The Impact of Seabed Nodule Mining: A Qualitative Analysis

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THE

IMPACT

OF SEABED NODULl3

MINING:

A QUALlTATIVE ANALYSIS

John E . Tilton

h t e r n a t i o n a l I n s t i t u t e f o r A p p l i e d S y s t e m s A n a l y s i s , L a z e n b u r g , A u s t r i a

RR-83-33 D e c e m b e r 1983

INTERNATIONAL INSTlTUTE FOR APPLIED SYSlXMS ANALYSIS Laxenburg. Austria

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International Standard Book Number 3-7045-0067-4

Research Reports, which record r e s e a r c h conducted a t IIASA, a r e independently reviewed before publication. However, t h e views a n d o p i n ~ o n s they express a r e not necessarily those of t h e I n s t i t u t e o r t h e National Member Organizations t h a t support i t .

Copyright @ 1983

International Institute for Applied Systems Analysis

All r i g h t s reserved. No p a r t of t h i s publication may be reproduced o r transmitted in any form o r by any means, electronic or mechanical, including photocopy, recording, o r any information storage o r retrieval s y s t e m , without permission in writing from t h e publisher.

Cover design by Anka James

Printed by Novographic, Vienna, Austria

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The f e a r t h a t t h e world m a y soon d e p l e t e i t s available r e s o u r c e s of c o p p e r , nickel, a n d o t h e r m i n e r a l c o m m o d i t i e s a r i s e s f r o m t i m e t o t i m e . The m o s t r e c e n t wave of c o n c e r n a p p e a r e d in t h e e a r l y 1970s a s a r e s u l t of r a t h e r s e v e r e m i n e r a l s h o r t a g e s a n d o t h e r d e v e l o p m e n t s a t t h a t t i m e . Over t h e i n t e r v e n i n g y e a r s , however, r e s e a r c h c o n d u c t e d a t IIASA a n d elsewhere h a s c o n c l u d e d t h a t m i n e r a l d e p l e t i o n is not. a pressing global p r o b l e m for a t l e a s t t h e f o r e s e e a b l e f u t u r e - t h e r e s t of t h i s c e n t u r y a n d well i n t o t h e n e x t . While t h e d e p l e t i o n of high-grade m i n e s m a y r e q u i r e t h e u s e of p o o r e r - quality a n d h i g h e r - c o s t deposits, new technology t e n d s t o offset t h e a d v e r s e effects of d e p l e t i o n by r e d u c i n g t h e c o s t s of e x p l o r a t i o n , m i n i n g a n d p r o c e s s i n g , a n d by i n c r e a s i n g t h e r a n g e of s u b s t i t u t e m a t e r i a l s .

This r e s e a r c h , coupled with falling m i n e r a l p r i c e s a n d d e p r e s s e d m a r k e t c o n d i t i o n s i n r e c e n t y e a r s , h a s led s o m e t o c o n c l u d e t h a t n o n f u e l m i n e r a l s pose l i t t l e o r n o t h r e a t t o t h e f u t u r e welfare of m a n k i n d . O t h e r s , however, a r e m o r e c i r c u m s p e c t , aware t h a t a d e q u a t e m i n e r a l r e s o u r c e s alone a r e n o t e n o u g h . Serious s h o r t a g e s c a n still o c c u r , a n d l a s t for s e v e r a l y e a r s , if i n v e s t m e n t in new m i n e s and p r o c e s s i n g facilities is insufficient, if t h e d e m a n d for m i n e r a l s s u r g e s i n r e s p o n s e t o b o o m s i n t h e b u s i n e s s c y c l e , or if m i n e r a l t r a d e is i n t e r r u p t e d by e m b a r g o e s , civil d i s r u p t i o n s , a n d o t h e r political e v e n t s . In addition, new s o u r c e s of m i n e r a l supplies, s u c h a s s e a b e d m i n - ing, a n d t h e instability of m i n e r a l m a r k e t s c a u s e d b y t h e b u s i n e s s cycle c a n seriously t h r e a t e n families, c o m m u n i t i e s , a n d e v e n c o u n t r i e s t h a t d e p e n d o n m i n i n g a n d m i n e r a l processing for i n c o m e a n d , e m p l o y m e n t . I t was c o n c e r n s s u c h a s t h e s e t h a t led IIASA t o i n i t i a t e , i n July 1982, a r e s e a r c h effort on Mineral Trade a n d Markets, a s a p r o j e c t of t h e P a t t e r n s of E c o n o m i c S t r u c - t u r a l Change a n d l n d u s t r i a l Adjustment P r o g r a m .

This paper was originally p r e p a r e d u n d e r c o n t r a c t with t h e United Nations a n d was p r e s e n t e d a t t h e e x p e r t g r o u p m e e t i n g on t h e I m p a c t of Seabed Minerals o n tlie World Economy, o r g a n i z e d by t h e I J N D e p a r t m e n t of I n t e r n a t i o n a l Economic a n d Social Affairs, Ocean E c o n o m i c s a n d Technology B r a n c h , a n d convened a t t h e United Nations H e a d q u a r t e r s i n New York on 20 J a n u a r y 1983. It h a s benefited f r o m c o m m e n t s received a t t h i s m e e t i n g , a s well a s from s u b s e q u e n t reviews by Joel P . Clark a n d Vincent E. McKelvey.

The views e x p r e s s e d a r e t h o s e of t h e a u t h o r , a n d s h o u l d n o t be a t t r i b u t e d t o lIASA, t h e U N , or t h o s e individuals who kindly reviewed t h e s t u d y .

J o h n E. Tilton R e s e a r c h L e a d e r Mineral Trade a n d Markets p r o j e c t

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%is paper c o n s i d e r s the f u t u r e e f f e c t s of seabed m i n i n g o n the cobalt, copper, m a n g a n e s e , a n d n i c k e l i n d u s t r i e s , a n d the i m p l i c a t i o n s f o r produc- i n g a n d c o n s u m i n g s t a t e s . The a n a l y s i s is q u a l i t a t i v e , or c o n c e p t u a l , in n a t u r e . While n o effort is m a d e to a c t u a l l y m e a s u r e or q u a n t i f y the i m p a c t s of seabed m i n i n g , i m p o r t a n t v a r i a b l e s t h a t one w o u l d h a v e to c o n s i d e r in m a k i n g s u c h a s s e s s m e n t s are i d e n t i f i e d .

While d e e p - s e a m i n i n g holds the promise of p o t e n t i a l l y l e s s e z p e n s i v e s o u r c e s of m i n e r a l s , i t also r a i s e s the s p e c t e r of d i s l o c a t i o n a n d d e c l i n e f o r l a n d - b a s e d p r o d u c e r s , m a n y of w h o m are located in the developing c o u n t r i e s .

There is w i d e s p r e a d c o n c e r n t h a t u n l e s s seabed m i n i n g is r e g u l a t e d , m o s t of the b e n e f i t s flowing f r o m t h i s " c o m m o n heritage of m a n k i n d " w i l l go to the developed c o u n t r i e s that have b o t h t h e t e c h n o l o g y to exploit t h e s e m i n e r u l s a n d t h e c a p a c i t y to c o n s u m e the o u t p u t .

