Is it fairly new? Three years old? Five years? Eight years? Older than that? The reason I ask is that in general, cars are a lot like mines — iron mines, for example, or copper mines and even platinum mines. Plus, as mines go, cars are fairly high-grade ore, too.
Hear me out…
Let's say that your car weighs 4,000 pounds. At least 1,000 pounds of that is steel, which makes a 25% "ore grade" for the basic iron. It's even better when you consider that a scrapped car gets stripped down. The engine block, frame structures and formed panel sheets are almost entirely steel (or, in some cases, aluminum, if that's what you want to recycle).
Also in a modern car, let's say that there's about 50 pounds of copper — and there's much more than that in a "hybrid" vehicle like a Toyota Prius. So just for a basic car, you've got an overall "copper grade" of about 1.25%, which is quite respectable compared with what they're mining in, say, the mountains of Chile or the Outback of Australia. Again, as with the steel components, a car is much higher-copper grade when you just pull the alternator, and a few other copper-rich components.
Or consider your car's catalytic converter. It contains platinum (Pt) for gasoline-powered cars, and/or palladium (Pd) for diesel burners. Depending on the size of the car, the catalytic converter may contain 5-10 grams of Pt/Pd, which is way higher "ore grade" than what they mine in South Africa.
As an aside, large trucks have converters with 1 or 2 (or more) ounces of Pt/Pd inside. This makes just the content of platinum-group metal (PGM) worth several thousand dollars or more. Indeed, it's why some thieves target catalytic converters on vehicles. They know where the money is — it's rolling down the road.
I've been thinking about cars and metal since visiting South Africa a little over a week ago. Coming from the U.S. — and spending much time in Canada, as well — I live most of my time in the developed world. That is, much of the metal resource that our civilization needs is already here, hiding in plain sight — roads, bridges, cars, trucks, trains, buildings and more.
Yes, of course, here in North America, we build new roads, bridges, buildings and such. But that level of new-build is more at a maintenance pace, or a pace of slow expansion. That is, North America — and Europe and Japan, too — is more or less built out. We're not building new cities. We're not adding lots of new miles of highway every year. Car sales are flat, if not declining (as in Europe).
Thus, in the developed world, where we live, there's ongoing demand for new minerals, ores and other basic resources. But that demand isn't rising overall. Meanwhile, a large component of demand is met by recycling what's already here — what's rolling around on the highways, as I described above, or recycling demolished building components like steel and electrical wire and such.
Now consider a developing country, like South Africa — let alone the development juggernaut of China. Developing countries require new materials. And when I say "new," I mean right out of the ground, because they're building the first generations of modern roads, bridges, buildings, vehicles and much more. That, and there's not much to recycle — "old" cars, demolished buildings, scrapped equipment and such — in a place like South Africa or China.
On this last point, it's worth noting that over the past couple of years, China has been using (and manufacturing) over half of the world's annual output of steel — about 750 million tons, out of total world output of 1.5 billion tons. This requires immense imports of coal and iron ore to China from Australia, Brazil, Canada and other locales. Indeed, for a while in the 1990s and early 2000s, China was even importing entire steel mills that had no further use in places like Germany.
But consider that while almost all of China's steel comes from primary ores, right out of the ground, something like 60% or more of the steel in the developed world comes from recycling. We're looking at two quite different things.
Recycling is more efficient, in almost every sense. First, you're reusing something that's already here. You can skip the mine and mill. You're giving those iron atoms, and other parts of the alloys, a second chance at utility. Plus, it's more energy efficient to remelt "old" steel than to forge new steel from raw ore.
The benefit of recycling is very similar to what I've discussed in other articles concerning "energy return on energy investment" (EROEI). That is, what does it take, in terms of inputs, to get the same output?
More specifically, what's the overall "energy cost" to mine coal and iron ore, ship it to some locale in China, burn it in a furnace and cast steel? Versus what's the energy cost to take old engine blocks or structural steel, place it all in a crucible and melt the material with an electric arc?
The take-away point is that you need to think about how there are two distinct "resource worlds." There's the world of primary mining, filled with big holes in the ground and large "yellow gear" hauling tons of ore and such. And then there's the world of recycling, in which the raw material is rolling around on the highways.
Looking ahead, I foresee both worlds expanding and offering investment opportunity. I'll have more to say about it in future articles.
The Pre-Election Pause
Right now, I simply don't believe most of the "news" I see, especially anything to do with economic statistics. We're a bit over a week away from the U.S. election on Nov. 6, and politics are just plain ugly and overwhelming. The entire news cycle is getting "spun" one way or the other.
Thus, I have to pause before commenting on any particular trends in the energy and mineral sectors. I can't think along the lines of, this is happening, so we should do that.
No, I have to back up and ask even more basic questions, like "They say that this is happening. Says who? Really? Who would want to put that message out? Who benefits? Could it be true? What if it's just smoke and mirrors? Where do we go with this?"
One key issue is the price of oil. Both in the U.S. and Europe, oil prices are falling. Some oil traders say things like, "Oil is plentiful. Prices are dropping."
To which, my reaction is, "Oh, really?" Hey, I'm sorry, but something tells me that the perception of "plentiful" oil is a temporary thing.
The oil price pullback is a combination of several serendipitous things — if you believe that weak prices are a consequence of serendipity. We've had a couple strong years of drilling in the U.S. and Canada, after which any number of wells are coming online. Plus, there's economic weakness in Europe. And Saudi Arabia is flooding markets with oil due to Iran sanctions — which is the nicest way I can characterize what the Saudis are doing.
But things could turn around quickly in the world of oil supply, if not demand. We'll see how fast those new North American wells deplete in the next 12 months or so. We'll see what happens with energy demand in Europe, in the event that the eurozone economy picks up — as is happening in Britain, apparently.
And indeed, we'll see how much oil the Saudis pump on, say, Nov. 7 and afterward. Heck, I can envision the Saudis throttling back just to make sure that we in the West — certainly our president for the next four years — know who's in charge of setting the global oil price?
That's all for now. Have a good weekend.
The Daily Reckoning