Articles in Category: Imports

As a sign of the deteriorating position for steel sales in the US market, Severstal is closing some of its primary steel making facilities including Sparrows Point starting July 1. US BOF steel makers are caught between firm raw material costs in the form of iron ore and coking coal, and a weakening semi’s market in the second and third quarters. Severstal posted a US$785 million loss in the first quarter 2010 and Sparrows Point is rumored to be the company’s highest cost plant with HR coil costs of more than US$700 per ton according to a Reuters report covered in a local paper.

Severstal said they would be closing their L blast furnace plus supporting facilities and the continuous caster in order to “balance inventories meant to imply they have been running ahead of themselves and produced too many rolling slabs. Reports suggest the firm also intends to import slabs from Russia to supplement local stocks but clearly some suspect this is merely an attempt to improve the economics with lower cost slabs. A Reuters report in 2007 said that Sparrows Point has one blast furnace, one hot strip mill and two cold mills. In 2007, it produced 3.7 million tons of slab. A report by John Packard of SteelMarketUpdate advises the plan is to idle only the hot end of the mill and to keep the finishing end operating. So the company would continue to produce HR, CR, Galvanized/Galvalume and Tin Mill products.

Although the intention is to close the facilities from July 1st for just 30-45 days, Severstal will want to be confident the demand-supply situation is in a better balance before it re-starts its blast furnace. It is a notoriously difficult process to close and re-start a blast furnace smoothly, often the re-start is problematic and blast furnaces cannot be run at half speed, it’s all or nothing. So Severstal will not re-start unless they feel confident demand is sufficient to keep the furnace operating at close to its previous 80% operating rate. In the meantime, lower priced slabs from the group’s Russian operations are a far more flexible way to run the operation and may just become the preferred model for the rest of this year.

–Stuart Burns

With the greatest respect to Roger Agnelli, chief executive officer of Brazil’s Vale, he may head up the largest iron ore company in the world but how he keeps a straight face sometimes begs an answer. In a recent Reuters article, Mr. Agnelli is said to have warned that reducing, or heaven forbid removing, import taxes on steel products would weaken Brazilian steel producers and could have very serious consequences for the domestic market. Hold on a minute Mr Agnelli. Brazilian steel producers are said to be (literally) sitting on top of some of the lowest cost and highest grade iron ore and coking coal deposits in the world. As a result of the vertically integrated nature of domestic producers, Vale itself only sells about 10% of its production in the domestic market. Along with Russia, India and Ukraine, Brazilian steel producers are said to have some of the lowest power costs. They are also blessed with a robustly growing domestic steel market that would be the envy of steel producers in Europe or North America, ensuring they are running at or near capacity. Last but not least they are partially protected by the comparatively higher cost of freight foreign producers have to pay just to ship to Brazil in contrast to producers in Europe or the US who face freight rates that were so low last year some shipping lines were on the verge of bankruptcy. The only factor counting against domestic steel producers is the strength of the Real, which makes imports more competitive than they would have been historically raw material costs being constant.

The authorities threat to remove the import tariffs is not unreasonably driven by the rising price of steel in the domestic market, rises that the government claims are helping push inflation to 5.3%, above the governments 4.5% target. Yet domestic steel producers like CSN and ArcelorMittal are said to be raising prices this month by 10% or more such that now they are some 40% above the world market price according to this article. Although steel imports into Brazil surged to 1.8 million metric tons in January-April 2010, up 156% from the same period in 2009, it has to be said that if prices are that much above world prices the benefits to Brazilian steel consumers of lower prices far outweigh the perceived threat to Brazilian steel producers and on balance the economy would be much better off with lower steel prices.