Despite t h e s t u d y ' s f a i r l y n a r r o w scope, t w o g e n e r a l c o n c l u s i o n s e m e r g e . First, e s t i m a t i n g the f u t u r e i m p a c t s of seabed m i n i n g is a n e x t r e m e l y c o m p l i c a t e d a n d d i p c u l t endeavor. %ere is m u c h d i s a g r e e m e n t a b o u t t h e r e l a t i v e c o s t s of seabed and l a n d - b a s e d p r o d u c t i o n . How s c i e n t i f i c breakthroughs a n d o t h e r technological d e v e l o p m e n t s d la l t e r f u t u r e c o s t s is s i m p l y u n k n o w n , a n d to s o m e e x t e n t u n k n o w a b l e . M O T ~ O V ~ T , r e l a t i v e c o s t s alone d l n o t be the o n l y d e t e r m i n a n t of t h e f u t u r e l e v e l of seabed m i n i n g . .%me c o u n t r i e s m a y s u p p o r t s u c h p r o d u c t i o n to l e s s e n t h e i r d e p e n d e n c e o n f o r e i g n p r o d u c e r s . Distressed l a n d - b a s e d p r o d u c e r s m a y r e c e i v e a s s i s t a n c e f r o m t h e i r o w n g o v e r n m e n t s a n d p r o t e c t i o n in t h e f o r m of c o n s t r a i n t s o n seabed p r o d u c t i o n , negotiated t h r o u g h i n t e r n a t i o n a l a g r e e m e n t s . Thus pro- d u c t i o n m a y be i n f l u e n c e d as m u c h b y political d e c i s i o n s a s by- e c o n o m i c c o n s i d e r a t i o n s . ,%en i f the f u t u r e level of seabed m i n i n g c o u l d be ascer- t a i n e d , i t s i m p a c t w o u l d be difficult to a s s e s s ex ante. B u c h a s s e s s m e n t s r e q u i r e k n o w l e d g e of l o n g - t e r m s u p p l y a n d d e m a n d c u r v e s t h a t goes beyond observed historical price a n d o u t p u t equilibria. Nor is it c l e a r how t h e s e c u r v e s w i l l s h i f t over t i m e in r e s p o n s e to r e s o u r c e d e p l e t i o n , technological progress, the i n t r o d u c t i o n of n e w m a t e r i a l s , c h a n g e s in m i n e r a l p o l i c i e s , a n d

other f a c t o r s .

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S e c o n d , t h e p o t e n t i a l i m p a c t s of s e a b e d m i n i n g a p p e a r t o v a r y m o r e a n d t o be l e s s b o u n d e d t h a n is o f t e n p r e s u m e d . For e z a m p l e , t h e f i r s t c o m m e r - c i a l m i n i n g of s e a b e d n o d u l e s is w i d e l y a n t i c i p a t e d d u r i n g t h e 1990s a n d s e v e r a l c o n s o r t i a a r e e z p e c t e d to be in o p e r a t i o n b y t h e e n d of t h e c e n t u r y . Y e t t h e n e c e s s a r y t e c h n o l o g y , p a r t i c u l a r l y o n t h e s c a l e r e q u i r e d , h a s n o t y e t b e e n p r o v e n . f i r t h e r , it ^isn o t c l e a r w h e t h e r t h e r e q u i s i t e p o l i c i e s to p r o t e c t i n v e s t m e n t s a r e in p l a c e . T h e s e u n c e r t a i n t i e s r a i s e t h e p o s s i b i l i t y t h a t s e a b e d m i n i n g c o u l d s u f f e r a f a t e s i m i l a r t o t h a t of o i l s h a l e , w h e r e f o r m a n y y e a r s c o m m e r c i a l p r o d u c t i o n a p p e a r e d i m m i n e n t , b u t t h e g o a l r e m a i n s e l u s i v e . M o r e o v e r , t h e i m p a c t s of s e a b e d m i n i n g a r e n o t f u l l y a p p r e c i a t e d a s is e v i d e n t b y t h e a r g u m e n t t l ~ a t se a b e d m i n i n g c o u l d n o t f o r c e e z i s t i n g l a n d - b a s e d m i n e s to c l o s e . 7 h e r a t i o n a l e f o r this p o s i t i o n o v e r l o o k s t h e p o t e n t i a l i n f l u e n c e of n e w t e c h n o l o g y o n r e l a t i v e c o s t s of b o t h s e a b e d a n d l a n d - b a s e d m i n i n g a n d i g n o r e s t h e c o p r o d u c t n a t u r e of s e a b e d o p e r a t i o n s a n d t h e s u b s t a n t i a l e f f e c t of e v e n l i m i t e d p r o d u c t i o n o n t h e c o b a l t m a r k e t a n d p e r h a p s t h e m a n g a n e s e m a r k e t .

1 INTRODUCTION

Twenty years ago seabed nodules were a scientific curiosity of little public i n t e r e s t Today, thanks to a number of technological advances, they represent a major potential source of cobalt, copper, manganese, and nickel, and several consortia of private firms and public enterprises a r e seriously contemplating their commercial exploitation.

Although actual production is still a n u m b e r of years off, a lively international debate began to develop in the late 1960s over appropriate measures to ensure t h e timely and efficient development of seabed minerals, to minimize the adverse effects on land-based mineral producers, and to promote a wide and equitable distribution of the resulting benefits. While deep-sea mining offers t h e promise of a major, potentially less expensive, possibly more secure source of several minerals, i t also raises the specter of dislocation and decline for some land-based producers, many of which a r e developing countries. In addition, there is widespread concern t h a t , unless seabed mining is closely regulated, most of the benefits flowing from this "common heritage of mankind" will go to the developed industrialized countries. They a r e in t h e best position to develop the necessary technology to exploit seabed minerals, and with their huge appetite for all raw materials have t h e capacity to con- s u m e t h e resulting output.

This report considers the future effects of seabed mining on the cobalt, copper, manganese, and nickel industries, a n d t h e implicatic>ns for producing and consuming states. The analysis is qualitative, or conceptual, in nature.

While no effort is made to actually measure or quantify t h e impacts of seabed mining, important variables t h a t one would have to consider in making such estimates a r e identified. The focus is on t h r e e concerns, each of which encompasses a s e t of questions about t h e future consequences of seabed mining. The first is t h e effect on f u t u r e production costs. The depletion of higher grade, more readily accessible, and easier-to-process deposits exerts, over

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t i m e , upward p r e s s u r e on t h e costs of producing m i n e r a l s . In t h e p a s t , t h i s upward p r e s s u r e h a s been largely or completely offset by t h e c o s t reducing effects of new technology ( B a r n e t t and Morse 1963, B a r n e t t 1979). 'On a n u m b e r of occasions, technology has opened up entirely new s o u r c e s of supply, a s t h e successful extraction of copper from porphyry deposits a n d iron from t a c o n i t e s o clearly i l l u s t r a t e s . Such developments h e l p hold a t bay t h e long-term t h r e a t of resource exhaustion

Do seabed nodules offer a similar opportunity? Can t h e y keep t h e costs a n d prices of cobalt, copper, manganese, a n d nickel from rising over t h e long t e r m a s fast a s t h e y otherwise would? Are they potentially a lower-cost s o u r c e of supply t h a n p r e s e n t land-based deposits? These questions a r e i m p o r t a n t for producers as well a s c o n s u m e r s . P e r s i s t e n t price increases over t h e long t e r m force c o n s u m e r s to s e a r c h for alternative m a t e r i a l s , a n d so adversely affect t h e m a r k e t s of producers.

