Is it Time for the US to be Considering Strategic Stockpiles?

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Lots of state purchases are lumped under the banner of “strategic stockpiles.” Take China’s buying up of copper, zinc and particularly aluminum this year as examples. The purchases were made by the Strategic Reserves Bureau but they can hardly be said to be made for the strategic security of the country. China is the world’s producer of aluminum and hardly needs to stockpile it for security reasons. No, these SRB purchases fall largely in the camp of supporting the domestic producers. But some countries do buy and hold metals as a security buffer against global supply problems. In reality they cannot carry sufficient stock for an indefinite supply chain failure but the intention is often merely to supplement supplies if one or more source has a short term problem, such as South Africa’s power outages last year which disrupted platinum and other PGM shipments.

The US used to carry a strategic reserve, ironically they were one of the largest metals producers in the world but since the end of the cold war the stockpile has been run down. As sales of metal were released into the market and prices depressed, so have mines closed in the US such that now it could be argued the US needs a stockpile more than it ever has because a greater percentage of it’s metals are imported than ever before.

Japan clearly thinks so too. the country has announced their intention to increase from an average 19.5 days to 42 days the stockpile of seven metals plus the addition of two more. Japan realizes they are exposed by their near 100% import position and is allocating tens of millions of dollars to increase stocks of cobalt, tungsten, molybdenum, vanadium, nickel, chrome and manganese, in addition to adding indium and gallium. Interestingly, the last two are vital components in flat screens, LED’s and other electronics reflecting the changing nature of Japans’ industry since the previous list was drawn up that focused more on steel additives.

Despite have currency problems, some observers have termed it a disaster waiting to happen, South Korea is also increasing stockpiles, mostly for base metals. The state-run Public Procurement Service (PPS) said to Reuters that they were tasked with helping small to medium suppliers struggling with credit to maintain continuity of supply. The agency, plans to steadily increase reserves to 39 days’ worth of supply by end-2009 and 60 days by 2012, from 27 days now by using cheap metal prices.

Neither Japan nor South Korea’s purchasing is likely to impact metal demand sufficiently to move prices. The volumes are dwarfed by China’s recent forays into the market but they do underline the seriousness that some countries view their reliance on imported raw materials and the steps they are prepared to go to mitigate those risks. With China and other emerging markets rapidly becoming such major, almost dominant producers in certain metals, the supply market may not always be as reliable as it has been in the past.

–Stuart Burns

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