—and the price of copper has more than quadrupled over the last five years, from $2,000/t in 2003 to $8,940/t in July 2008. Analysts at Commerzbank Corporates & Markets believe the supply situation will normalize, however, and that prices will once again fall below $8,000/t. One reason for this is a $5 billion investment that will more than triple Chile’s copper mining capacity to 800,000 t per year by 2014. Chile currently accounts for more than 30 % of global copper reserves, followed by the U.S. and Indonesia (7 % each).

Iron, in the form of steel, is by far the world’s most important metal. A total of 55 mill. t of steel (approx. one-third of total European demand for steel) was used by the construction industry in the EU in 2005. The next biggest steel consumers were the automotive and mechanical engineering industries. According to a study by the BGR, nearly 28 % of the total global steel demand of around 1.1 bill. t in 2004 was accounted for by China (302 mill. t), followed by the U.S. (11.4 %) and Japan (7.4 %). Between now and 2025, China will use more than 1.4 bill. t of crude steel per year, or more than four times its current consumption. Calculations made by the U.S. Geological Survey in 2006 estimate that the known iron reserves of 160 bill. t could last more than 120 years at current consumption levels.

Because of its low specific weight, aluminum is very popular in the packaging industry—but it’s also increasingly being used in automotive production, which now accounts for 26 % of global aluminum consumption. The material is also used in buildings and high-voltage lines. According to the World Bank, global demand for primary aluminum was around 32 mill. t in 2005.

The primary aluminum requirement of China alone more than doubled between 2001 and 2005, making it the top consumer, ahead of the U.S. Global demand for aluminum is expected to rise to 47 mill. t per year by 2025.
                                                                                                               Sylvia Trage