Domestic producers have vigorously defended the import duty of 15%. Its legitimacy going forward comes down to how steel prices in Brazil compare with those abroad. If the above statement is correct that prices are significantly higher then you have to ask yourself why producers need an import tariff. Surely with all the advantages open to them, Brazilian steel producers should be some of the lowest cost in the world and be able to compete with anyone. Of course if producers consider one or two countries are dumping steel in their market then they have every right to lobby government for anti dumping duties on those mills or countries, a tactic used with considerable success in the US and Europe. The steel industry is a powerful lobby in Brazil, whether any change to the tariffs will take place remains to be seen, but meanwhile on the face of it defense of them has a hollow ring.

–Stuart Burns

This is the third (and final post) of a three part series examining the current domestic steel collusion case currently in discovery. You can read the first post here and the second post here. The previous posts examine a range of issues. This final post aims to address the role of imports during the period covered in the case, the changed structure of the steel industry, the validity of the plaintiffs case and finally, what impact (if any) this case will have on steel sourcing organizations.

Let’s start with imports. Plaintiffs allege, “¦the US market for steel is characterized by significant barriers to entry, high capital requirements, and regulatory barriers, while import competition is limited by transportation costs (including ocean freight rates), trade duties and currency exchange rates. Whereas we can’t argue with the former, we have reposted here an analysis we conducted of the steel trade (deficit) as of the end of 2009:

Although this snapshot covers the period of 2009 (not part of the current legal case), we can assure MetalMiner readers that the steel trade deficit was alive and well during the periods covered by this legal case. In other words, there was no shortage of steel imports coming to the US to help fill the gap. The notion that import competition was somehow limited by transportation costs, trade duties (many of which came later), and currency exchange rates are “spurious to borrow a legal term.

Imports made up over 20% of the market during the period in question and clearly played a large role in supplying the domestic market.

In the olden days (we’re talking pre-2000), when steel mills operated in the non-profit motif of keeping lines running (due to the high fixed cost environment), some mills (those that aren’t here today) would take orders, even if they didn’t cover marginal costs. Well, after the industry consolidated between 2000-2004, many of these high cost mills were shuddered. Now here is a question for all of you manufacturers out there when demand sank in 2009, did your management allow you to sell your products below marginal cost? Perhaps for some of you that answer was yes but for others, did you dare do what the steel mills did? Did you lay people off, reduce hours and/or shifts or shut lines down? Of course you did! That’s what any logical firm might do if they see demand dropping. Why would anyone be surprised that the more streamlined domestic steel industry post-2004 idled capacity when it saw demand dip? But there is another claim in the plaintiffs’ argument that seems a little out of whack. Whereas a mini-mill can essentially shut down a line with a flip of the switch (okay, we’ll give it a little more time than that), an integrated facility takes at least three weeks to “turn back on not to mention incur expense in shutting a line down. The notion that the industry can both ramp up and down on a dime particularly during the time periods identified by plaintiffs also seems a little far-fetched.

So what’s our take? We think the plaintiffs will have a difficult time proving a conspiracy. The reality is this: a more mature domestic steel industry in greater control of its economic destiny with greater economies of scale will naturally become more efficient. With the weak firms off the playing field, the balance of the industry will become more effective reading the economic tea leaves giving the impression that there is some sinister coordinated production discipline but unless plaintiffs can prove collusion, this case should go in favor of defendants.

Instead, metal-buying organizations should get used to the new reality the domestic steel industry is in greater control of its own economics. The days of $400/ton HRC are over. Consider other tools of the sourcing trade to achieve cost savings aggregation of spend, volume commitments, strive for better demand forecasting capability, create strategic supplier relationships, move away from the 3-quote monthly bid (so extremely prevalent in this industry), benchmark, analyze your suppliers’ cost structures, introduce competition, etc. And forget about trying to extract concessions via collusion cases. There are more effective methods¦.

–Lisa Reisman

For any of you in the heat treat plate market, please join us at a FREE webinar covering: Heat Treat Plate Market Applications, Market Outlook and Cost Savings Opportunities.

