Jeremy Grantham and not quite getting metals statistics

Tyler notes this paper from Jeremy Grantham and more specifically, this line:

The highest percentage of any metal resource that China consumes is iron ore, at a barely comprehensible 47% of world consumption.

Now, essentially, Grantham is saying that we\’re all doomed (for a particular value of \”doom\”) because commodity prices are rising instead of,  they have been for the past century, falling in real terms.

Could be, mebbe, and I\’m not trying to address that larger point here. Rather just to quibble with that number that he\’s using to reach his conclusion.

For there are technical reasons why China is using so much of the world\’s iron ore.

Have a look at this list of the world\’s largest steel makers.

Next, consider that there\’s two (more than this, if we play with details, but we\’ll keep it simple) ways you can make steel.

1) You stick iron ore into a blast furnace, along with coke (a form of processed coal) and limestone. This gives you iron, blast some oxygen across it, add bits and pieces of silicon, vanadium, nickel, chrome (the receipts vary depending upon what sort of steel you want) and you\’ve got steel.

2) Take old steel that you\’ve just got from something you\’ve taken apart, measure what levels of nickel, chrome, vanadium etc are in it, melt it all, add the right amounts of nickel, chrome, vanadium to get to your desired receipt and now again you\’ve got steel.

Now, method two works great when you\’ve got a large stock of steel that\’s in things. Because you\’re going to take apart some amount of them each year and you can use that old steel to make your new.

Note that the second largest US steel company on our list, Nucor, only does this. They only make new steel from old. Further, everyone does this to some extent, but in the western/industrialised world we\’ve got to the point that no one, ever again, is going to build another blast furnace (yes, this is the generally accepted industry view).

We\’ll keep the ones we\’ve got running for a few decades until they wear out but we really just don\’t need to be turning tens of millions, hundreds of millions, of tonnes a year of iron ore into iron/steel. We\’re getting to the point where, for this particular item, we really are a stock economy.

(Please note I\’m slightly over egging my argument. We will still use smaller ore furnace types as it\’s easier to deal with certain steel scraps if you can add new iron to them for very boring technical reasons.)

That is, we can make the new steel we desire for cars out of old cars (indeed, that was Nucor\’s great technical breakthrough, the ability to make steel for car bodies from scrap rather than having to start with iron ore) and so on and on.

A country that doesn\’t have a large stock of steel already embedded into things that are being scrapped of course doesn\’t have this large amount of scrap steel which can be reprocessed. A country like, say, China. They have to be making iron and steel from iron ore.

Yes, of course, the rise in iron ore prices (last I looked it was $160 a tonne, which is near twice the price of already processed pig iron only a decade ago) has a lot to do with Chinese demand. Don\’t doubt it for a moment.

Rather, I\’m pointing just at that 47% of world consumption number: this is an artefact of the way that the western (OK, industrialised) world is recycling steel rather than making new. We really are getting closer to that desire of Blueprint for Survival, the book that launched the modern green movement, of being a stock not flow economy.

I could give you a similar technical story for at least part of the nickel price rise: essentially, stories of a new source and a new production method led to no one opening up new mines. That new source and new method proved to be very much less wondrous than rumour had it, so we rather miss the capacity that didn\’t get opened for fear of it.

How many market prices indicate an optimistic prediction about solar power in the next thirty years?

Depends what you mean by a market price really Tyler. The ease of raising venture capital for a plan to produce a certain metal can be considered as a market price. And you would find it really rather easy (absolutely certainly a great deal easier now than 10 years ago) to raise money to go find gallium, germanium and indium. Those three being the metals that we\’ll need for the next generation of solar cells, the multi-junction ones. The ones that are actually going to be economic, providing electricity at about current grid rates.

But back to iron ore for a moment. Two days ago I sent in a grant request to a funding institution. We want to play with a new type of furnace under construction. We think, the makers think, serious scientists who know what they\’re talking about say that (to the extent that we and the makers are not such) this furnace can be used in an interesting way.

To make one billion (yes, that really is one billion) tonnes of iron out of pollution that people currently have just sitting around lying in ponds.

There really isn\’t a shortage of iron ore you know.

3 thoughts on “Jeremy Grantham and not quite getting metals statistics”

  1. Pingback: Jeremy Grantham vs. Julian Simon — Marginal Revolution

  2. China accounts for about 40% of steel production, would that include recycled steel?

    Tim adds: Depends on who is doing the counting. They certainly do use scrap steel, yes. But he international stats aren’t always clear about whether they are counting virgin production or not.

  3. As someone who is employed due to the Western Australian mining boom, can I just say – Oi! Knock it off!

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