Mining is a great Canadian success story and is, to a significant extent, responsible for the high standard of living enjoyed by Canadians. It hardly behooves me to tell experts in the mining industry exactly what the future holds for their business; I lack both the expertise and the arrogance for such a chore. It is worth recalling, however, that some four years ago the Science Council of Canada predicted that recovery from the recession would not necessarily bring with it the familiar concomitant growth in demand for raw materials.
The reasons we gave at that time were related to new technology which had emerged following the oil shock and which, in effect, allowed greater efficiency, less waste and better conservation of raw material. Our exact expression was that the “productivity of resources” had been vastly increased by technology and that, via conservation, recycling and downsizing, industry would now get more function out of less material. Added to this was the effect of new technology in creating substitute materials; as we pointed out, a research agenda for those had been set by Japan following the oil shock. As a result of that, together with advances stimulated by the United States space program, a totally new synthetic materials industry has been brought into flower. If all that were not enough to cause concern, there was also the well-documented problem of competition from other mineral deposits, particularly in countries short of hard currency and therefore ready to produce even at low prices.
The respected American social scientist Peter Druckker has confirmed that the events we predicted did, in fact, occur during the recovery. He has been able to quantify the effect and has referred to the phenomenon as an “uncoupling” of economic growth from demand for materials. Such a pattern is of the utmost importance to a country like Canada. Not hopeless
On the other hand, even if these trends continue — of which no one can be certain — they do not mean Canadian mining is in a hopeless situation. Far from it. There are many actions already being taken, and others that can be taken, to maintain our country as a leader in the industry and to permit continued substantial economic benefits for Canadians in the field of metals. What will be required are new attitudes, new priorities and new activities; even then, the country should not rely quite as much as it does on the mining industry to carry so much of Canada’s economic load.
The Science Council has recently produced a paper on Metal Markets: An Analysis of Future World Consumption by G. A. Jewett. It starts from the premise that there is no longer a “metals industry” but rather a “materials industry.” The substitutability of metals by other materials, such as plastics, composites, glass fibres and ceramics, represents a serious constraint to future demand growth and requires a much broader strategic approach.
Mr Jewett’s main focus is on the transportation and packaging markets but he refers as well to the field of construction. It must be understood that he is not predicting a wide-scale flight from metals but rather a crucial competition at the margin. Unfortunately this could keep demand constant rather than growing and, more importantly, could keep prices from rising.
Many limitations
There are many limitations to the study. It does not deal with certain fields of mining, such as coal, potash, or uranium. Even in the metals area, it does not deal with gold or platinum, which are subject to special demand apart from materials usage. The paper is further limited, as Mr Jewett acknowledges, by its assumptions of very low demand from non- western countries.
In any event, the paper does not predict the collapse of mining nor does it analyze Canada’s position relative to the anticipated consumption trends. In a low price market, it is conceivable that the low cost producer might, with continued technical improvements, do very well and this, after all, typifies certain Canadian operations. Paradoxically, although we all wish for higher commodity prices to replenish our coffers and permit new investment, a low price situation might be helpful if it can delay the introduction of substitute materials, force some losing foreign operations out of the market and give our own efficient and experienced producers some advantage.
Having stressed these limitations, I think it is fair to say that Mr Jewett’s general thesis about a materials industry is, over the long term, one which should be accepted. By his analysis, most of the metals found in abundance in Canada will be facing relatively low growth situations and prices around current levels, through from 1990 to the year 2000. More specifically, he predicts a fairly flat or 1% growth scenario for copper, 2% growth for aluminum (and that only provided there is continuing concert ed market research), some development opportunities which could give an upturn to zinc, a continued flat pattern for lead, nickel and silver, and a lower demand for tin and for steel.
Mr Jewett is bullish on magnesium and on some of the newer specialty minerals. He points out, however, that many of the specialty minerals are linked to the fate of steel; others, although in growing markets, are mined in small amounts by one or two suppliers and are therefore subject to erratic pricing and supply. These specialty metals, he stresses, represent only a very small fraction of present mining activity in Canada. He foresees increased demand for high quality source powders for ceramics but market potential is, in his view, closely related to having the technology to deliver a consistent product at a relatively low price. Creative competition
I am in no position to confirm or negate these specific predictions. If, however, it is recognized that the metals industry is in competition with more than just other suppliers of similar raw material, then a strategy must be adopted to compete successfully. The report refers to this as “creative competition.” I quote: Creative Competition involves more than technology and research capability, it demands organization with great marketing capability and market sensitivity. The time period required for development of a new product is frequently 10 years or more, and certainly not less than five years. Management of such an innovation process requires an ability to correctly anticipate market needs and preferences by five to 10 years. Such a capability, in turn, demands an intimate knowledge of the market and the consumers’ needs, individual or corporate. In essence, frequently this means being able to identify a market need before the customer has done so. While this represents a considerable organizational and marketing challenge to any organization. it requires a fundamental change in philosophy by commodity producers.
