Mining regs threaten U.S. economic momentum

The National Association of Manufacturers recently reported that complying with federal regulations costs the United States $2 trillion per year. While the manufacturing industry faces the burden of these regulations, another key obstacle stands in the way of industry development— unsecured and unreliable supplies of raw materials.

In a newly released study, U.S. Mines to Market, SNL Metals & Mining (SNL) points out that the United States has rebounded from the global recession of 2008 at a momentum that has outpaced its European counterparts. However, a gross structural mismatch exists between domestic mineral supply and demand because of an inefficient permitting system that can delay the development of new mines by a decade or more. Because of the manufacturing sector’s reliance on raw materials, this impediment is a threat to continued and sustained U.S. economic growth.

{mosads}SNL’s study tracks domestic supply chains for U.S. mined commodities and the contribution of U.S. minerals to the manufacturing sector, identifying the risks the high-tech, automotive, energy, medical and national defense industries face.  In July, I testified in front of the U.S. House Subcommittee on Energy and Mineral Resources about this threat and how it affects U.S. manufacturing industries. 

The United States is the top manufacturing country in the world, a rank which we expect it to maintain as manufacturers continue to relocate capacity to the United States. American companies—like Caterpillar, GE and Ford—are not the only ones “re-shoring” after years of moving operations abroad.  Foreign companies are also looking to leverage the United States’ stable political environment, skilled labor force and entrepreneurial spirit. However, the country’s ability to source the raw materials this growing manufacturing base will require is in question. The United States is currently ranked only seventh in terms of global minerals and metals production—down from first in 1990.

Meanwhile, the production of all major metals has increased globally over the past decade, as U.S. output remains stagnant. The United States’ mining sector boasts some of the highest levels of workforce productivity globally, stringent environmental regulations and first-rate working conditions; it is also endowed with some of the largest minerals and metals resources in the world. As an example, Arizona’s Rosemont Copper project—which has been embroiled in the permitting process for more than seven years—is expected to produce 243 million pounds of copper (a resource essential to the technology industry) and molybdenum (a mineral with crucial national security applications) once it goes into production.

Despite ample resources, the United States is import-dependent on 19 minerals and metals that are essential for manufacturing—including lithium, platinum, zinc, cobalt and rare earth elements. Much of this dependence is due to a lack of investment from companies unwilling to endure the substantial delay and risks associated with new project approval. These companies often turn to countries like Canada or Australia—with comparable environmental regulations to the United States but approval processes that can take only two years—or to countries without strict environmental and social standards. In fact, according to a Fraser Institute survey, many states including Alaska, Nevada and Colorado scored as “encouraging places to invest” due to their mineral potential, but were ranked poorly in regard to uncertainty around interpretation or enforcement of permitting regulations.

These results are discouraging, especially when American-made products are increasing in popularity with consumers. Companies looking to re-shore their manufacturing activity and promote their “Made in U.S.A.” products favor shorter supply chains for a variety of reasons. Geopolitical conflicts, market instability and other countries’ desire to keep as much production within their borders as possible, create significant disruption risks for the supply of raw materials.

The fragility of extended supply chains has become evident in recent years. Natural disasters—such as the flight disruptions caused by volcanic ash across Europe, and the Japanese earthquake and tsunami remind us how vulnerable our globalized economy can be.  Trade restrictions imposed in both China and Indonesia put into sharp focus the potential hazards of sourcing materials overseas and the benefits of domestic supplies—reliability and security. Domestic supply chains also reduce manufacturers’ costs with regard to transportation and currency volatility.

American manufacturers can ill-afford the risks associated with sourcing raw materials offshore, and they shouldn’t need to. As the U.S. manufacturing sector continues to grow, the importance of a secure and reliable domestic raw material supply has never been clearer. And with it, the need for a more efficient permitting process for new mineral mines that supports the country’s manufacturing industries.

Fellows is director of metals consulting at SNL Metals & Mining and author of U.S. Mines to Market.

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