Last week we wrote in MetalMiner about electricity demand in China and how rising power production was a strong indicator that growth in industrial production was still robust. A number of recent reports in Reuters looking at the coal market and in particular, China’s production, consumption and imports support the power generation numbers showing strong growth. China’s coal imports in 2009 jumped by 212% from a year before to 125.8 million tons, prompting some analysts and exporters to forecast imports could easily grow some 30% this year to reach 170 million tons, the article said. That would make China the largest producer, largest consumer and the largest importer of coal in the world, overtaking Japan’s status as the world’s largest coal buyer.

Import figures although impressive are a shadow of production and consumption. Some doubt surrounds the latest exact numbers because unusually the National Bureau of Statistics has not released April numbers but estimates by Wu Chenghou, a consultant and former deputy director of the China Coal Transportation and Distribution Association, speaking at a conference in Shanghai said that China’s output of raw coal in the first four months of this year totaled 1.009 billion tons, up 27.7% from the same months of 2009. Without official NBS figures that number is possibly out by a few million tons but it still puts annual production at some 3bn tons. Last year, China moved from being a net exporter to a net importer as a combination of surging demand and mine safety fears restricted output.   China has contracted heavily for supplies from Indonesia, the world’s largest coal exporter for the second half of 2010, creating a tight spot market for thermal coal in Asia.

BHP and Japanese steelmakers are in the process of concluding Q3 coking coal pricing and appear to be agreeing on a further 12.5% increase for coking coal to about $225 per ton, representing a 75% rise from a year earlier. As economic expansion continues in India, China and other Asian markets demands on coal supplies will only rise. Producers are scrambling to invest in expanding production but increasingly supplies in Australia, Indonesia, South Africa, Columbia, Russia and even the US will come under pressure. The question is will it continue at this pace? The answer is no probably not. Part of China’s surging demand has been because of reduced hydro-electric power production due to droughts and a reduction in domestic coal production following mine fatalities. This has resulted in a tightening of safety standards and the closure of many small mines. The rise in coking coal demand has been driven by surging steel production a trend the authorities are trying hard to restrain and early signs of a cooling steel market may apply its own restraint in the short term. So it is possible coking coal volumes and prices could level off in the second half of the year. Thermal coal imports will depend more on domestic Chinese coal production. Electricity demand as we said last week is likely to rise into the peak summer season but then drop going into the fall. Much of this trend will have been priced into current forward buys but the reality is even if China’s GDP growth were to cool from the current 11%+ to a more sustainable 8-9% later this year pressure is likely to remain on the thermal coal market. Meanwhile the rest of Asia is growing strongly again and will maintain their own demands on the market. Coal looks like a good commodity to have been long in this year.

–Stuart Burns

Consumers of aluminum extrusions in the US could face higher prices following the decision of the US Trade Commission (ITC) to approve a Commerce Department investigation into harm caused by the sale of aluminum extrusions from China at below US market prices.   The petitioners for the action are the United States Union and the Aluminum Extrusions Fair Trade Committee (a coalition of domestic manufacturers of aluminum extrusions), notice of the decision can be found here.

The action will cover products with the subheadings 7604.21.00, 7604.29.10, 7604.29.30, 7604.29.50, and 7608.20.00 of the Harmonized Tariff Schedule. Apparently from 2007 to 2009, imports of aluminum extrusions from China increased 90% by volume. And in 2009, imports of aluminum extrusions totaled $514 million, according to US government figures quoted on various reprints of a Reuters article.

