[The Editors' Verdict] Selling Overseas Mining Sites Despite the Need for Raw Minerals

As the global economic recovery accelerates, prices of major minerals sensitive to economic conditions, such as iron ore and copper, are hitting record highs day after day. In the case of iron ore, known as the "rice of industry," prices have been rising continuously since May last year, and it is expected that the upward trend will be inevitable in the second half of this year as well.

According to the Korea International Trade Association's Institute for International Trade and Commerce, if the import price of raw materials rises by 10%, domestic producer prices increase by 0.43%. This indicates that fluctuations in raw material prices are highly correlated not only with domestic inflation but also with exports and the overall Korean economy. The Institute found that for non-ferrous metals, which had an import dependency of 55.7% in 2018, product prices rose by 2.87% when raw material import prices increased by 10%. During the same period, steel, with an import dependency of 34.9%, saw a 1.77% increase.

Due to the sharp rise in raw material prices, industries with high raw material cost burdens such as shipbuilding, automobile, home appliances, and construction have entered a state of high alert. The damage is mainly appearing in finished goods industries (upstream industries). However, over time, secondary damage is spreading beyond upstream industries to downstream industries that supply parts and materials. If this impact materializes, many companies will face significant disruptions in mineral raw material supply, leading to liquidity crises.

Above all, prices of essential industrial raw materials such as iron ore, copper, nickel, and cobalt are showing remarkable strength. As of the 1st of this month, the London Metal Exchange (LME) copper price was $9,342 per ton, up 65.2% from last year's average, and iron ore surged by a whopping 105.3% to $213.68 per ton during the same period. Nickel rose by 29.2%. The main factors are the economic recoveries in the United States and China.

Last year, South Korea's imports of major raw minerals and energy amounted to $22.9 billion for iron ore, $57.9 billion for copper, and $7 billion for aluminum, totaling $235.5 billion. The international resource market is highly unstable, with resource prices fluctuating sharply depending on economic conditions and resource production policies of resource-holding countries. In the 1980s and 1990s, it was possible to purchase desired resources cheaply from various countries worldwide without much effort in development. However, there are also resources that cannot be obtained even at several times the price. This is a belated realization. Our resource industry has lagged behind advanced countries and global companies for short periods of 10 years to as long as over 30 years. During the 1998 foreign exchange crisis, we sold 26 promising overseas mining sites that we had painstakingly secured at low prices. The cost was severe in the 2000s. When resource prices surged from 2008, sighs of regret poured out from all directions. But this was only temporary. Although demand for strategic minerals such as lithium and rare earths, which the government should secure, is rapidly increasing, resource development rates have sharply declined due to poor investment. According to the Ministry of Trade, Industry and Energy, the resource development rate for lithium and rare earths fell from 9.3% in 2013 to 0.7% in 2018.

To avoid repeating the mistakes of the past foreign exchange crisis, overseas mining site shares that have been secured should not be sold. However, the government continues to sell or rush the sale of overseas mining site shares held by the Korea Resources Corporation. A representative case is the sale of a 10% stake in the Cobre Panama mine, one of the world's top 10 copper mines. Attempts to sell it since 2014 have failed multiple times, and now it is being sold through private contracts. The Cobre Panama mine has reserves of 3.183 billion tons and will be able to produce copper starting in 2023. South Korea needs more stable securing through resource development. Therefore, new investments must be made.

Kang Cheon-gu, Invited Professor, Department of Energy Resources Engineering, Inha University

This content was produced with the assistance of AI translation services.