 Hi, this is Jack Lipton, and this is Critical Materials Corner for February 16th, 2021. Today, my topic is going to be war games. Why is that? Because today the Chinese announced, according to the Financial Times of London and the Wall Street Journal of the US, that they want to consider what would happen to the US defense industry if the Chinese cut off our supply of rare and rare enabled products. At least that's what the newspapers say. Of course, that isn't exactly correct because the people who write these stories are not very worldly. The defense departments of the world have played something they call war games. And war games mean they consider all possibilities that might happen to their country and what would be the consequences of those possibilities. In this case, I'm sure that the Chinese bureaucracy was inquiring of the Chinese mining industry. What do you think would happen if we stopped exporting rare to the United States or rare enabled products? And the Chinese ministries that formulate policy or carry out policy always do this. Ten years ago, they inquired of the same industry. What if we stopped shipping heavyware earths and thus created the seeds of the rare earth crisis of 2010 and 11? And this is bureaucrats trying to determine how they're going to respond to the people who tell them what to do. In the case of the United States, we are reactive. We wait for somebody to attack us and so to speak. And then we react. The Chinese are proactive. They take a very long-term view of things and they decide what they should do in order to achieve their long-term goals. And then they start implementing the policies and to get those goals accomplished. In this case, I think what's happening and I think what no one seems to understand on this side of the Pacific is that President Xi of China is very, very clear that he wants the Chinese economy to develop into what he calls a two-circulation model. And what that seems to mean is that the Chinese domestic consumer economy will be encouraged to grow until it meets and then exceeds the Chinese export economy. And what that means is they said the other day that in the last few years, they brought 100 million Chinese people out of poverty by these policies, these long-term policies. So what I think is really happening is that we're ignoring the fact that in the last five years, China has gone from a non-importor of raw materials to make rare products to importing nearly 40% of what it needs. Why is that? One theory is that the Chinese deposits are running out of high-grade materials, getting more and more expensive to extract them. Another theory is that they want to conserve what they have. And a third theory is that the heavywears of production in particular in China has been extremely polluting and they want to stop that and remediate. All three of these theories are in fact correct. They're all three are drivers of the Chinese rare earth economy. Now, they are planning to supply every Chinese home with a television set, vacuum cleaner, dishwasher, clothes washer. Everybody's going to have an electric car and power is going to come from alternate energy produced by wind, soar, and nuclear. So the Chinese take a look at the consequences of these decisions and they say, you know what? We're going to need more rare earth permanent magnets in 2025 than we've produced this year, but we're exporting a lot of those magnets and it finished good. So we're not going to be able to continue doing that and grow our domestic economy as the president has required. Now, I didn't say requested, now I said required. So what's happening is China is growing economically. China has adopted the idea that they need to be a consumer economy just like the United States. I thought this is what we were encouraging them to do, to mimic us, but in order to do that unlike the United States, which depends on the idea that the market will supply your needs, all you have to do is keep raising the price and you'll get anything you want. The Chinese know this isn't true and so they are organizing themselves and have organized themselves to acquire the necessary raw materials and those necessary raw materials for a green economy are rare earths, lithium, cobalt, copper, nickel and each one of these materials I've just named. The primary demand for those materials on this planet comes from China. 50 to 60 percent of all demand for the metals I just named comes from China. So why would they want to implement policies to lower their supply? In fact, there are a world mission to make sure they have sufficient supplies to carry out their long-term plans, their five-year, 10-year, 15-year plans. That's what's going on. Now what does it mean for us? It means that technology metals boom. Technology metals are almost all critical metals because they're used for electrical and electronic purposes. Is there going to be a commodity boom in base metals? If you call copper a base metal, I guess so. In case my viewers haven't noticed, copper is now at the highest price it's been in a decade. Why is that? Because it's the key technology metal. You can produce electricity any way you want. You can use electricity any way you want. But together from the producer to the end user, you need copper, miles and millions of