Is the World Running Out of Raw Materials?*

Abstract

T HE argument that the world is running out of raw materials has recently taken on a great deal of additional credibility. Oil prices have risen almost four-fold and many other commodities from wheat and sugar through to copper have also shown spectacular increases in price. In fact, the extent and ubiquity of the price increases in primary commodities has been unprecedented. One could almost say that never have so many commodities risen so far and so quickly in such a short time. There are several reasons for what has been happening, yet the proposition that the world is about to run out of raw materials is not one of them. As always in commodities, the reasons for the sharp movement in prices are due to factors on both the demand and supply sides. Had the price increases been due to resource depletion one would have expected the main factor on the supply side to have been the sheer limitation on increasing production beyond existing levels of capacity. But a closer look at the situation in most commodity markets will quickly reveal that production has not in fact been held back by an ultimate capacity constraint. On the contrary, the problems have been ones of disruption and dislocations in supply so that production has in many cases fallen well below potential capacity. This is true for agricultural commodities such as wheat, sugar and coffee where weather conditions have played havoc with the annual harvest or crop. Many metals have been hit by an unusual number of production disruptions due to strikes, political problems, as in Chile, or technical breakdowns at processing plants. This has been further aggravated by the introduction of stricter anti-pollution legislation as well as by one or two factors which have either forced the complete closure of processing plant pending the construction of new plant and equipment, or forced existing plant to operate at well below design capacities. Thus in zinc, for instance, around twenty per cent. of the non-socialist world smelting capacity has been closed down over the last three years. Even in the case of oil, where those who support the resource depletion argument can probably make out their strongest case, the price increases have also been associated with a substantial cutback in production.