DETROIT (ResourceInvestor.com) -- The American metal forming industry is critically dependent on ferroalloys. Without an assured supply of them, and/or a national program for the recovery and re-use of their key strategic metal components from scrap, the car, truck, machinery, military weapons and farm equipment industries could simply be crippled or totally shut down in the United States by a Chinese embargo. This fact alone would lead one to think that Washington, D.C. and Wall Street would be concerned about this issue, and would be, at least aware, from well-documented past history, of the dangerous implications of shortages of these materials in America to our ability to defend ourselves. One would be very wrong in that assumption!

The American political and financial establishments, academic and think-tank commentariat, and, probably, a majority of our Fortune 500 executives have completely abandoned their responsibility to work to guarantee the long-term health of the American economy. They seem to work relentlessly only for their re-election to positions of political or academic power or to increase their personal wealth. No better example of the truth of this statement can be found than in the way these four groups have allowed the mining of the ingredients for, and the production of, ferroalloys to simply almost disappear from the U.S., so that today the production of metals and of everything made from them by our industrial base, and, most alarmingly, by our military industrial “complex”, is completely dependent on the health of the domestic economies and the political whims and plans of the Democratic Republic of China (Beijing), The Republic of South Africa and the United States of Brazil.

It is the sheerest folly to think that the leaders of any of these three nations put American economic well-being or the global economy’s stability or sustainability ahead of their national interests. America’s leaders view globalization as a playing field for America’s Fortune 500 corporations. They famously proclaim that a levelling of the trade world’s “playing” field will be much to America’s benefit and profit. Their public relations flacks and some journalists loudly proclaim that the world is already flat.

This is nonsense. The rapidly growing financial power of the (until very recently called) developing world is moving the centres of the creation of wealth, both by the production of material goods and by the production of raw materials, to places like China, India, South Africa and Brazil. The enormous amounts of money that America has sent overseas, not as an investment, but just to pay for, first, labour intensive consumer goods, and, now, to pay rapidly increasing prices for a growing proportion of our key industrial raw materials will, in the near future, increase even more to pay for more complex finished goods the production of which in the United States is now completely dependent on raw materials under the control of the formerly developing world.

Short sighted “global” executives and unsighted Wall Street greed-ocrats with no oversight from friendly politicians get fatter and fatter providing the money for the developing world to buy American domestic raw material resources to use mainly in their own countries. On the day when that development reaches a threshold of economic power that I believe is within our lifetimes the “financing” of industrial development will simply pass to the new financial centres in Beijing, Brasilia and, perhaps, Delhi. There will be no bang, just some American whimpers of “We didn’t realize.”

To see what is happening there is no better example than to look at where American domestic ferroalloy production has gone and at who owns the minerals from which they were and are produced.

First, though, we need to briefly examine the questions: What are ferroalloys, what are they used for, and where do they come from?

Ferroalloys are, simply, metallurgical solutions (alloys) containing high percentages of other elements in iron. Ferroalloys are produced for the sole purpose of adding the alloying elements to production batches of iron and steel. Ferroalloys are produced because cost-effective contemporary metal fabrication technology depends on them to the point where it requires them. You cannot efficiently make high strength steel, cutting tools, stainless steel, stamping dies or cast iron automotive components without them.

In order to most productively and economically produce the iron and steel alloys on which our modern industrial society is based it is necessary to use the least amount of (increasingly expensive) energy and time in making steel and cast iron. It is also necessary to find a way to dissolve and mix alloy ingredients into the melt without raising the temperature of the entire melt to that needed to cause the chemical reactions that create the combination of alloy elements and iron that together melt at the lower temperatures used to make steel and iron. If you attempt to simply add the alloying elements to a furnace load of molten iron or steel you will need enormous quantities of heat (e.g., electric current flow) for very long periods of time. This will cost a great deal both for the power and for replacing the furnace lining and components worn out by such high temperatures and long operating periods.

Since ferroalloys require a lot of energy and time to manufacture, this work historically was done where electric power was directly available, as cheaply as possible, without the need for very expensive, and now extremely expensive, aluminium and copper high voltage transmission lines. Places like Niagara Falls, New York, and the hydroelectric dams in Norway and South Africa were the traditional locales for ferroalloy producers such as Norway’s Elkem and Union Carbide in the U.S. West Virginia’s coalfields also enabled the construction of local power plants to achieve the lowest cost of coal. Ferroalloys are produced using submerged-arc electric furnaces, which draw large currents at relatively low voltages. It is wasteful in the extreme to step up the voltage of a power plant to transmit the power over a long distance only to have the voltage reduced dramatically and the current used in one distant location.

