The Kingdom of Saudi Arabia is hurting. Their move of increasing oil production with the goal of lowering prices in order to gain a larger market share (Saud denies this but they are trying to put US shale out of business – low interest rates in the US have contributed to staving off the death blow, for now) has hurt all net oil exporting economies worldwide, including Saud, itself. The secondary effect was to pressure Russia into leaving Assad to the jackals. Russia bit the bullet and did not yield. Strike two. The war in Yemen as well as the financing of Syrian rebels costs the kingdom a lot of money they just don’t have. Steeeerike three.
Oil represents about 80% of Saud’s revenue. With ISIS competing for market share by selling oil to Turkey at $20/barrel – thereby undercutting the market by half, their economy can simply not withstand this price point for much longer. So what can they do?
They could find other sources of income, they could cut output of oil, they could de-peg from the US dollar, or they could start selling oil in yuan. Remember what happened to Saddam Hussein when he tried to sell his oil in Euros. Everybody was a loser in that affair.
Today, the renminbi (yuan – for all intents and purposes) will likely be included in the IMF’s SDR basket of funds. There is an OPEC meeting this Friday.
Saudi Aramco is rumoured to be going public, that is to say, privatized. An IPO is being considered. Of course the Saudis wouldn’t let this corporation fall into the wrong hands (5% for now,) so is this simply a variation on a stock-buyback scheme of epic proportion? This way they can raise their stock price without raising the price of oil. Since doing so would hurt the stock price, this would more or less guarantee low oil prices for a while. This would be a bad thing for all oil net exporters; Canada will be especially hard hit.
One wonders if they will allow Yuan transactions for their shares.
We should not allow our complacency to undermine what could potentially be the best boost to our economy since hydro and the lottery. This plan amounts to surface-picking / recovering rubble piles left behind during the massive mining of asbestos. There are 500 M tonnes of rubble piles which are accessible by bucket and loader. Magnesium is selling for $4.20 US / kg (as of August 2015 – and has previously traded for more.) Magnesium is present in the rubble at levels from 25% and higher, and it is of high quality. Other valuable resources are also present. Revenues from the magnesium alone could generate upwards of half a trillion dollars.
*Update – magnesium prices have dropped significantly since this article was written. The current (31 March, 2016) value of $2.03/kg changes the aove math considerably. The historic high price was over $6/kg at the end of Q1 in 2008. Nevertheless, even with this lower price, the resource is worth as much as all the oil in Alberta, and the cost of transformation is still much less.*
Currently, China produces 75% of the world’s magnesium, and Canada is not even on the map; Canada is a net importer. The US market is protected from Chinese imports by high antidumping duties and is supplied instead by Israel and domestic primary and secondary production.
Some main markets for magnesium include automotive, electronics, and battery.
http://www.mmta.co.uk/magnesium-market-overview (data from 11/2013)
Not only could this provide funds through taxes and duties for the Quebec government, but there are other sectors which would benefit greatly, as well. The entire region would be re-energized with new industry, tourism, services, not to mention recycling technology. The truth is that we can not simply bury this rubble under a canopy of trees (and falsely call it green) for future generations to clean up. The rubble from the mining of asbestos can not simply be left, and we can simply not turn down this economic opportunity. This green project could fuel an industry, reduce un-employment, re-energize an entire region, and provide for more independence on the part of Quebec, if properly managed. It will also greatly contribute to a cleaner environment and a fueling of green industries which could grow in the shadow of the ‘Projet du Grand Nord.’
Continue reading “Magnesium: The New Oil?”