The second effect of i n t e r e s t concerns t h e location of f u t u r e mining activity. Will seabed operations cause land-based production to decline? In p a r t i c u l a r , will t h e y reduce o u t p u t in t h e developing c o u n t r i e s , a n d t h u s t h e contribution of mining t o t h e m u c h needed economic growth of t h e s e s t a t e s ? How will seabed mining ultimately affect t h e diversity of supply sources? Will i t i n c r e a s e o r d e c r e a s e t h e vulnerability of consuming c o u n t r i e s to supply i n t e r r u p t i o n s ? Will producing firms, g o v e r n m e n t s , a n d i n t e r n a t i o n a l bodies find it e a s i e r or m o r e difficult t o exercise monopoly power, t o f o r m producer c a r t e l s , o r o t h e r ways to control m i n e r a l m a r k e t s ?

The t h i r d c o n c e r n involves t h e welfare implications of seabed mining for consuming a n d producing countries. In particular, how will t h e benefits a n d costs be d i s t r i b u t e d ? Will m o s t of t h e benefits go t o t h e developed countries?

Will land-based producing countries, particularly those t h a t a r e developing, suffer severely? Will efforts to help t h e land-based p r o d u c e r s a s s i s t t h e developed c o u n t r i e s m o r e t h a n t h e developing countries?

In examining t h e s e issues, one needs to define a n appropriate t i m e period a n d a base c a s e t h a t shows how production costs, t h e location of mining, a n d t h e distribution of benefits would evolve over t h e period of i n t e r e s t i n t h e a b s e n c e of seabed mining. Since commercial production of seabed nodules may n o t begin before t h e mid-1990s, t h e focus h e r e is on t h e 25-year period 1995-2020.

Recent t r e n d s in t h e cobalt, copper, manganese, and nickel m a r k e t s a r e assessed i n Section 2 , t o g e t h e r with t h e i r implications f o r t h e evolution of t h e s e m a r k e t s over t h e period 1995-2020. This s e t s t h e s t a g e for Section 3 t o consider conceptually t h e consequences of seabed mining. Section 4 t h e n describes t h e r e s e a r c h needed if t h e anticipated consequences a r e eventually t o be m e a s a r e d a n d t h e i r i m p a c t s fully assessed.

2 RECENT TRENDS

This s e c t i o n investigates r e c e n t t r e n d s in t h e prices a n d production costs, t h e location of mining activity, a n d t h e distribution of t h e benefits f r o m t r a d e i n t h e principal m i n e r a l commodities ,ontained i n seabed nodules.

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2.1 P r i c e s a n d Production Costs

Table 1 indicates t h e average annual r e a l prices i n 1978 dollars for cobalt. copper, manganese, a n d nickel over t h e 25-year period 1954-79 in t h e US. Except for m a n g a n e s e , where all prices a r e negotiated, t h e prices shown a r e producer prices, a s changes i n t h e s e prices parallel m o v e m e n t s i n long- r u n costs m o r e closely t h a n prices determined on t h e London Metal Exchange, COMEX, or o t h e r competitive m a r k e t s .

TABLE 1 Average annual real prices for cobalt, copper, manganese. and nickel in the US. 1954-79.

Year

Prices ⁽¹⁹⁷⁸dollars) Cobalt

( ~ e r pound) 6.62 6.49 6.24 4.74 4.60 3.98 3.41 3.29 3.23 3.19 3.14 3.31 3.27 3.56 3.41 3.31 3.66 3.48 3.72 4.31 4.53 4.76 5.05 5.99 11.53 22.59

Copper (per pound)

Manganese

(per long-ton unit) _-_-

Nickel (per pound)

1.64 1.60 1.78 1.72 1.70 1.67 1.64 1.78 1.70 1.68 1.65 1.59 1.68 1.81 1.90 2.24 2.13 2.11 2.13 2.20 2.28 2.43 2.50 2.33 2.08 2.21

p~ -

Surces: US Bureau of Mines (1977a-d; 1980a-d).

The m o s t striking s u r g e i n price reported in Table 1 o c c u r s for cobalt in 1978-79, a n d reflects t h e disruption of supplies from Zaire t h a t o c c u r r e d i n 1978 when rebels based i n Angola invaded t h e Shaba province a n d overran t h e c o u n t r y ' s principal mining a r e a s . The expansion of o u t p u t elsewhere a n d t h e s u b s t i t u t i o n of alternatjve materials s t i m u l a t e d by t h e unusually high price of cobalt, coupled with t h e r e s u m p t i o n of supplies f r o m Zaire a n d generally depressed m a r k e t conditions, have since c a u s e d t h e r e a l p r i c e of cobalt t o drop sharply. Aside f r o m t h i s r a t h e r d r a m a t i c p e r t u r b a t i o n , t h e price of cobalt fell a n d t h e n rose nlodestly over t h e period examined.

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Copper prices display no pronounced t r e n d , b u t r a t h e r appear t o move up and down in response to s h o r t - t e r m m a r k e t conditions. Manganese shows a s e c u l a r decline in prices t h r o u g h t h e early 1970s with a partial recovery in r e c e n t y e a r s . In c o n t r a s t , nickel h a s had a m o d e s t b u t fairly p e r s i s t e n t i n c r e a s e in price

While t h e figures of Table 1 more or less reflect c h a n g e s over t i m e in t h e prices t h a t c o n s u m e r s have had t o pay,* t h e e x t e n t to which t h e y indicate t r e n d s in t h e long-run costs of m a r g i n a l producers is somewhat less c e r t a i n . I t is t r u e t h a t in competitive i n d u s t r i e s where n o serious obstacles p r e v e n t Arms f r o m e n t e r i n g or leaving, one would e x p e c t prices to fluctuate a r o u n d long-run c o s t s , where t h e l a t t e r include a n appropriate r a t e of r e t u r n on equity capital. If p r i c e s were below s u c h c o s t s , firms would leave t h e i n d u s t r y a n d c a p a c i t y would decline. If prices were above costs, investors would divert more of t h e i r available funds i n t o t h e i n d u s t r y , a n d expand capacity. Eventu- ally s u c h behavior should p u s h p r i c e s back toward costs. Herfindahl (1959) in his we11 known s t u d y of t h e copper i n d u s t r y employed t h i s rationale to justify t h e u s e of prices t o e s t i m a t e long-run t r e n d s i n t h e cost of producing copper.

In monopolistic or oligopolistic i n d u s t r i e s , prices m a y be maintained above production c o s t s over t h e long t e r m , allowing firms t o e a r n excess profits. Still, t h e r e a r e reasons to believe s u c h firms will a d j u s t t h e i r prices i n response t o c h a n g e s in long-run c o s t s . Thus, c h a n g e s i n price m a y reflect shifts i n costs, even though price levels may be m a i n t a i n e d above costs.