miles of copper wire and millions of tons. The world is now producing some 30 million tons of copper, new copper a year and we're recycling a lot of it. But even so, the price is going up. What does that tell you? Demand is exceeding supply. And as China and India wire entire continent, subcontinents, the demand isn't going to get less. And the problem with copper, or not the problem, but the reality of copper is that to wire a new home takes a quarter ton of copper. And a new home well built will last for 50 to 100 years. So that copper, it might be recycled in your great grandson's time, but it's not going to be recycled anytime soon. So it's going into, it's not going into supply. There's a word for this, I don't know, but it's locked up. It's locked up. Okay. So now we have that. Electric cars use more copper than internal combustion engine cars. I'm told that some electric cars use as much as 100 pounds of copper. And there are nearly 100 million cars and trucks made each year multiply that 100 million times 100 and you get 10 billion pounds. That's a lot of copper every year. However, we do recycle cars at the rate of about 5% a year of the world is turned over. So that copper is returned. But copper is going into, you might as well call it a sink, which is our civilization. Copper is the key. We have to have technology metals to make the devices that we use to convert electricity into sound, motion, information, light. For that, we need technology metals. Then we need copper to carry it and to produce it. If we're going to produce electricity, by alternate means, we have nuclear, which requires uranium. We have wind driven and the least maintenance is required by direct drive wind turbines, which require weather of permanent magnets to operate. And a typical wind turbine will have one half to one ton of magnet. And there are a lot of wind turbines around. Solar, you need materials like silver. You need materials like gallium. You need cadmium. You need tellurium. Gee, as far as I know, other than silver, not any of those that produce in the United States in any quantity near our demand. The Chinese, of course, use many, many more times these materials than we do. So what's the bottom line here is critical materials, I call this critical materials in common sense. I think that the biggest surprise to the United States federal government's bureaucracy is that they have to be careful because they're going to get what they wish for. If they want to turn the US green in any percentage, you're going to have to ramp up mining, sourcing, refining, metal making, alloy making, all kinds of industries that require enormous amounts of electrical power. And they require a base load. You cannot produce steel and electric arc furnace with a wind turbine. I would like to see, I'd like to know, maybe there are, is there any factor in the United States manufacturing goods out of steel or aluminum that is run strictly by wind and solar? I'd love to hear about it. I'd also like to know if there's an electric arc furnace running in North America off wind or solar power, or if there's a steel mill that's running off wind or solar power. People don't seem to understand that you need a lot of electricity. It has to be constant. It has to be ongoing in order for industrial processes to occur. You cannot turn off an electric arc furnace and say, well wait for the batteries to recharge from the solar or wind. That doesn't work. So is there going to be a metals boom? Yes. Is it driven by the green economy? Partially. What else is driving it? The buildup of China into a major world economic power. And of course, you say that's already occurred. Well, I think that probably half of China doesn't have an electric grid. And so they're building gigantic fields of wind turbines and solar panels in China to serve areas where it would be too expensive to extend a grid or build a base low power plant. They're consuming more of the technology metals than they can produce internally. And for the last four years, while we've been concerned in America about silly politics, the Chinese have been grabbing up the world's supplies of technology metals. And I don't mean on a one-off. They've bought mines. They've made commitments for a long-term supply. They've built the processing in their country so that they don't need to worry about importing finished goods. They have 80% of the world's cobalt processing capacity, 60% for lithium, 60% for copper, maybe 90% for rare earths. This is going to drive the prices of all of these materials up. There's no question about it. So are they good investments? I suppose if you're investing in a company that can actually produce these products, the answer is yes. But I caution you to look at your investments and to think about whether or not the company you're investing in really can contribute to this supply chain. That's the key question from now on. And I'll be talking about individual critical metals next week and after that. But I wanted to speak today about this story about China planning to use rare earths as a weapon or a counter weapon against us. I think what we fail to see is that China just wants to be China. And I don't think they're really concerned about how it affects us at all. Thanks and talk to you next week.