The Metal Bank: A Management Model for Rare Mineral Resources in a Circular Economy

News
  • 2017/04/19     Dresden, Germany

    Image: istockphoto/3dmentat

    Image: istockphoto/3dmentat

    The depletion of “high-grade” mineral deposits has resulted in increasing extractive costs and diminishing economic returns. The market reacts to this situation with either high prices, which depress demand, or sudden drops in prices (such as happened with crude oil in 2014). Such drops reduce or eliminate profits for the mining industry, which in turn is forced to reduce production. As a consequence, it is increasingly difficult to manage the remaining mineral resources in a way that ensures sufficient supply for the economy and avoids price shocks. This is particularly important for rare metals, such as those needed by the electronics manufacturing industry.

    A promising long-term strategy to eliminate the depletion problem is to move to a so-called “circular” economy, where all the resources used in manufacturing are completely recycled. One potential solution is stockpiling. The metal bank concept, explained in the latest policy brief published by UNU-FLORES, is a closely controlled stockpiling method that fundamentally follows the principles of circular economy. Metal banks keep rare metals and other similar critical mineral resources stored above ground and readily available to provide a buffer against price and supply shocks.

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    The Challenge

    Commercial mining is traditionally based on mineral deposits of high concentration (also termed “high-grade”) that are economically feasible to exploit. However, eventual exhaustion of high-grade resources pushes us to focus on low-grade ones, whose extraction demands more energy and resources. This is the essence of the concept of “depletion”, which does not refer to “running out” of something, but rather to diminishing economic returns. Human ingenuity and market factors are often expected to counteract physical depletion, and maintain an increasing supply of mineral commodities. A fundamental component of this expectation is that technological progress can reduce mining costs, even though it may not reverse the depletion process (Bardi 2014). In this light, some have argued that depletion will not affect the capability of the world‘s economy to keep growing (Barnett and Morse 1963, Houthakker 2002, Bradley 2007).

    While most mineral commodities show no evidence of a decrease in production, growth trends have slowed down (Brown et al. 2013). During the past decade or so, the trend in the mineral commodity market shows price increases (Jacks 2013). In addition, the growth of the world‘s economy is slowing down (Popescu and Nica 2014). A similar slowdown is taking place in world trade (Constantinescu et al. 2015). These observations are consistent with a scenario that projects a decline in the world‘s economy as a result of increasing costs of mineral production.

    Read the full policy brief here.


    Reference

    Bardi, Ugo. 2014. “The Mineral Question: How Energy and Technology Will Determine the Future of Mining.” Frontiers in Energy Research 2. doi:10.3389/fenrg.2013.00009.

    Barnett, H.J. and C. Morse. 1963. Scarcity and Growth. Baltimore, MD: Johns Hopkins University Press for the Future.

    Bradley, Robert L. 2007. “Resourceship: An Austrian Theory of Mineral Resources.” The Review of Austrian Economics 20:63–90. doi:10.1007/s11138-006-0008-7.

    Brown, T.J., R.A. Shaw, T. Bide, T. Petavratzi, E.R Raycraft, and S.A. Walters. 2013. World Mineral Production 2007-2011 –British Geological Survey. Nottingham: Keyworth.

    Constantinescu, Cristina, Aaditya Mattoo, and Michele Ruta. 2015. “The Global Trade Slowdown: Cyclical or Structural?” IMF Working Paper. Accessed 7 March 2016. https://www.imf.org/external/pubs/ft/wp/2015/wp1506.pdf.

    Houthakker, Hendrik S. 2002. “Are Minerals Exhaustible?” The Quarterly Review of Economics and Finance 42:417–21.

    Jacks, David S. 2013. “From Boom to Bust: A Typology of Real Commodity Prices in the Long Run.” National Bureau of Economic Research 18874. doi:10.3386/w18874.

    Popescu, Gheorghe and Elvira Nica. 2014. “The Roots of China’s Economic Slowdown.” Knowledge Horizons – Economics 6(1):14–17.