Despite s u c h considerations, t h e pri.ce t r e n d s shown in Table 1 m a y n o t a c c u r a t e l y parallel long-run c o s t t r e n d s . The mining a n d processing of m e t a l s a r e energy a n d capital intensive. Consequently, t h e s h a r p rise in t h e prices of energy, p l a n t s , and e q u i p m e n t during t h e 1970s exerted considerable upward p r e s s u r e on production c o s t s . S t r i c t e r regulations in t h e developed c o u n t r i e s governing pollution control, along with higher i n t e r e s t r a t e s worldwide, a c c e n t u a t e d t h i s p r e s s u r e .

While Table 1 shows t h e prices for m o s t of t h e m e t a l s examined t e n d e d t o rise m o d e s t l y during t h e 1970s, for two r e a s o n s producers have probably n o t yet b e e n able t o pass on in t h e form of higher prices t h e full increase i n long-run production costs. First, s i n c e t h e worldwide boom of 1973-74, t h e economies of t h e major industrialized c o u n t r i e s have b e e n relatively depressed, due largely t o high i n t e r e s t r a t e s a n d o t h e r macroeconomic poli- cies p u r s u e d t o c u r b inflation a n d to m a i n t a i n balance of p a y m e n t s . Since m e t a l s a r e largely c o n s u m e d in t h e industrialized c o u n t r i e s , a n d i n particu- l a r in t h o s e economic s e c t o r s

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capital e q u i p m e n t , c o n s t r u c t i o n , transporta- tion, a n d c o n s u m e r durables

-

whose o u t p u t is highly sensitive to overall fluctuations i n t h e business cycle, t h e d e m a n d for m o s t m e t a l s h a s suffered for n e a r l y a decade. It is difficult for producers t o raise prices when m a r k e t s

*As the cobalt, copper, manganese, and nickel markets in the US are closely tied to those abroad, US prices tend to parallel the prices elsewhere. Still, there are at times differences between the prices paid by consumers in the US and other countries. Moreover, the figures shown in Table 1 may not precisely reflect the average prices actually paid by US consumers for a number of reasons. For example, some cobalt, copper, and nickel is purchased from COMEX, from metal dealers, or other sources that do not adhere to the producer price. In ad- dition, even the producers themselves at times offer open o r secret discounts from their quot- ed price.

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a r e depressed.

Second, the cobalt, copper, manganese, and nickel industries have all experienced considerable s t r u c t u r a l change over the last several decades.

The h o s t governments of some producing countries have acquired control over significant production capacity from multinational mining corporations.

For this and other reasons, these industries have become more competitive.

Under such conditions, prices can decline relative t o long-run cost for prolonged periods.

Thus, while new technology could conceivably have offset t h e upward pressure on prodilction costs resulting from higher energy, capital, and pollution control costs and in t h e process prevented metal prices from rising sharply during t h e 1970s, a more likely explanation of t h e modest price increases is t h a t s t r u c t u r a l adjustment and m a r k e t conditions have simply not y e t permitted producers to pass on fully their increased costs t o consumers. This explanation is consistent with the findings of available feasibility studies for major new mineral projects, which indicate t h a t considerably higher metal prices are needed t o make t h e expected r e t u r n s attractive t o investors. In copper, for example, analyses of t h e Cerro Colorado deposit in Panama and other major undeveloped porphyry bodies indicate t h a t a price of between $1.50 and $2.00 per pound of copper is needed to justify t h e i r development. If such new sources of supply will eventually have t o be developed t o satisfy future demand, as is widely assumed, this implies t h a t the price of copper will have to rise appreciably in real t e r m s to cover t h e upward shift in costs over t h e last decade.

2.2 Location of Mining

Mine production of cobalt, copper, manganese, and nickel in t h e major producing countries and groups of countries is shown in Table 2(a)- (d) for t h e years 1950 and 1980, along with t h e distribution of reserves in t h e l a t t e r year. These tables reveal several interesting aspects of t h e shifts in mining activity over the last three decades.

(1) Despi-te t h e widespread belief t h a t t h e developed industrialized countries a r e becoming increasingly dependent on t h e developing countries for essential mineral commodities, t h e s h a r e of world output from t h e developing countries h a s not appreciably increased for most of the metals contained in seabed nodules. The notable exception i s nickel, where t h e rise of Cuba, Indon.esia, a n d the Philippines as producers and the expansion of output in New Caledonia ( a French overseas territory considered h e r e as p a r t of t h e developing world) have helped t h e developing countries capture 34% of t h e m a r k e t compared with a modest 3% i n 1950. While the share of t h e developed m a r k e t ecoriomy countries h a s fallen from 77% to 44%, they still collectively produce more nickel than e i t h e r t h e developing countries or t h e socialist countries. With. cobalt and manganese, t h e developing countries have actually seen t h e i r share of world output decline over the last 30 years, although a s a group they still account for almost 75% of world cobalt production.

(2) The developed countries have maintained and in some cases increased their share of world mine output of t h e four metals, not because

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TABLE 2 ( a ) Cobalt m i n e p r o d u c t i o n a n d r e s e r v e s by c o u n t r y , 1950 a n d 1980.

Mine p r o d u c t i o r ~

- - --- - - - - -

1950 1980

-

Thousands Thousands

of tons, of tons,

c o b a l t cobalt

c o n t e n t Z c o n t e n t

. - Reserves

- --

1980 T h o u s a n d s

of tons.

cobalt

Z c o n t e n t b % Developing c o u n t r i e s

Morocco Philippines Zaire Zambia Others

Developed m a r k e t e c o n o m y c o u n t r i e s

Australia Canada Finland O t h e r s

Socialist c o u n t r i e s Total

a ~ r o d u c t i o n was under 0.25 tons.

b ~ e s e r v e figures were converted from pounds to metric tons and then rounded to the nearest 5000 tons.

S u t c e s : Charles River Associates (1969, Table 2-1); U S Bureau of Mines, (1980a. Table 5 ; 1982,

~37).

t h e US and o t h e r m a j o r industrialized countries have expanded t h e i r domestic production, b u t r a t h e r because Australia, Canada, a n d S o u t h Africa have become irlcreasingly i m p o r t a n t m i n e r a l exporters. This suggests t h a t t h e developed industrialized c o u n t r i e s a r e relying m o r e on i m p o r t s for t h e i r m i n e r a l needs, even though t h e i r dependence on i m p o r t s f r o m developing countries have r e m a i n e d stable: o r even declined.

(3) In 1950 Zaire was t h e principal producer of cobalt, t h e US of copper, t h e USSR of m a n g a n e s e , a n d Canada of nickel, b u t since t h e n t h e m a r k e t s h a r e s of all of t h e s e d o m i n a n t producers have fallen greatly. The m o s t striking example is t h e drop in Canadlan nickel o u t p u t from 75% t o 26% of t h e world total. Despite t h e s e declines, t h e major producers of 30 years ago a r e still m a j o r producers today In c o n t r a s t , even m o r e d r a m a t i c shlfts in comparative advantage a r e found i n t h e location of mining for o t h e r m i n e r a l commodities. For example, t h e m a j o r producer of bauxite in 1 9 5 0 , S u r i n a m , saw i t s o u t p u t over t h e years s u r p a s s e d first by J a m a i c a , a n d t h e n by Australia a n d Guinea.

