The National Minerals Stockpiles--Goals, Issues, Challenges, and Opportunities

1. The National Minerals Stockpiles--Goals, Issues, Challenges, and Opportunities W. David Menzie Chief, International Minerals Section U.S. Geological Survey Reston, VA 20191

2. Brief History of Concerns about Minerals Availability • The National Defense Stockpile (NDS)—Goals and Operation • Operation of the NDS • Issues and Challenges—the Review of the National Defense Stockpile (NDS) • Opportunities

3. Brief History of Concerns--1 • World War I, United States recognizes it is not self-sufficient in minerals • Following the war, minerals industries face excess capacity and low prices • 1920s U.S. mineral consumption increased dramatically as did imports. • 1930s Access to minerals becomes a chief concern of Germany, Italy, and Japan • Mid 1930s, Germany and Japan build stockpiles of materials for their militaries

4. Brief History of Concerns--2 • Specialists in the United States propose creating a stockpile of strategic materials • Suggestions ignored until onset of WW II • 1939 Congress passes Strategic Materials Act • 1946 levels of materials in stockpile reduced • Hostilities in Korea stockpile goals and purchases increase, government loans for exploration, Paley Commission

5. Brief History of Concerns--3 • Following conflict, minerals in surplus-- public interest ebbs • Concerns about mineral supplies never again reached levels of early 1950s • Late 1970s, unrest in Shaba Province, Zaire (DRC) cause cobalt prices to rise precipitously • Tensions with Soviet Union fuel concerns about a “resource war” and competition for resources • Strategic and Critical Materials Stock Piling Revision Act of 1979 reaffirms need for stockpiling, conservation and development of domestic resources

6. Brief History of Concerns--4 • Goals for the National Defense Stockpile reached their highest level during this period • End of the Cold War, DoD assumes United States will have easy access to foreign mineral • DoD begins to sell the NDS • By 2005, NDS reduced holdings from $15 billion to $1 billion

7. Mineral Concerns have been Cyclical

8. The National Defense Stockpile (NDS)—Goals and Operation • Strategic and Critical Materials Stock Piling Act (50 U.S.C. 98 et seq.), which created the current NDS enacted “to provide for the acquisition and retention of stocks of strategic and critical materials and to encourage conservation and development of sources of materials in the United States and to decrease and to preclude dependence by the United States upon foreign sources for supplies of such materials national emergency”

9. The NDS is to be used only for national defense purposes; it is expressly not to be used for economic or budgetary purposes.

10. United States also maintains • Strategic Petroleum Reserve • Strategic Helium Reserve • National Pharmaceutical Stockpile.

11. Operation of the NDS • Every two years DoD recommends to Congress, requirements for the stockpile • Includes statement of assumptions used to derive requirements • Assumptions must be consistent with scenarios used for DoD budget and defense planning

12. Operation of the NDS • The Defense Logistic Agency oversees the process • Two processes to set the requirements: large-scale economic models and an interagency process • Economic modeling is carried out under contract with the Institute of Defense Analysis (IDA)

13. Operation of the NDS • IDA uses a model (FORCEMOB) to estimate demands of the defense scenario on the U.S. industrial base • IDA uses two quantitative models to calculate detailed industry demands for the defense scenario. • The models cover 320 industrial sectors. • Materials needed to supply the goods are estimated using material consumption ratios • Next, IDA estimates the materials available from domestic and reliable foreign sources

14. Operation of the NDS • Econometric process used for estimating 36 standard materials • DLA has used an interagency process to estimate the requirements of 19 specialty, or advanced materials

15. Issues and Challenges—the Review of the National Defense Stockpile (NDS) • The Committee on Armed Services of the U.S. House of Representatives (HASC) noted over 95 percent of materials in NDS designated to be in excess of DoD needs and were being sold. Also noted market conditions for titanium and increasing reliance on foreign materials. • HASC called for review of policy of disposal and a study to determine if the NDS should be reconfigured to adapt to global market conditions.

16. Issues and Challenges—the Review of the National Defense Stockpile (NDS) • DoD recommended the National Research Council (NRC) be asked to undertake a study of the NDS • NRC assembled the Committee on Assessing the Need for a Defense Stockpile (CANDS) to evaluate the need for the NDS, to discuss current defense material needs, and to develop principles for any future operation and configuration of a NDS

17. Conclusions • First, “design, structure, and operation of the NDS render it ineffective in responding to modern needs and threats.” • CANDS questioned if the economic models were specific enough to identify actual military material needs. The committee suggests broadening the requirement that contractors keep Bills of Materials for high-priority materials and using this information in the assessment of critical materials needs.

18. Conclusions • Second, CANDS concluded DoD does not fully understand its needs for specific materials or have adequate information on their supply. • CANDS noted operation of the NDS is not timely or based on up-to-date information owing to a lack of data on requirements for specific materials. • CANDS suggested that the requirement that Congress must approve all acquisitions and disposals in non-emergencies unless directed by the President may prevent NDS from responding to short-term changes in prices and demand.

19. Conclusions • The third conclusion of CANDS is that lack of reliable data and information on the availability of materials impedes the management of critical supply chains. • Although CANDS found the NDS to be ineffective in its current configuration they believed the federal government should play an active role in management of the supply of minerals for defense systems.

20. Conclusions • Finally, CANDS concluded that owing to changes in the global threats the United States faces, the changes in the U.S. industrial base, the emergence of new demands on material supplies, the ineffectiveness of the NDS and therefore the potential for disruptions to the supply chains for materials needed by DoD, that there is a need for a new approach in the form of a national defense-materials management system.

21. Recommendations • The first recommendation is that the Secretary of Defense establish a new system for managing the supply of materials for U.S. defense requirements.

22. Recommendations The second recommendation was that the system • be based upon an ongoing analytical process • include annual reporting from the services • start at procurement level and identify the materials needed and their vulnerability to supply disruption • be integrated with current defense planning • governing policy be integrated with legislation and policies governing procurement • use all available tools to support stable supply changes including holding materials in inventory

23. Recommendations • allow partnering with private industry and obtaining materials from offshore sources • have improved information on mineral supply and consumption and include forecasting tools • design include input from and communicate with industry, academia, and other stakeholders • evaluate recycling and substitution as sources of materials • include risk assessments to account for environmental constraints on defense material availability.

24. Recommendations • The third recommendation was that the federal government improve systems for gathering data and information on the availability of defense related materials from both domestic and foreign sources

25. Opportunities • Since the completion of the CANDS report, DoD has established a Working Group to develop a new process of determining needs for strategic and critical materials and to propose a new configuration of the NDS. Once the Working Group has completed its tasks, it will prepare a report for officials in DOD who will in turn report to Congress.

26. Opportunities • The use of DoD wide supply chain management could change market dynamics for some commodities. For example, titanium has been in short supply for defense uses in part because the leading use of titanium sponge is in commercial aircraft. Demand for these aircraft is highly cyclical. Therefore producers are reluctant to add capacity. DoD has not been able to obtain titanium for some weapon systems owing to high prices. Consolidated requirements could provide a larger, stable demand that could result in a lower overall price.

27. Opportunities • Collection of information on the material requirements of individual weapons could allow DoD to move material to high priority systems during a national emergency. This could be especially important for production of specialty materials which are often biproducts and therefore present more challenges to supply management

28. Opportunities • Collection of material information by weapon systems could allow more effective recycling and reuse of material. The Air Force has a pilot project to “reuse” aircraft turbine blades. Rather than return used blades to a general scrap recycling program, blades are being collected and remelted to yield high quality material that can go back into the production of new blades.