The petitioners claim Chinese producers enjoy rebates and other government subsidies that allow them to unfairly compete with domestic producers. The position has some merit. Chinese extruders support is overtly in two forms and covertly in others. Overtly they are able to reclaim most of the VAT they pay on raw materials when they export goods, in itself this is not different than any other country in the world which operates a VAT system such as the EU. It simply makes value added tax a neutral sum game for business conducted outside the economic zone in question. But in addition to gaining most (but not all) of this VAT back, the exporter can more controversially claim export subsidies of between 3 and 15% depending on the product. This is a direct government subsidy designed to promote exports. Producers in the US can fairly claim this should be countered with an import duty. In addition, Chinese producers benefit from two further advantages. First, their currency is kept artificially pegged to the US dollar. If allowed to free float it would unquestionably be at a higher level than the current approximate 6.83 peg to the detriment of exporters ability to compete on price. The second covert support is in cheap loans. Chinese state banks literally forced cash onto manufacturers over the last 18 months stimulating a frenzy of investment and resulting in the case of aluminum extrusions in significant over capacity. To keep presses busy we are seeing the results of that investment in a rise in aluminum semi’s exports.

According to the Fabricating and Metalworking website www.fandmmag.com, the ITC will make its preliminary determination of injury to the domestic industry by mid July. Commerce will then investigate dumping and subsidies and make preliminary determinations within 4-6 months. If dumping and subsidies are preliminarily found, the Customs Service will suspend liquidation of imports of aluminum extrusions, and importers will be required to post a bond in the amount of the estimated duties. The entire case is expected to take 12-14 months but meanwhile expect imports from China to plummet. No importer is going to want to post a bond if there is a fair chance duties will be later imposed. With significant excess capacity among domestic extruders, upward price pressures will be muted in the short term by domestic competition but as the recovery continues and mills become busier prices will undoubtedly rise faster without import competition than they would do with.

On the flip side consumers can look forward to a more comprehensive range of domestic supply options as a result of this action than probably would have been the case if it went unchallenged. In the end, an industry already operating at below optimum capacity rates would have seen casualties if Chinese imports had continued to take significant market share and depress prices. The US has seen casualties in the extrusion market during this recession and probably risked seeing more if imports continued to rise.

–Stuart Burns

As always, there is a lot of conflicting data coming out of China. Sorting what is relevant and what is not can be a challenging process.   Let’s face it: China has been the main story in the metals markets for the last few years. Demand up means prices up, demand down means prices fall. But short term price movements can be misleading, sometimes showing an early sign of a longer term trend and sometimes merely reflecting a temporary change in activity. Import and export volumes have been a metric much on the radar of China watchers keen to gauge how strongly China’s economy is really performing and worried that a significant rise in imports will drive prices higher or a surge in exports will be taken as a cooling of the economy and hence drive global prices lower.

Macquarie released a recent report covered in Mineweb which looks at import/export volumes and interprets a slowing in imports as a relatively positive development in terms of price stability. The report suggests that imports of commodities are falling as more material is being sourced from domestic sources and there is also an element of de-stocking going on in the domestic market. The reduction in import volumes is happening at the same time that global demand is recovering so net demand levels are not significantly different, supporting prices current sovereign debt crisis sell-off omitting. The report says the latest production and trade data for April 2010 confirms the trend of a slowing in China’s net imports of commodities. This reflects an ongoing de-stocking in most Chinese commodities the report says, something that started in 3Q09, and also surging domestic production of commodities as imports are replaced with domestic production. Usually a statement such as net imports are falling and exports are rising is a sign that domestic demand is cooling. China was a net importer of aluminum, lead and steel over the first four months of 2009 but now it is a rising net exporter. China’s exports of flat steel products are back at peak levels, driven by a 75 percent month on month increase in hot rolled coil (HRC) exports in April. In zinc, nickel and tin, China’s net imports of refined metal have collapsed from a year earlier.

So, can we use some other measure to gauge the underlying strength of China’s manufacturing activity and better understand if this is truly a cooling of demand, or as the report suggests, a rise in domestic production? Well, one long-time measure is electricity generation.   An investors’ report by Standard Bank said electricity consumption is highly correlated to manufacturing and industrial demand. These sectors tend to be the largest consumers of electricity ” especially in emerging market economies like China, where the primary and secondary economies contribute significantly to GDP. In China, electricity production grew at an average annual rate of 14.3 percent from 2004 to 2007. At the same time, the Chinese economy grew by an average 10.5 percent a year. China’s electricity demand growth outpaced GDP growth by around one-third in each year.