(4) Over t h e l a s t several decades t h e n u m b e r s of i m p o r t a n t m e t a l producing countries have grown. Australia, Finland, and t h e Philippines have become significant p r o d u c e r s of cobalt; Australia, P e r u , t h e Philippines, Poland, a n d South Africa of copper; Australia and Gabon of manganese, a n d

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TABLE 2(b) C o p p e r m i n e p r o d u c t i o n a n d r e s e r v e s by c o u n t r y , 1950 a n d 1980.

-- -

Mine p r o d u c t i o n R e s e r v e s

. -- - - - . - - . - - - -- - - - - - - - - - - - - - - - -

1950

--

1980

- - . - - - - -- 1980 T h o u s a n d s T h o u s a n d s Millions

of t o n s , of t o n s . of t o n s ,

c o p p e r c o p p e r c o p p e r

c o n t e n t % c o n t e n t % c o n t e n t %

Developing c o u n t r i e s 1063 42 3464 44 279 55

Chile 363 14 1068 14 97 19

P e r u 30 1 365 5 32 6

P h i l i p p i n e s 10 - 305 4 18 4

Z a i r e 176 7 460 6 30 6

Z a m b i a 298 12 596 7 34 7

O t h e r s 186 8 670 8 6aa 13

Developed m a r k e t

e o o n o r n y c o u n t r i e s 1224 4 8 254 1 3 3 166 33

Aus t.ralia 15 1 232 3 16 3

C a n a d a 240 9 708 9 32 6

S o u t h Africa 34 1 212 3 5 1

US 825 33 1168 15 90 18

O t h e r s 110 4 22 1 3 ~3~ 5

S o c i a l i s t c o u r i t r i e s 238 10 1812 23 60 12

P o l a n d

-

343 4 13 3

USSR 2 18 9 1150 15 36 7

O t h e r s 20 1 319 4 11 2

Total 2525 100 7817 100 505 100

a ~ e s e r v e s for unidentifed rlonsocialist courltries were allocated to o t h e r developing countries and o t h e r developed market economy countries in proportion to t h e relative production of these two groups of countries in 1980.

Sources: Metallgesellschaft (1958, pp13-14; 1981, pp29-30) and U S Bureau of Mines (1982,

~ 4 1 ) .

Australia, Cuba. Indonesia, t h e Philippines, and South Africa of nickel

The e n t r y of new c o u n t r i e s coupled with t h e decline of t h e major traditional producers h a s r e d u c e d t h e level of c o u n t r y concentration. This, along with a parallel decline in concentration a t t h e firm or e n t e r p r i s e level, h a s s t r e n g t h e n e d competition, a n d m a d e it. even m o r e difficult in t h e cobalt and nickel industries for t h e dominant p r o d u c e r s t o control t h e m a r k e t price a n d t o e a r n excess profits over a prolonged period of time. These t r e n d s compli- cate t h e formatlon a n d m a i n t e n a n c e of producer c a r t e l s , a n d hence r e d u c e t h e likelihood of s u c h collusive efforts among producers. They also e n h a n c e t h e security of supply of t h e m a j o r consuming c o u n t r i e s , for now a n i n t e r r u p - tion i n o u t p u t from a n y p a r t i c u l a r producing c o u n t r y c a n m o r e easily be made up by o t h e r suppliers

While t h e shifts described in t h e location of mining over t h e l a s t 30 years a r e of some intrinsic i n t e r e s t , we have reviewed t h e m h e r e in t h e hope of gaining some insights into t h e evolution of mining activity in t h e f u t u r e . This

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TABLE 2(c) Manganese m i n e production a n d reserves by country, 1950 a n d 1980.

Mine production Reserves

1950 1980

- 1980

Thousands Thousands Millions

of tons, of tons, of tons,

a c t u a l a c t u a l a c t u a l

weight % weight % weighta %

Developing c o u n t r i e s 2504 33 7 074 26 330 7

Brazil Gabon India Others

Developed m a r k e t

e c o n o m y c o u n t r i e s 1164 15 7656 29 2295 47

Australia 15 - 1961 8 300 6

S o u t h Africa 792 10 5695 2 1 1995 41

Others 357 5 b

-

d -

Socialist c o u n t r i e s 3954a 52 1 1967 45 2245 46

China a

-

¹⁵⁸⁸ ⁶ ⁴⁵ ¹

USSR 3861 51 10251 38 2175 45

Others 93a 1 128 1 25

-

Total 762Za 100 26697 100 4870 100

a ~ i g u r e s for 1950 exclude production in t h e socialist countries of Asia.

b ~ r o d u c t i o n shown for o t h e r s under developing countries for 1980 includes minor a m o u n t s of roduction from o t h e r developed countries.

'Reserve figures were converted from s h o r t to m e t r i c tons a n d t h e n rounded t o t h e nearest ve million tons.

'Reserves s h o r n for o t h e r s under developing countries may include minor a m o u n t s of reserves located in o t h e r developed c o u n t r i e s

Sburces: UNCTAD (1977, Table Ib); a n d US Bureau of Mines (1982, p95).

raises t h e question, t o what e x t e n t are past t r e n d s likely to continue?

Although t h e r e is no way of knowing for c e r t a i n t h e answer t o this question, where t h e shifts in mining reported. in Tables 2(a)-(d) have occurred in a continuous a n d persistent m a n n e r over t i m e , we have m o r e confidence in projecting t h e m i n t o t h e future. For instance, t h e share of world nickel production coming from t h e developed countries fell from 77% to 62% from 1950 to 1960, t h e n t o 52% by 1970. and finally t o 44% by 1980, while the s h a r e of t h e developing countries consistently rose over this period. On t h e o t h e r hand, a persistent long-run secular trend is less clear for copper. The developirig countries saw t h e i r s h a r e of this m a r k e t rise modestly from 42% t o 44%

between 1950 a n d 1.960, then decline to 38% in 1970, before r e t u r n i n g t o 44%

in 1980. Similarly, t h e share of t h e manganese rnarket supplied by t h e developing countries climbed from 33% to nearly 40% during t h e 1950s, where i t remained during t h e 1960s, before dropping t o 26% during t h e 1970s. Had one projected in 1970 t h e developing countries' share of t h e manganese m a r k e t in 1980 on t h e basis of past upward t r e n d s , t h e r e s u l t would have seriously overestimated t h e actual figure.

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TABLE Z ( d ) Nickel m i n e production a n d r e s e r v e s by c o u n t r y , 1950 a n d 1980.

Mine production Reserves

-- .. .- ..- . - - - - - - - - -

1950 1980 1980 _...

- -- .-

Thousands Thousands Millions

of t o n s , of tons, of t o n s ,

nickel nickel n i c k e l

c o n t e n t % c o n t e n t % c o n t e n t % Developing c o u n t r i e s

Cuba Indonesia New Caledonia Philippines Others

Developed m a r k e t e c o n o m y c o u n t r i e s

Australia Canada S o u t h Africa O t h e r s

Socialist c o u n t r i e s USSR

Others Total

Sources: Metallgesellschaft (1958, p31; 1981, p55); a n d U N Department of Technical Coopera- tion for Ileveloprnent (1980, Table 3).