It is crucial to recognize that in such a situation a higher priced material may prevail over a lower priced one if the material performance is unique or extraordinary in some way and/or the over-all system cost turns out to be lower. In other words, if the unique properties of the expensive material allow either functional savings at the product end or manufacturing savings during processing and assembly, a higher price per pound may not matter. Our metals may be cheaper than the advanced new materials, but that doesn’t mean people will buy them. Strategies needed
What, in this situation, are the strategies that should be adopted by the metals industry? They might be listed as follows. Each strategy has an important science and technology component:
* Research into technology, and management techniques, to lower the costs of production.
* Greater involvement with “downstream” product developments, including work with customers.
* Intensive research and development in new, metal-based materials (new alloys, glassy metals, powder metallurgy and rapid solidification, new forming and casting techniques, etc.).
* Further research and development work on specialty minerals, seeking new, lower cost sources and production techniques, as wel
l as new uses.
I propose to look briefly at each of these strategies.
For immediate survival and for success in the near term, lowering costs of production is the most essential strategy to be followed. As indicated earlier, this has the beneficial effect of delaying substitution at the margin. It permits profitability even in times of low prices and it assures maximum market share for our own producers. By and large, our companies have already geared their efforts toward this goal, with most research in the field of process improvements. Leaner management structures and reduced labor intensity have resulted. Although such efforts were overdue, and there is still room for much more research and technology along these lines, it is only fair to give credit to our mining companies for their accomplishments in this area. Further work is being contemplated, including co-operative pre-competitive research and better co-ordination with universities and government laboratories. The general direction has already been established. Research needed
This, however, does not touch on the development of new products. There are exceptions, notably Alcan and some others, but Canadian metals companies tend to leave the downstream, product-oriented research to their customers. This could turn out, in the long run, to be fatal. The future consumption of minerals will depend largely on the research done into the new uses for existing materials. There must be a huge increase in conjoint research work done with people in the transportation, construction and packaging industries, and even with the customers of those industries. In other words, we must direct our research efforts several steps downstream to maintain markets for existing materials in the longer term.
Thirdly, new knowledge permits the development of materials with new properties. Whether these properties allow new functions and higher quality or are useful simply because they reduce ultimate manufacturing costs, they will permit the new materials ultimately to prevail. Rapid advances are being made in this field as we come to understand molecular configuration and structure. Metals can compete only if we develop the new allows, glassy metals and other materials that can be produced as a result of rapid solidification techniques, powder metallurgy, new forming and casting techniques, and so on. Canada lagging
Yet, astoundingly, Canada lags far behind other countries in this type of research investment. Even what little is being done seems to be at universities or government laboratories. Again with a few exceptions, our companies have not yet seized the challenge nor do they seem to understand its crucial importance.
Fourthly, although the tonnage figures are likely to remain low for many of the specialty metals, there is potential for high value-added and for a profitable pricing structure. Again, the answer lies in more research and development. Titanium looks promising but must compete with composites and ceramics. Niobium and neodinium are useful in super-magnets which might form the basis for huge new atomic research facilities and for transportation systems, as well as for automobile engine parts. Germanium, tantalum and gallium are increasingly important in electronics, albeit in small tonnages. There is money to be made in such elements provided they can be produced efficiently and with high quality, using modern technology.
The conclusion to be drawn seems to me quite clear. The general indications concerning future consumption of metal are not terribly encouraging but are by no means hopeless. Survival in the short term will depend on the application of research, science and technology, as well as good management, in controlling costs and improving product quality. But the most significant danger comes in the medium to long term when other materials can be expected to be active competitors with metals in most of the important applicati ons. The only way to guarantee survival and success in those circumstances will be with major research and development investments now.
These must be in the development of downstream products, in specialty metals and, most importantly, in the creation of new, metal- based materials, produced with new solidification and forming techniques.
The mining industry does not yet do enough research and what it does is very understandably addressed to the short term needs. I suggest that it now must do much more of the kind and the amount of research and development that will be essential to long term success. This can best be done by co-operative work, both within the industry and with government and university laboratories.
Mr Smith is chairman of the Science Council of Canada. Reprinted by permission of The Institute for Research on Public Policy.
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