Ore and More

One would not assume that you can substitute most minerals from a value perspective, and you would be mostly right. The issue is “thrifting,” where you reduce your use, and I can start by looking at the copper market. On the side, I build stuff (okay, I tend not to do all the nailing, but I do spend some time working with my hands), and copper has come into clear focus on my latest project. I am putting up a 1,700 square ft. shop/apartment in southwest Portland, and I am at the wiring/plumbing stage. Now normally we love to use copper, but I did some shopping and we got a serious case of sticker shock.

There is a mainline power service from the meter to the fuse box. It is made up of three cables, each cable about 2 cm across, and the last time I played with this stuff I did it in copper. The copper was so cheap I even bought some extra just in case I wanted to do some more stuff. That was four years ago. We went to Home Depot last week and we got a shock in the electrical department as each wire (we need three) was $3.84 per foot. To do the job, we need 70 feet of wire, which comes to roughly $800 total. The same amount of aluminum wire, the other option for the job, cost $177. Now cheap is not the way to do stuff like this, but we are the proud owners of a long bit of aluminum, not copper. It is the same on plumbing. We did a mainline water service, and besides digging the ditch to save on the labor–nothing like using a pickaxe to get you to appreciate consulting work–we put in a plastic line rather than copper. That saves a few literal pennies as well. My point here is so far I have a building that I would have already used 200 pounds of copper on, and so far I have used zero pounds. That is what I call thrifting on the local level.

When you approach limits on commodity prices, everyone does this to a degree. You might not notice it, but every spare pound is taken out of cars in design, and washing machines and dryers now have sides made of plastic or such thin steel that a few quarters left in the jeans does in the dryer. The fact is on every level people thrift, and that is either by substitution or by reducing. Now before you get into a panic, understand that what is driving the copper prices is not the Phoenix housing market, but the Beijing housing market. My cute 1,700 square ft. shop/garage/apartment would not be even noticeable against the 100s of 40-floor apartment buildings going up there.

But you can not discount the ability for technology to really reduce the demand of overpriced commodities. Platinum will be trifted from catalytic converters at a rapid rate, as it makes sense to invest in solutions that use less platinum as the price goes up. At some point you just have to ask, “What are the other options?” The risk is that at some point the demand/use for some commodity that we value highly will get replaced like the stones of the Stone Age. This is unlikely, but it’s a risk that I want to explore as I look at commodities from all sides.