Even where t h e t r e n d s have been consistent over t h e l a s t 30 years, as in nickel, projections based on these t r e n d s implicitly a s s u m e t h a t t h e impor- t a n t d e t e r m i n a n t s of comparative advantage will continue t o change a n d hence shape t h e shifts in the location of mining activity in t h e f u t u r e a s they have in the p a s t . This is a strong assumption t h a t few who ponder i t seriously find comfortable t o make. The possibility of major s t r u c t u r a l change is always present. During t h e 1970s, for example, t h e s h a r p r i s e in energy prices is known to have adversely affected t h e production of nickel f r o m l a t e r i t e ores.

As t h e shift in nickel production toward developing countries has widely involved t h e exploitation of laterite deposits, despite i t s persistence over t h e l a s t 30 years t h i s shift m a y n o t continue during t h e 1980s and 1990s.

Industry investment plans provide a possible check on t h e reasonable- ness of projecting past t r e n d s i n t o t h e n e a r f u t u r e . Major new m i n e s t a k e several years t o develop, a n d plans t o invest in s u c h projects a r e typically announced 4-7 years before they come into operation. Information on t h e expansion of existing mines, and on t h e closure of operating mines, is al.so available. By carefully compiling s u c h information, one c a n e s t i m a t e m i n e capacity into t h e f u t u r e and d e t e r m i n e whether t h e distribution of t h a t capacity is consistent with projections based on p a s t t r e n d s . A t best, however, t h i s approach c a n provide a picture of t h e industry five y e a r s into the f u t u r e . Moreover, t h e clarity of this picture i s dimmed by possible changes in

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announced plans t h a t may subsequently occur in response t o s h o r t - t e r m m a r k e t fluctuations and other considerations

Consequently, in assessing potential shifts in mining locations 10-40 years in t h e f u t u r e , one is ultimately forced to identify t h e major deter- m i n a n t s of comparative advantage in mining (where comparative advantage is defined broadly to include t h e political and other factors affecting f u t u r e investment and production decisions) and to assess how t h e s e d e t e r m i n a n t s a r e changing over t i m e . Over t h e last two centuries, international t r a d e economists have developed a n u m b e r of interesting theories for explaining shifts i n comparative advantage. For resource trade, t h e factor endowment theory is usually considered t h e most relevant. Indeed, it s e e m s self-evident t h a t Zaire is a major producer of cobalt because it is well endowed with cobalt, and t h a t Canada is a major producer of nickel because i t is well endowed with nickel. Yet exactly how t o define and m e a s u r e a country's endowment of cobalt and nickel is n o t easy. In addition, i t is well known t h a t political instability, fear of expropriation, availability of i n f r a s t r u c t u r e , and other considerations also influence where mining firms invest and produce minerals.

Despite such caveats, r e c e n t research (Tilton 1983) on copper, nickel.

and a few o t h e r mineral commodities suggests t h a t a significant, though far from perfect, relationship exists between t h e mine output of major producing countries and their reserves* t e n years earlier. This suggests t h a t t h e reserve data shown in Table Z ( a ) - ( d ) for 1980 c a n provide some insights into likely shifts in mining over t h e coming decade.

For cobalt, these figures raise t h e possibility t h a t t h e r e c e n t downward t r e n d i n t h e developing countries' s h a r e of world o u t p u t may be reversed in t h e f u t u r e . More specifically, they suggest t h a t t h e relative o u t p u t of Zaire will continue to decline, but t h a t this decline will be more t h a n offset by production in t h e Philippines, Zarnbia, and other countries. In c o n t r a s t , t h e reserves found in developed countries a r e significantly less t h a n t h e i r s h a r e of world production. For several reasons, however, considerable caution m u s t be exercised in assessing t h e implications of t h e reserve data for cobalt.

First, t h e consuming countries generally consider cobalt a critical and stra- tegic mineral, and twice during t h e 1970s supplies from Zaire were inter- r u p t e d due to civil strife. As a result, t h e consuming countries may prefer t o purchase t h e i r supplies from more stable, developed countries, even though they may be less well endowed in t e r m s of reserves t h a n developing countries. Second, outside of Zaire cobalt is widely produced a s a by-product of nickel a n d copper. Measuring reserves in s u c h situations is m u c h more difficult, and t h e resulting estimates less reliable.

The geographic distribution of copper reserves suggests t h a t t h e production of this commodity may shift somewhat during t h e 1980s toward t h e developing countries a n d away from t h e socialist countries. About one t h i r d of world production and reserves a r e found in t h e developed m a r k e t economy 'Reserves indicate the quantity of a mineral commodity found in known (discovered) deposits that are economic to exploit given existing mineral prices and production costs. They are one of several possible measures of mineral endowment, and tend to change over time in response to exploration and the discovery of new deposits, changes in mineral prices, and shifts in pro- duction costs.

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countries, and little change in their f u t u r e m a r k e t s h a r e is expected.

While t h e developing countries mined 26% of world manganese production in 1980, they held only 7% of total reserves. So t h e declining m a r k e t s h a r e of these countries over the last several decades may well continue i n t h e f u t u r e . According to Table 2(c), manganese reserves a r e highly concen- t r a t e d in two areas

-

t h e USSR with 45% of t h e world total, and South Africa with 41%. Since these two countries produced only 38% and 21% of world output i n 1980, t h e i r share of world production could increase in t h e f u t u r e . However, t h e major consuming countries may resist becoming overly dependent on t h e s e two countries. To t h e e x t e n t this is t h e case, developing countries and other producers with more modest reserves will have an opportunity to supply more of the world's o u t p u t t h a n would otherwise be t h e case.

In c o n t r a s t to manganese, t h e reserve figures for nickel imply t h a t a n increasing proportion of world o u t p u t will come from t h e developing countries. Possessing 63% of world reserves, they accounted for only 34% of mine production i n 1980. The developed m a r k e t economy countries and the socialist countries on the other hand produced more t h a n expected on t h e basis of t h e i r reserves. Here again, t h e implied shifts may be inhibited or r e t a r d e d by other considerations. In particular, as noted above, nickel is extracted from two quite different types of mineral ores - sulfide deposits and laterite deposits. In general, t h e former a r e m o r e profitable t o mine, since they have more valuable by-product recovery, higher recovery rates, a n d lower processing costs. This last advantage, which derives in large p a r t from t h e fact t h a t sulfide ores c a n be concentrated by mechanical m e a n s and s o require less energy for t r e a t m e n t , has increased in r e c e n t years with t h e rise in energy prices. As a result, t h e shift of nickel production toward t h e developing countries may be impeded, for these countries possess some 86% of t h e world's nickel reserves in laterite deposits, b u t only 6% of those in sulfide deposits.

2.3 Distribution of Costs and Benefits

According t o welfare theory, t h e changes caused by t r a d e in a country's consumer and producer surpluses reflect t h e costs and benefits i t derives from t r a d e . These changes are illustrated in Figure l ( a ) for an importing country. The curve Dd is the country's domestic demand curve, t h e curve Sd is i t s domestic supply curve, and t h e curve S, i t s supply curve for imports.

