The U.S. military is gearing up to become a more active player in the global scramble for raw materials, as competition from China and other countries raises concerns about the cost and availability of resources deemed vital to national security.
The Defense Department holds in government warehouses a limited number of critical materials-such as cobalt, tin and zinc-worth about $1.6 billion as of late 2008. In the coming weeks, the Pentagon is likely to present a plan for Congress to overhaul its stockpiling program,
The U.S. may stockpile lithium, thin pieces of which are shown here at the Center for Lithium Energy Advanced Research lab in North Carolina.
The new plan, dubbed the Strategic Materials Security Program by the Pentagon, would give the military greater power to decide what it stockpiles and how it goes about buying the materials. It would also speed up decision making at a time when military technology evolves rapidly, commodity markets swing widely and countries around the world fight to secure access to natural resources.
"It's a risk-management program," said Paula Stead, who oversees the effort for the Defense National Stockpile Center at Fort Belvoir, in Virginia. The goal is to be able to obtain "a much broader" array of materials in "a much shorter time," she said.
Right now, the military can't add to the stockpile list without congressional approval, a process that can take as long as two years. The military wants to remove that restriction. It also wants the authority to strike long-term deals with companies or allied nations to provide emergency supplies of materials that the military says are irreplaceable for making weapons, jet engines, high-powered magnets and other gear.
David Fuller's view The USA has been slow in reacting to the stockpiling of strategic resources by some countries, notably China. Lack of vision at a strategic governmental level, plus understandable environmental risks for both mining companies and communities have been the main deterrents.
Fullermoney first wrote about a commodity supercycle led by industrial resources nearly a decade ago. These have occurred in the past and we felt another supercycle was commencing in 2001 due to the following factors: 1) a prior 21-year bear market during which some prices fell to all-time real (inflation adjusted) lows; 2) underinvestment and a loss of skilled workers during the bearish phase; 3) the embracing of capitalism by most developing countries, leading to stronger GDP growth; 4) globalisation which accelerated the transfer of technology, resulting in a faster rate of economic development for emerging markets.
Fullermoney's catch phrase for this commodity supercycle was: "Supply Inelasticity Meets Rising Demand". Our additional forecasts were that commodity prices would often be volatile, including downdraughts during periods of economic recession. We certainly saw this in 2H 2008 and 1Q 2009.
Subsequently, industrial resources and precious metals have staged significant recoveries in what we believe is a resumption of the supercycle, albeit mostly without the degree of frenzied speculation witnessed during 1H 2008. Recently, some industrial commodities, including nickel and copper, became overextended relative to their medium-term trend mean, represented by the rising 200-day moving average.
Copper actually led this correction with a weekly key reversal following last month's recovery high and it is now approaching areas of potential support from the rising MA and psychological 300¢ region. Given the correlation often shown between commodities and leading stock markets, which were also somewhat overstretched relative to their MAs, we should not be surprised if this process of mean reversion continues for a while longer.