Source: Standard Bank

As this graph courtesy of Standard Bank shows, electricity demand has followed the same seasonal trends in recent years, but at progressively higher levels of consumption as GDP has increased. The February dip is Chinese New Year, but the interesting line is the second half of 2008 when consumption collapsed along with industrial activity all over the world. However, since July of last year, electricity generation in China has risen substantially ” well above levels seen in 2008. Electricity production ended 2009 at an all-time high. This pattern is consistent with China’s GDP data in 2009. Indications are that production during the five months of 2010 was also strong, although there was a small downturn in electricity generation in April (this could be seen as a seasonal drop similar to previous years).

Macquerie partially attributed China’s switch from imports to exports as a sign of supply chain de-stocking. Once complete, the strong electricity generation figures suggest demand could pick up again later in the year supporting prices in late 2010/early 2011.

–Stuart Burns

In the last six to eight weeks, I have heard numerous rumblings about an anti-trust case brought against eight US steel producers (ArcelorMittal; ArcelorMittal USA, United States Steel Corporation; Nucor Corporation; Gerdau Ameristeel Corporation; Steel Dynamics, Inc.; AK Steel Holding Corporation; Ssab Swedish Steel Corporation; Commercial Metals, Inc.) The case, Standard Iron Works vs. ArcelorMittal et al., though not a “newsworthy event from a timing perspective (the case remains in discovery), does raise plenty of interesting issues from a strategic sourcing and steel pricing perspective. We spoke to a few attorneys (some on and some off the record) who shared with us some background and insight on antitrust cases in general and this one impacting the steel industry in particular.

First a little background on the case. We should point out this case is a class action lawsuit with a named plaintiff, Standard Iron Works. According to the complaint, Standard Iron Works “purchased steel products directly from Defendants between January 1, 2005 and the present, a multi-year antitrust conspiracy amongst Defendant domestic steel producers to reduce the production of steel products in the United States in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.Specifically, Plaintiffs collectively allege that on at least three occasions during the class period”mid-2005, late-2006, and mid-2007 ”each Defendant implemented coordinated production cuts for the express purpose of raising the price of steel products.

Antitrust allegations in the steel industry go back to the turn of the last century (if not earlier). In fact, US steel producers have often found themselves embroiled in antitrust litigation going back to 1911 when an antitrust case was brought against US Steel. However, we’d argue that many factors have changed in regard to global steel markets (and now more than ever, we need to include the global element to provide context for antitrust claims against US producers). According to the complaint, “A successful claim under Section 1 of the Sherman Act requires proof of three elements: (1) a contract, combination, or conspiracy; (2) a resultant unreasonable restraint on trade in the relevant market; and (3) an accompanying injury.” The complaint has proceeded to the discovery phase. One interesting note involves the Judge hearing the case, Judge Zagel (who will also preside over the Governor Blagojevich case) has published a book and appeared in two movies, “¦was appointed to the federal bench in 1987 by President Ronald Reagan, and while his law enforcement background has given him a reputation for leaning toward the government’s view, he is widely viewed by members of the defense bar as predictable and fair, according to this blog post from the Chicago Tribune.

So what makes this case interesting? We believe two key issues provide context and color. We’ll describe both of them here and then in a follow-up post review the case made by the plaintiffs as well as review some of the case law history. The two primary issues relate to: the markedly changed structure of the US steel industry (from many/most producers operating un-profitably, often below the marginal cost of production) to greater industry concentration and hence a fundamental shift from poor industry economics to a healthier set of economics and the role of imports in setting domestic steel prices and how those imports affected the market during the period in dispute. Other factors that we will examine include historic demand (during the time in question), the resulting economic collapse in 2008 that severely impacted the steel industry and the speed in which mills can increase/shut down capacity. We’ll also weigh the merits of the plaintiff’s case and what impact this decision could have from a buying organization’s perspective.