(If t h e country purchased only a small proportion of total world exports, and h e n c e had n o impact on t h e world price, t h e curve S, would be horizontal r a t h e r t h a n upward-sloping).

In t h e absence of t r a d e , the country would produce a n d consume t h e quantity Q l of t h e mineral commodity in question a t a m a r k e t clearing price of P I . Consumer surplus, defined a s t h e difference between what consumers a r e willing t o pay and what they actually have t o pay, is given by t h e a r e a a b P 1 . Producer surplus, defined as t h e difference between t h e revenues received by producers and t h e i r costs, is given by t h e a r e a P l b d , assuming t h a t t h e domestic supply curve Sd reflects t h e marginal costs of domestic production.

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A ( a ) Importing Country Price

I ^I

I I

I I b

a,

^O2 Quantity

Price

7

( b ) Exporting Country

0, O2 Quantity

FIGURE 1 Changes in c o n s u m e r a n d producer surpluses d u e to trade.

With t r a d e , t h e country resorts to imports to satisfy domestic demand, a s imports are available a t lower prices t h a n domestic prc~duction. Indeed, according t o Figure l ( a ) , domestic suppliers cease production a t t h e new equilibrium price P 2 , and domestlc demand Q 2 is entirely satisfied by imports. (This need not be t h e case, of course; some domestic producers may r e m a i n competitive even a t t h e lower m a r k e t clearing price t h a t occurs with t r a d e , and Figure l ( a ) could easily be adjusted t o reflect s u c h a situa- tion.)

In any case, trade adversely aflec:ts domestic producers by reducing, and i n t h i s case eliminating, t h e producers' surplus earned by domestic Arms.

Consumers, on t h e other hand, benefit f r o m t r a d e , as t h e c:onsumer surplus increases by t h e a r e a P l b c P 2 . The n e t benefit - t h e difference between t h e gain in c o n s u m e r surplus a n d t h e loss of producer surplus - is t h u s given by t h e a r e a dbcP2.

Figure 1(b) shows t h e benefits from trade for a n exporting country. The curve Ud is t h e country's domestic demand curve, t h e curve Sd its domestic

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supply c u r v e , a n d t h e c u r v e D, i t s e x p o r t d e n l a n d c u r v e . Without t r a d e , d o m e s t i c supply a n d d e m a n d a r e equal a t t h e q u a n t i t y Q1 a n d t h e m a r k e t c l e a r i n g p r i c e P I . Trade raises domestic supplp t o Q Z a~!d pr ict: t o P z . At t h e l a t t e r p r i c e , d o m e s t i c d e m a n d is r e d u c e d , and in tlie c a s e ~ l l u s t r : ~ t e d i n Fig- u r e l ( b ) c o m p l e t e l y e l i m i n a t e d , causing a decline in c o n s u m e r s u r p l u s . P r o - d u c e r s u r p l u s , however, i n c r e a s e s s u b s t a n t i a l l y , a n d t h e n e t g a i n t o t h e c o u n - t r y f r o m t r a d e i s given by t h e a r e a P B a b c .

The preceding s u g g e s t s t h a t , all o n e n e e d s in o r d e r t o a p p r a i s e t h e benefits of t r a d e is a s e t of supply a n d d e m a n d c u r v e s s i m i l a r t o t h o s e shown i n Figure 1 for t h e significant i m p o r t i n g a n d exporting c o u n t r i e s . One c a n t h e n derive t h e benefits for e a c h c o u n t r y , a n d t h r o u g h simple addition c a l c u - l a t e t h e t o t a l benefits f r o m t r a d e for all exporting c o u n t r i e s , for all developing c o u n t r i e s , o r for a n y o t h e r s u b s e t of c o u n t r i e s . Assessing s h i f t s i n benefits a m o n g c o u n t r i e s over t i m e r e q u i r e s only t h a t t h e supply a n d d e m a n d be e s t i m a t e d f o r t h e f u t u r e period of i n t e r e s t . I l n f o r t u n a t e l y , i n p r a c t i c e a n u m b e r of difficulties, b o t h c o n c e p t u a l a n d e m p i r i c a l , m a k e i t e x t r e m e l y difficult t o a s s e s s with m u c h a c c u r a c y t h e benefits of t r a d e :

(1) I t is f a r e a s i e r t o d r a w a h y p o t h e t i c a l s e t of s u p p l y a n d d e m a n d c u r v e s , a s i n Figure 1 , t h a n a c t u a l l y t o d e t e r m i n e t h e s e c u r v e s for specific c o u n t r i e s . E c o n o m e t r i c s t u d i e s provide a t b e s t a reliable p i c t u r e of t h e n a t u r e of t h e s e c u r v e s a n d t h e i r e l a s t i c i t i e s a r o u n d t h e r a n g e of p r i c e s a n d o u t p u t s t h a t h a v e a c t u a l l y o c c u r r e d in t h e p a s t . They c a n n o t e s t i m a t e t h e d o m e s t i c supply c u r v e f o r a n i m p o r t i n g c o u n t r y t h a t h a s h a d no d o m e s t i c prod-uction, o r t h e d e m a n d c u r v e for a producing c o u n t r y t h a t h a d n o d o m e s - t i c c o n s u m p t i o n . Nor c a n t h e y provide m u c h i n f o r m a t i o n a b o u t t h e n a t u r e of t h e d e m a n d c u r v e in i m p o r t i n g c o u n t r i e s a t prices t h a t a r e five o r t e n t i m e s g r e a t e r t h a n t h o s e e v e r realizeti. Yet s u c h i n f o r m a t i o n is e s s e n t i a l f o r a s s e s s i n g t h e c o n s u m e r s u r p l u s of t h e s e c o u n t r i e s .

(2) Supply c u r v e s for b o t h i m p o r t i n g a n d exporting c o u n t r i e s m a y n o t reflect t h e i n c r e m e n t a l o r m a r g i n a l c o s t s of production. In p a r t i c u l a r , l a r g e p r o d u c e r s with m a r k e t power have a n i n c e n t i v e t o l i m i t t h e i r o u t p u t s o t h a t p r i c e is m a i n t a i n e d above t h e i r m a r g i n a l c o s t . As a r e s u l t , t h e a r e a b e t w e e n t h e s u p p l y c u r v e a n d t h e m a r k e t p r i c e u n d e r e s t i m a t e s t h e p r o d u c e r s u r p l u s t h e y enjoy.

(3) Even w h e r e t h e supply c u r v e faithfully r e f l e c t s t h e c o s t s f i r m s i n c u r , t h e s e p r i v a t e c o s t s m a y d e v i a t e fronl t h e social c o s t s b o r n e by t h e c o u n t r y a s a whole. For i n s t a n c e , t h e c o s t of labor t o f i r m s i n developing c o u n t r i e s suffering f r o m high u n e m p l o y m e n t o r u n d e r e m p l o y m e n t m a y be f a r a b o v e t h e t r u e social c o s t s m e a s u r e d in t e r m s of t h e value of t h e p r o d u c t s or s e r - vices t h a t m u s t be given u p b e c a u s e t h a t labor is n o t available f o r o t h e r p u r - poses. Similarly, a n overvalued c u r r e n c y m a y r e s u l t i n artificially h i g h c o s t s f o r tiomestic i n p u t s . Where sucli d i s c r e p a n c i e s e x i s t b e t w e e n social a n d p r i v a t e c o s t s , t h e d o m e s t i c supply c u r v e should be a d j u s t e d t o r e f l e c t t h e f o r m e r when appraising t h e p r o d u c e r s u r p l u s realized by t h e c o u n t r y a s a whole.