Probably the largest producer of industrial ferroalloys remaining in the U.S. is today still in West Virginia where Elkem Metals continues to make ferrosilicon and silicon “metal” for iron and steel alloys. The furnaces of the company’s plant are powered by locally-obtained-coal fired plants nearby. Niagara Falls, New York, where companies like Elkem and Union Carbide once produced most of the ferroalloys needed by America’s domestic steel industry, today has no production due to (unrelated) environmental issues (remember Love Canal), the drying up of American domestic raw material supplies due both to environmental concerns and foreign ownership and the cyclic nature of commodity prices up until the China boom of the 21st century.

China today still has many coal fired “island” power plants in the north that were built to provide jobs for coal miners, but had little other use in sparsely populated, remote and very poor areas. As the Chinese steel industry embarked on its currently continuing boom cycle in the late 20th century these plants began to be used to produce ferroalloys of tungsten and molybdenum from China’s domestic resources as well as ferrochrome originally mainly from imported chromite from the Soviet Union and some from the Republic of South Africa. Ferromanganese was also produced from ore imported from Gabon in Africa. The Chinese government has lately announced that it is closing many of the smaller of these power plants due to “pollution” issues. The work of producing ferroalloys will be consolidated into larger more efficient plants giving Chinese producers even more advantage financially.

Brazil, which has the world’s largest iron ore deposits, also at the end of the 20th century, began building power plants along the Amazon River, close to the iron-mining region, so that ferroalloys and pig iron could be produced near their raw material sources. Brazil today is a dominant force in the pig iron market and is supplying ferroalloys globally.

South Africa, the world’s major supplier of chromium containing ores, has for decades built power plants and subsidized the cost of power from them as a state policy to enable the value of its chromium ores be up valued dramatically by producing ferrochromium in South Africa and by also producing ferromanganese from ores imported from the African nation of Gabon that has the world’s largest manganese ore reserves.

South African ferrochromium producers are now complaining to their government that Chinese companies are aggressively buying chromite ore from South African mines to manufacture ferrochrome domestically in China and that this is driving domestic costs up to the point of threatening the survival of the domestic industry, which, only recently, was the world’s largest.

The Chinese have a long-term plan for economic independences for their metal industries and to implement it they are, among other things, buying chromite from South Africa, manganese in Gabon, developing cobalt mines in the Congo (Democratic republic of), buying cobalt (and nickel) from Cuba, taking the entire output of nickel (and cobalt) mines from Tasmania (Australia), investing in copper production in Chile, platinum mines in Zimbabwe and Zambia and molybdenum, tungsten, antimony, rare earths and vanadium in North America, South America and Asia. They have also become the world’s major provider of rare earth metals upon which the electronics and portable power industries are critically dependent.

The success of the Chinese long-term plan has almost completely eliminated the production of all of the critical ferroalloys other than ferrosilicon and silicon metal in the United States. China’s domestic market is so large that in dealing with Africa and Australia for mineral resources from which to manufacture ferroalloys in China the Chinese do not need to take into account American demand. In fact they are prepared to and have already utilized aggressive pricing and off-takes to freeze American (and other) customers out of the raw material markets completely.

During both World War I and World War II the United States was cut off from friendly sources of tungsten. Ferrotungsten was then as now critical to both civilian and war production for the manufacture of tools and for the manufacture of armour and armour piercing ammunition. The intrigues we went through with our British allies to obtain supplies of tungsten for our side and to deny such supplies to our enemies is discussed from a political and economic standpoint in the article I referenced earlier when I mentioned the historical background of the problem of ferroalloy shortages. In the referenced article as you read it be aware that the main difference between the approach taken by the U.S. and by Great Britain during World War II was that the British were concerned with Britain’s long term economic recovery and health, post-war, and the U.S. was only concerned with short term results. American planners assumed that America would be the wealthiest nation in the world at the end of the conflict and could buy anything it needed or wanted in the post-war world.

China is now breathing down the collective neck of the United states in the scenario above, but the Chinese have learned that long term planning, rather than short term planning, is critical not only to getting to the top but to remaining there.

Did I mention that in 1989 the U.S. produced more than 75% of its needs in ferromolybdenum from domestically mined molybdenum, and that today the U.S. imports almost all of its ferromolybdenum needs from places like China, which even buys molybdenum ore from the United States to smelt and refine and to export back to us if it is not needed in the Chinese domestic market.

Short sighted American environmentalists and business “leaders” are equally with our rudderless political elites to blame for making it economically onerous, and even impossible, for a mining company, even one that has the latest pollution control technology and techniques, to get the right to produce critical strategic materials from America’s vast underutilized reserves. This has caused the supply and pricing of almost all of the commodity materials upon which our well being depends to fall into the hand of the least friendly, or at least the least interested in American or global welfare, of nations, the People’s Republic of China.

Ferroalloys are probably the most important commodity over which we have lost control of our own destiny.

The great philosopher of history, George Santyana, pointed out that those who don’t learn from history are doomed to repeat it. American political, financial and economic elites seem to have no memory at all.

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