40 SMe Mining engineering handbook
Substitution and Prices
That substitutes exist for most mineral products in many of
their uses circumscribes their producers’ market power. A
marked shift in a product’s relative price will impact the size
of its market. Some substitution may be straightforward, as
in the use of different minerals as fillers or extenders in the
plastics industry, or of different materials in the manufacture
of refractories. Sometimes the most effective substitutes are
abstinence, as in a farmer’s decision not to apply phosphate to
his fields one year, or a change in processing technology, such
as heat treatment to replace the addition of alloying elements.
It will often involve process adaptations or investment in new
technology and equipment. In those cases substitution will be
spread over a period, rather than instantaneously, but when it
has occurred, it is unlikely to be reversed quickly. Changes in
relative prices often drive irreversible technological change.
Often demand for a specific mineral product will be
affected not by changes in its own relative price but by the
prices of the products in which it is incorporated or used in
processing. For example, the demand for fillers and coating
clays is driven by changing demands for paper, and for zinc in
galvanizing by markets for steel products. Changes in end uses
and in consumers’ spending patterns, driven by demographic
and technical change, and sometimes merely by fashion, can
open up new markets for individual minerals and wipe out
existing markets.
Markets for Mineral Products
Most types of economic activity, including trade and services,
depend on mineral products, but their use is biased toward the
goods-producing sectors. Demand for many mineral products,
and for metals in particular, is heavily reliant on construction,
capital goods industries, and the manufacture of vehicles and
consumer durable goods. Because these markets are responsive
to changes in expectations and to movements in interest rates,
they are typically the most volatile segments of overall expen-
diture. Even where mineral products are used for processing or
in goods for immediate consumption, their demand can fluctu-
ate by far more than overall economic activity and is at the
mercy of variations in work in progress and in the holding of
inventories of all types throughout the production chain—from
mine to final consumer. In general, therefore, demand for min-
eral products is more volatile than economic activity, as mea-
sured by changes in industrial production or GDP.
Demand, incomes, and intensity of use
Typically an economy’s demand for goods rises with per cap-
ita incomes. When these are near subsistence levels, and only
the most basic needs can be satisfied, the usage of minerals
per unit of output tends to be low. Initially, many of the needs
for mineral products will be met by imports of finished goods
rather than by domestic manufacture. As per capita incomes
rise, the demand for more sophisticated products will also
expand, thereby raising the economy’s intensity of mineral
use per unit of output. Rapidly growing demands for invest-
ment in modern infrastructure of all types will further boost
the intensity of use (IU). The demand for mineral products,
and especially for the building blocks of steel, cement, and
construction materials, will tend to increase far more rapidly
than the GDP. Eventually, the nation’s basic infrastructure will
be developed and individuals will devote an ever increasing
proportion of their growing incomes to services of all types
rather than to products. The goods that are purchased will tend
to be less materials intensive than those purchased at lower
levels of income. Consequently, the economy’s IU of min-
eral product per unit of GDP will eventually peak and then
fall back. Although its absolute demand for mineral products
may continue growing with expanding per capita incomes, a
point may be reached where even that ceases to rise and even
weakens.
Smaller economies with limited populations and/or inher-
ent geographical disadvantages may never develop their own
materials-based manufacturing industries but continue to rely
on imports. This means their IU of many mineral products will
never rise substantially, regardless of the levels of their per
capita incomes. By contrast, some economies may develop
large export-oriented manufacturing capabilities so that their
apparent IU not only rises rapidly but also reaches atypi-
cally high levels. Densely populated countries with limited
land area will have different consumption patterns than more
sparsely populated bigger countries, even at similar levels of
per capita income. In short, each country’s IU of mineral prod-
ucts depends on far more than per capita incomes alone, but
those provide the main impetus for change.
The basic pattern of changing intensities over time as
incomes rise can be traced in the historical experience of the
mature industrial economies and is still being written in the
newly industrializing and developing countries. Continuing
technological change, both in products and production pro-
cesses, and shifts in relative prices, especially of energy, mean
that newly industrializing countries do not slavishly follow
the path of their predecessors. Each country will naturally
adopt the cheapest and most effective set of technological
options available, which will probably, but not necessarily, be
less materials intensive. Global demand reflects both the sum
total of the component economies’ varying patterns of IU and
their GDP rates of growth. To the extent that some of the final
output of the rapidly growing economies, such as China and
India, is based on exports to the mature economies, their ris-
ing demands for materials will be partly at the expense of the
mature economies rather than merely additional to them.
Demand, Supply, and Prices
Since production is relatively slow to react to swings in
demand and tends to be more stable in the short run, supply
and demand are seldom in precise balance. There is normally
a dynamic equilibrium over time, with capacity moving in
step with demand, but market balances can quickly veer from
shortage to excess with little warning. The consequence is
volatile prices for most mineral products. In some instances,
a buildup or reduction of inventories can cushion the immedi-
ate impact, but many products are not amenable to large-scale
stockpiling. Producers are therefore forced to reduce their
output when demand falls, but they can seldom react quickly
enough when demand surges. Even the mere existence of
accumulated inventories can adversely affect expectations and
depress prices.
Demand and Recycling
Quite apart from changes in inventories, supplies of many
mineral products are not met by newly mined material. Even
some of the minerals used as processing aids may be recycla-
ble, although most are dissipated in use. Where mineral prod-
ucts are processed into capital goods and consumer durables
they become part of the global capital stock and potentially
available for recycling when the goods are scrapped. Products