In these fevered brexit days, the subject of trade is never far from the politicians’ and commentators’ lips. Will there be a deal? Won’t there be a deal? Will it be generous - or vindictive? Will it cause a slump in trade volumes, or will flows remain the same, even if the terms change? All of a sudden, trade is a trendy topic for discussion. Yet despite that, and despite the uncertainties, in fact we still - in the metals business, anyway - rely on a pattern of trade that dates back for a couple of centuries.
It’s a pattern that was largely perfected by the British empire (relax: this is neither pro- nor anti-imperialist - I’m neutral.) It is a fact of history, though, how the model developed through the ruthless efficiency of the Empire in acquiring raw materials from the ‘new’ parts of the world and shipping them back to the ‘old’ in order to process them into consumer products for sale to the growing population. It was the same for sugar from Barbados, wheat from Canada, wool from Australia, minerals from South Africa. And it worked stupendously well, creating an economic superpower out of a small, windswept island on the north-west European coast.
Now, in the twenty-first century, the destinations may be very different, but the principal is actually quite similar. It’s no longer traders following British redcoats to exploit their conquests and send ores back to the smelters and refineries that grew up to pepper the north-western coastal ports of Europe. Instead, there is investment from Japan - to an extent - South Korea and, of course, their huge neighbour, China, and the raw materials go back to feed the smelters of East Asia, enabling those countries to replace nineteenth-century Britain as the producers of consumer goods. OK, I appreciate that I simplify somewhat, but my point is that the pattern of taking raw materials from their place of origin back to the more developed mother country to process is still a significant feature of world trade.
In some ways, though, it’s strange that that pattern survives. We are becoming acutely conscious of, for example, the polluting effect of fossil fuel-powered cars, and the move to electro-motive power is gathering pace. Yet the reality is that the atmospheric pollution produced by ocean-going, diesel-engined ore carriers and tankers vastly outweighs what is produced by personal transport. (Just as an aside, get downwind of one of them when you’re out sailing, and you can certainly believe it.) It can’t be long before more attention is paid to the fact that shipping ores and concentrates involves moving large quantities of mostly useless dirt form one continent to another, along with the valuable metals contained within it. Slow steaming, kites and the other attempts to improve this seemingly have a strictly limited effect.
At the same time as that consideration, there is the influence of so-called resource nationalism; that is, the desire of countries with natural resources to generate the maximum benefit for the domestic economy of the exploitation of those resources. So, for example, we have seen the Indonesian ore export ban, and the similar rumblings from the Philippines. Their stance is that they want to see the maximum amount of treatment done domestically, initially, I guess, targeting smelting and refining, but ultimately presumably also product manufacture.
There is going to be a struggle over this. One side has the money and the infrastructure, so you’d have to say they are in a strong position, but the other has the resources and the ability to point to the universal green benefit of reducing unnecessary pollution-creating shipping. China (and, to varying degrees, these days, Japan, South Korea, the US and Europe) have no desire to see manufacturing jobs exported to resource-rich countries. But then, nobody wanted to see them exported - in turn - to Japan, Korea and China. That’s the way the global economy tends to develop and I do believe we are going to see more of the Indonesian-type action; things won’t change overnight, but we are likely to see a greater degree of co-location of mining and processing in the future. The counter-argument would be that the source of minerals will change through time, as deposits are exhausted and new ones developed, so perhaps it makes sense from the point of view of stability to fix processing near consumption.
It’s by no means a clear-cut debate - but my instinct is that the tide of history is moving in favour of the Indonesian-style approach of going as far down the process line as possible in the region of origin.
Closing Incendiary Thought...
Just a final thought - in principal, the same argument applies to oil. However, I personally would be less than keen on the idea of more supertankers full of refined, thus more explosive, products filling the shipping lanes; that sounds like a firestorm waiting to happen.