Resource Economics

In 2006, mine production of gold fell by 1 percent to 2,467 tons, in line with output in 2004.1 (See Figure 1.) The world’s top three producers— South Africa, Australia, and the United States—and Indonesia all saw marked losses in production.2

The main shaft at South Deep in South Africa was temporarily closed, slashing production there by half.3 The Batu Hijau Mine in Indonesia suffered production losses due to pit wall stability issues.4 The operators of the world’s two largest gold-producing mines—Freeport- McMoRan at Grasberg in Indonesia and Newmont at Yanacocha in Peru—both reported substantial reductions in output in 2006, estimated at a combined 75 tons for the year.5

Some Latin American countries and China achieved slight production increases when a number of new mines got going.6 The Veladero mine in Argentina and the Amapari and Jacobina mines in Brazil all saw increased output.7 Gold mining in China increased steadily as well. As the world’s fourth-largest gold producer, China produced a record amount of 240 tons of gold in 2006—7 percent more than the year before.8

The gold produced in mines added to the existing gold stockpile, bringing this to 157,967 tons at the end of 2006.9 The jewelry industry accounted for 52 percent of the aboveground gold stocks at the beginning of 2006, central banks held 18 percent in their vaults, private investors hoarded 16 percent, and 12 percent was used for industrial purposes.10 (See Figure 2.)

Gold prices continued to climb in 2006.11 (See Figure 3.) Gold at the London price touched $725.75 in mid-May—the highest level in 25 years.12 The average price throughout the year was $604, up nearly 36 percent from 2005.13

Shrinking sales by central banks were partly responsible for the price hike in 2006.14 Net sales by these banks were estimated to have halved, dropping to 330 tons.15 The decline was somewhat driven by lower sales from members of the renewed Central Bank Gold Agreement (CBGA-2), an agreement under which 15 of the world’s biggest gold holders, including Germany and France, made a commitment to not sell off gold stocks in order to maintain high prices.16 CBGA members sold only 393 tons of gold out of the possible annual allowance of 500 tons.17

The high and volatile prices for gold dampened consumers’ enthusiasm. Gold demand for jewelry fabrication slumped by more than 400 tons in 2006. The greatest losses occurred in the price-sensitive regions of India and the Middle East, while Italy and East Asia (excluding China) also saw substantial declines.18 Chinese retail sales of gold jewelry, in contrast, rose more than 20 percent in 2006.19 World investment in gold—the sum of implied net investment, gold bar hoarding, and coins—in 2006 was just over 680 tons, down 16 percent.20

It is increasingly tough for gold miners to replace gold in the ground with new discoveries. 21 Westhouse Securities estimates that between 1985 and 2003, new gold discoveries slipped by 30 percent from the previous 15 years.22 Each new ounce discovered also costs 2.6 times as much to locate.23

Gold mining corporations have been under growing pressure from the public, jewelry manufacturers, and retailers to pay more attention to their environmental impact. Public protests against leading companies were reported in places where major operations were located, including Indonesia, Peru, Argentina, Papua New Guinea, Romania, and Ghana.24 No Dirty Gold—an international consumer campaign to educate consumers, retailers, and the general public about the impacts of irresponsible gold mining—has over the past three years gathered signatures from more than 55,000 consumers on a petition urging jewelry retailers to sell environmentally and socially responsible gold.25 As of early March 2007, 21 leading jewelry retailers—including Cartier, the Zale Corp., Tiffany & Co., and Birks & Mayors—had endorsed No Dirty Gold’s Golden Rules, a set of social, environmental, and human rights principles to guide more responsible production.26

Global production of primary aluminum—aluminum made from bauxite ore—increased by 4 percent in 2006.1 (See Figure 1.) That number represents a continuing slowdown in output in recent years from the high rates of 2002–05, when production increases averaged 6.5 percent annually.2 Nevertheless, the industry continues to grow globally as demand moves upward and as new production capacity is added.3 Meanwhile, global secondary (recycled) aluminum production was up in 2004, the latest year for which world data are available.4

Aluminum is the world’s second most popular metal, after iron. It is used to make transport vehicles from cars to airplanes to ships, in construction, in consumer durables such as appliances, and in packaging.5 Aluminum is made from bauxite ore, which is found near the earth’s surface and which usually requires open-pit mining to be removed.6 Bauxite is relatively plentiful, with the greatest reserves found in Guinea, Australia, Brazil, Jamaica, and China.7

Primary aluminum production is concentrated in relatively few countries. China alone produced 26 percent of the world total in 2006.8 The top five producers—China, Russia, Canada, the United States, and Australia—accounted for 59 percent of world output that year.9 (See Figure 2.) Production is found where energy is cheap because making aluminum uses gargantuan quantities of electricity.10 Indeed, the world’s largest aluminum smelter, now being planned for construction in Dubai, will have its own 2,600-megawatt power plant.11