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(4) The costs and benefits of trade a r e assessed within a partial, r a t h e r t h a n general, equilibrium framework. Consequently, t h e i m p a c t of m i n e r a l trade on o t h e r sectors of the economy is ignored. Canada and o t h e r producing c o u n t r i e s have a t times expressed c o n c e r n t h a t t h e i r m i n e r a l exports keep t h e value of t h e i r domestic c u r r e n c i e s relatively high, and in t h e process inhibit balanced economic development by impeding t h e growth of t h e i r manufacturing and service s e c t o r s .

(5) Trade may redistribute income and wealth within a c o u n t r y , accen- tuating or alleviating disparities. In addition, the g o v e r n m e n t may, through taxes a n d o t h e r m e a n s , c a p t u r e s o m e of the surpluses t h a t a c c r u e t o produc- e r s a n d consumers. Whether these funds a r e s p e n t on education, military hardware, economic diversification, o r social security greatly affects t h e ulti- m a t e benefits derived from t r a d e . Again, such considerations a r e ignored when t h e benefits of trade a r e assessed simply in t e r m s of t h e impacts on c o n s u m e r and producer surpluses.

These problems have encouraged some r e s e a r c h e r s to fall back on t r e n d s in prices or producer revenues t o appraise how t h e benefits of mineral trade a r e shifting over time between c o n s u m e r s a n d producers. For example, the s e c u l a r decline in real manganese prices noted earlier is often cited a s evidence of a shift of benefits from producers to c o n s u m e r s . Yet a little con- sideration clearly indicates t h a t t h i s is n o t necessarily a valid conclusion. If t h e decline in prices is the r e s u l t of a downward shift in t h e world demand curve over t i m e , both t h e c o n s u m e r and producer surpluses have declined.

In t h e process, the proportion of t o t a l benefits going t o producers could have decreased o r increased. The declining price, however, h a s m o r e likely been the r e s u l t of a downward s h i f t i n t h e world supply curve caused by major advances in earth-moving capabilities and o t h e r technological developments, together with t h e opening u p of large, low-cost deposits over t i m e . So while prices have declined, s o also have production costs. Whether on balance pro- d u c e r s have received a larger o r smaller surplus, and whether this surplus c o n s t i t u t e s more o r less of t h e total benefits generated by t r a d e , is n o t known.

What is clear, however, is t h a t such changes t e n d to redistribute t h e available producer surplus. Traditional producers whose costs do not decline a s m u c h as t h e price falls find t h e i r benefits diminishing, while o t h e r s enjoy g r e a t e r r e t u r n s from t r a d e . The a d j u s t m e n t s forced on t h e f o r m e r c a n be quite painful, particularly if t h e s e countries derive a substantial s h a r e of t h e i r government revenues and foreign exchange earnings from m i n e r a l trade. Understandably, they a r e likely t o complain t h a t prices a r e n o t

"remunerative and just" for producers, even when t h e surplus realized by all producers h a s actually increased.

Producer revenues, which c a n easily be derived by multiplying t h e average price a country receives for a mineral p r o d u c t times its o u t p u t or ship- m e n t s , a r e also on occasion used a s a m e a s u r e of t h e benefits from t r a d e . In addition to t h e ready availability of the necessary information, t h i s procedure is justified o n the grounds t h a t private costs often exceed t h e social costs of m i n e r a l production in developing countries. F u r t h e r m o r e , developing countries generally a t t a c h g r e a t i m p o r t a n c e t o t h e acquisition of foreign

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exchange, and where output is largely or entirely exported, producer reve- n u e s approximate t h e foreign exchange a country e a r n s from its output.

Nevertheless, producer revenues suffer from several serious defects as a m e a s u r e of t h e benefits t h a t even developing countries derive from mineral t r a d e . In particular, certain inputs to mining and processing minerals, s u c h a s capital, technology under license, and expatriate labor, are likely to come from abroad and so require foreign exchange to acquire. As Mikesell (1975) and o t h e r s have pointed out, s u c h costs should be subtracted from producer revenues t o obtain t h e n e t foreign exchange earnings or retained value of mineral production. Even after making this adjustment, t h e remainder reflects t h e benefits of trade t o t h e host country only if all t h e domestic resources used in mining and processing have n o social value in t h e sense t h a t they could not be used elsewhere in t h e economy. Such an assumption may a t times appear plausible for unskilled labor, but for o t h e r domestic inputs such a s skilled labor, management, materials, and producer goods, i t s e e m s m o s t implausible.

Unfortunately, t h e r e a r e no easy s h o r t c u t s or convenient rules of t h u m b for measuring t h e benefits of trade. Trends in prices, producer revenues, and even retained value, though used on occasion for t h i s purpose, can be misleading. To appraise t h e benefits of mineral t r a d e , one is forced t o assess consumer and producer surpluses. This, in t u r n , requires information on t h e price t h a t consumers pay and that producers receive, on the production cost of producers, and on t h e prices t h a t consumers would be will.ing t o pay if necessary.

Reliable e s t i m a t e s of what consumers are prepared if necessary t o pay a r e particularly difficult to obtain. In part, this is because t h e n u m b e r of end uses is quite high for most minerals, making it impractical to assess t h e m a r - ginal benefit of t h e commodity to each. Moreover, since t h e introduction of seabed mining and its resulting impacts a r e likely to occur gradually over a n u m b e r of years, t h e information needed is n o t how m u c h a particular u s e r would pay over t h e next month or even year if necessary, but r a t h e r how m u c h he would demand a t various prices after h e had ample t i m e to install t h e necessary equipment and to develop new technologies for substituting alternative materials or for conserving t h e m a t e r i a l in question. In other words, t h e information needed pertains t o t h e shape and n a t u r e of t h e long- r u n r a t h e r t h a n short-run demand curve. Since this curve is affected by price-induced technological change and since t h e timing and impact of technological change a r e inherently difficult t o anticipate, i t is n o t easy to obtain reliable e s t i m a t e s of t h e long-run supply curve, and hence of consumer surplus. While this is particularly t r u e for supply curves 10 or 40 years in t h e f u t u r e , i t is also t h e case for curves t h a t pertain t o t h e present.

If one is primarily interested in t h e benefits of mineral trade for prod-uc- e r s , insights into t h e evolution of these benefits over time can be obtained from information on prices and production costs. Here t h e prospects of obtaining t h e necessary information appear somewhat more promising. On t h e basis of grade of ore, size of deposit, and other considerations, mineral- producing firms, consulting organizations, and government agencies have estimated t h e production costs associated with both operating and potential

The Impact of Seabed Nodule Mining: A Qualitative Analysis

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