MetalMiner would like to thank Don Hibner an anti-trust expert with the law firm, Sheppard, Mullin, Richter  & Hampton. Mr. Hibner is a member of the California State Bar, and the Bar of the United States Supreme Court, and has represented clients in federal and state antitrust proceedings for over 40 years.

–Lisa Reisman

There is an interesting debate going on right now in one of the Rare Earth community networking groups of which I am a member. The debate centers around this question, “Is China really the “bad guy” in REE that a lot of media makes them out to be? Of the 5 comment responders, 4/5 answered “no, not really but I as the fifth respondent said, “I think some China bashing is absolutely justified. The arguments against my position run the gambit from “western exploitation justifies China’s behaviors to “the sky is falling claims made by mainstream media. (I can buy into that second point e.g. hysteria) Another valid point comes from another member of the community, “As long as Western consumers demand metal products at the lowest possible prices without considering the environmental cost of production or that massive energy subsidies from the Chinese government make the low price policy possible in the first place, industries will continue to shift eastwards.

So maybe I stand corrected, some of the China bashing is not fair but folks, let’s look at China in a larger context shall we? The world of REE (rare earth elements and rare earth metals) is not quite the same thing as the world of industrial metals.  We acknowledge that point. Yet an outside observer of Chinese policies in regard to good old fashioned industrial metals (e.g. steel, aluminum etc) tell a very different story, one where I would argue some China bashing is not only fair, it’s justified.

Now that is not to say that the US sits here blameless. We do not. The federal agricultural subsidies we provide domestic farmers look an awful lot like the tactics Beijing deploys to boost its own heavy industries including steel production. But this article from AMR’s Kevin O’Marah explains some of the concern over China. Kevin points to six factors that ought to make any global procurement manager give pause when considering China as part of a supply chain. We’ve included five of the six points we found most relevant for metals supply chains:

  1. Capricious trade rulings. Kevin cites a NY Times story about a “prohibitive export tax and we’d argue that we have long reported on export tax/rebate/VAT schemas deployed by China to encourage/discourage certain imports/exports
  2. Rampant IP piracy one may think this can hardly matter for commodities like REE’s but in fact, China is known for stealing technology know-how. We know through credible industry sources that China has hacked into computer systems of major US producers specifically to steel trade secrets
  3. Exchange rate by fiat we have written countless articles on China’s currency issues. Nobody can convince me that China’s currency freely floats or is somehow “not manipulated
  4. Poisons, pollution and contamination I’ll leave it with the lead poisoning fiasco last year and the cadmium fiasco of this month. Don’t get me started on carbon cap/trade/tax legislation and how that would impact trade with China
  5. Rare earth chokehold well, that’s the topic we are covering here but Kevin makes the point that the only way to “secure supplies is to set up an operation in China but who is to say that it won’t one day get expropriated by the Chinese government?

Sorry folks but even if only one of these points is true, some of the hysteria around China seems justified to me. If an organization operates under the pretense that China is a “perfectly safe place from which to source key rare earth metals, we sure hope the mainstream media keeps up the China bashing. From our vantage point, the risks appear very real.

–Lisa Reisman

US companies buying from the southern Euro-zone states could be forgiven for looking at the unfolding debacle on the continent with glee, not from wishing their suppliers any ill will but simply because as the Euro crashes against the US dollar their purchase prices in dollars tumble with it. But before US companies ramp up buying and order the new corporate limo, spare a thought for the medium to longer-term consequences.