Although growth in primary production has slowed, many of the top producers posted robust gains. China and India reported the greatest increases in aluminum output, at 12 percent and 11 percent respectively. 12 Bahrain, Brazil, and South Africa also posted large gains for the year, at 11, 7, and 5 percent.13 Growth globally was slowed by the 7-percent decline in production experienced in the United States, the fourth largest producer.14 This decline is part of a long-term pattern: primary production in this country has fallen by 57 percent since 1992.15 U.S. smelters were operating at only 62 percent of capacity, in part because of high prices for energy and alumina.16 Meanwhile, secondary aluminum production in the United States may also experience a slowdown as automobile manufacturing, a key supplier of scrap, declines there.17

Aluminum production accounts for roughly 3 percent of global electricity use.18 For some countries the share is much higher: in Australia, it devours 10 percent of the country’s electricity.19 The industry has become steadily more energy-efficient in recent years; electricity use per ton of output fell by 11 percent between 1980 and 2006.20 But increases in output have typically been greater than efficiency gains, sending total electricity use for aluminum higher each year.21 (See Figure 3.)

Aluminum from scrap (from manufacturing plants as well as aluminum products) reduces this metal’s environmental footprint because of its relatively low energy requirements. In the United States in 2006, roughly two thirds of aluminum used in recycling came from manufacturing plants; the remainder came from discarded products.22 Aluminum recycled from discarded products accounted for the equivalent of about 18 percent of aluminum consumption in the United States in 2006.23

The growing practice of making aluminum from scrap rather than from virgin ore will affect the location and economics of production in the future.24 Remelting (recycling) aluminum uses only 5–10 percent as much energy as making aluminum from ore.25 And because the energy efficiency of recycling aluminum is expected to increase faster than the efficiency of virgin production in coming years, the cost advantage will likely tilt further in the direction of recycling.26 This cost advantage, coupled with growing availability of scrap aluminum, are likely to decouple aluminum production from supplies of cheap energy.27

Aluminum, if recycled, has a number of environmentally friendly features, including light weight, which means products require less energy to transport, and strength, which means less is needed for a given function.28 Aluminum can be recycled many times over.

Global crude steel production hit a record high of 1.24 billion tons in 2006, an increase of 10 percent over 2005.1 (See Figure 1.) This was the third consecutive year in which crude steel output exceeded 1 billion tons.2 China was by far the leading producer, with 419 million tons output in 2006—just above one third of the global total.3 The other major producers were Japan (116 million tons) and the United States (99 million tons), followed by Russia and South Korea.4 (See Figure 2.)

The past decade has been the most productive in the history of the steel industry, driven mainly by remarkable growth in China and the Asia region. Global output in 2006 was 65 percent above the figure a decade earlier.5 China became the largest national producer in 1996, and 10 years later output there was a startling 314 percent higher.6 The Asia region accounted for 38 percent of all crude steel produced in 1996; by 2006, the share rose to 54 percent.7

Consolidation in the steel industry worldwide has accelerated as producers look to integrate horizontally with other mills and vertically with raw material suppliers and steel distributors to secure their futures.8 In 2005 the top 15 steel producers accounted for one third of world production, compared with just over one fourth in 1995.9 (See Figure 3.)

The recent race toward consolidation has been highlighted by a few major takeovers. In June 2006 Mittal Steel took over the Pan-European Arcelor and became the largest steelmaker in the world.10 The new firm, Arcelor-Mittal, has more than 100 million tons of annual capacity— enough for twice as many automobiles as are made in the world every year and three times the capacity of its nearest rival, Nippon Steel.11 The second major merger took place in early 2007, when an Indian conglomerate—Tata Steel—acquired the Anglo-Dutch steel firm Corus and created the world’s fifth biggest steel producer.12 Similar takeovers and mergers also happened in the United States, Europe, Russia, China, East Asia, and Australia.13

The rebounding world economy combined with buoyant infrastructure and other investments in developing economies pushed global steel demand up in 2006.14 Demand jumped an estimated 9 percent in the year, with China and, more generally, Asia again being the major driving forces.15 Demand for steel in China rose by 15 percent in 2006, accounting for one third of the global total.16 Increased spending on infrastructure and construction in India drove steel use there up by 10 percent.17 Demand for steel also rose considerably in the European Union, North America, East Asia, and Russia, though at more moderate rates.18

Rising global demand has stimulated trade as well. In the first nine months of 2006 China became the world’s largest steel exporter for the first time, surpassing Japan, Russia, and the European Union.19 China’s net exports for the year reached 24.5 million tons.20 North America and the European Union remained the key steel-importing regions, with each estimated to bring in around 40 million tons a year.21

Recycled iron and steel scrap is a vital raw material, and the rate of recycling has risen remarkably in industrial countries. The recycling rate for steel reached 76 percent in the United States in 2005, the highest ever recorded there.22 In 2006 an estimated 55 million tons of steel were recycled in the United States.23 The latest available data show that the U.S. recycling rate in 2005 for automobiles—the primary source of old steel scrap—was 102 percent, indicating that more steel was reclaimed from automobiles than was used to manufacture new vehicles.24

The U.S. recycling rates for appliances and steel cans in 2006 were 90 percent and 63 percent, respectively.25 Worldwide, more than 5 million tons of steel cans were recycled in 2005, an average recycling rate for steel packaging of 65 percent.26 This figure is 7.4 percent higher than in 2001, signaling a continuous increase over the years.27