Metal Demand: Secular Change and Long-Run Prospects

During much of the 1970s and 1980s, world metal consumption grew more slowly than during the 19505 and 1960s. The slowdown contributed to surplus capacity and low real prices because actual consumption was consistently less than expected as new mining and mineral processing capacity came on stream. Over the last year or so, however, world metal consumption has picked up noticeably, raising the question, Has metal demand returned to the long-run growth rates more typical of the 1950s and 1960s than of the 1970s and 1980s? This paper examines this possibility and, more generally, assesses the factors that will shape demand for the major metals over the longer term. TRENDS IN METAL CONSUMPTION The extent to which metal consumption has recaptured the brisk growth rates typical of the 1950s, 1960s, and early 1970s is shown in Figure 1. This figure traces the consumption of crude steel, primary aluminum, refined copper, refined lead, and refined zinc between 1960 and 1987 for the western world, consisting of the OECD countries (including the United States), and the developing countries. Consumption increased in 1987 for all five metals, and preliminary data for the first six months of 1988 suggest even more substantial increases, at least for the United States (U.S. Bureau of Mines, 1988). However, Figure 1 also shows that the recent increases in consumption are not untypical of similar surges during earlier periods of economic expansion and thus may reflect only cyclical or temporary factors. In short, the available data are unable to provide a clear indication of whether recent increases in metal consumption reflect the beginning of a new era of faster growth or simply a cyclical and temporary upturn associated with the expansionary phase of the business cycle. Consequently, to pursue this issue, we are forced to examine the underlying forces that will shape metal demand trends over the next decade. The approach we have taken involves two steps. The first examines the prospects for overall economic growth. The expectation is, the faster the economy expands, the faster the production of metal-containing goods grows.2