All is not well in corporate Europe in spite of most attention being focused on sovereign or state debt. Greek, Portuguese and Italian companies have been under performing the European average in the first-quarter earnings season reported in the FT as problems with public finances and lack of competitiveness take a toll on corporate profitability. A major regional Spanish bank failed to come to agreement on a possible merger over the weekend and the government had to rush out an announcement that Cordoba-based Cajasur can draw €550m ($660m) immediately from the state’s Fund for Orderly Bank Restructuring according to the Telegraph just to keep it afloat. Where they are others follow. The problems in Spain, although worse mirror those in other European markets where bank debts are even more of a problem than sovereign state debts. In fact much of the uproar over the recent E750bn (near $1,000bn) emergency fund has been that it is largely to insulate French and German banks from having to reschedule Greek and other southern state debts. The fund is directly insulating north European banks against the consequences of default in the south.  Like the US CDO crisis, the tax payer is stepping in to prevent bank failure.

In fact an FT report goes further to cast doubt on the solvency of many European banks. International Monetary Fund estimates suggest that the Euro-zone is well behind the US in terms of writing off bad assets even before the Greek crisis. The article quotes credible reports suggesting that the underlying situation of the German Landesbanken is even worse than previously thought. Last year, a story made the rounds in Germany, according to which a worst-case estimate would require write-offs in the region of €800bn about a third of Germany’s annual GDP. The author rhetorically makes the suggestion that if you were to add this to Germany’s public debt, you might jump to the conclusion that Greece should bail out Germany of course he wasn’t being serious but it graphically hints at the scale of the problem facing Europe’s banks.

Southern Europe is destined for a period of severe fiscal tightening, poor domestic and regional growth possibly recession for some southern states, banks trying to rebuild their balance sheets as they quietly write off debts and in some countries the rise of labor unrest and social disruption. Producers may find it harder to raise money from their banks to fund their businesses and the corporate bond market has already frozen up as a source of much needed capital according to this report.

Does this sound like cause for celebration? US consumers dependent on European suppliers would be well advised to dig a little deeper into their supply chain and establish with some degree of clarity just how sound that structure is. In most cases well-established firms will weather the storm and the lower Euro will certainly help, but there are going to be casualties.

–Stuart Burns

This is the second post of a three part series. You can read the first post here.

If I were an activist, I’d try to examine a few of the supply chain issues tied to this conflict minerals policy issue. The first area to examine involves truly understanding the complexity of managing a global supply chain. In all likelihood, the Intel supply chain for tantalum probably passes through at least 3 if not up to 8 different entities before the final product arrives as an assembly at Intel’s docks. For example, the tantalum comes from a mine which then moves to a processor then on to a refiner and then possibly to a company that converts it to the semi-finished form suitable for use in making a component. Next it goes to a tier three supplier who makes it into a capacitor who sends it on to a tier two ODM (original design manufacturer) who turns it into the finished electronic assembly where it goes to Intel. (This is an approximation of course, I haven’t analyzed Intel’s actual supply chain). The point we’re making is that tracking the raw material supply chain from mine to grave is not a simple feat.

Nor is keeping “conflict minerals out of the wrong hands. Just as Iran has gained access to nuclear weapons and/or materials used to make nuclear weapons despite all sorts of trade embargoes, “conflict minerals will too end up infiltrating supply chains. We’re not arguing this means one shouldn’t support the legislation. We’re just demonstrating the complexity of the issue.

Second, and perhaps a much bigger “beef we have with some activists in general involves conflicting points of view as to how to solve the problem. On the one hand, activists support “full and complete bans. That’s a perfectly plausible policy option but that doesn’t negate the need for tantalum in all of our electronic devices (of which activists require to build grass roots support for their positions). But what do we often see? We see activists take extreme positions wanting to ban mineral mining and exploration in the United States limiting supply options for these very same companies they have asked to stop buying conflict minerals. Sorry folks but these materials need to come from somewhere.

We’d like to re-state our support of The Conflict Minerals Trade Act introduced by Rep. Jim McDermott (D-WA) last November. In a follow-up post, we’ll examine Intel’s position on conflict minerals as per their own public statements and weigh the merits of some of their activities as well as suggest a couple of our own.

–Lisa Reisman

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