Investing in Beryllium

ONE OF THE LESSONS OF WORLD WAR II was the vulnerability of international trade. The Germans almost starved Britain with submarine attacks on British and Allied shipping. And the U.S. broke the back of the Japanese economy by sinking over 90% of the Japanese merchant fleet.

So during the Cold War, from the 1940s to the 1980s, the U.S. government was pretty worried about keeping the national economy running in case of a war with the Soviet Union. Thus the U.S. government built up what it called a “strategic stockpile.”

This stockpile contained large quantities of metals, minerals, fuel and other critical commodities. Military planners believed these things were essential for national security. So the government just plain hoarded up metals and minerals in warehouses, and open camps out in the desert.

It was like a squirrel stocking up on food for a long winter. The stockpile included all sorts of things. There was helium and indium, chrome and cobalt, germanium and beryllium, diamonds, molybdenum and much more. This constituted the U.S. “war reserve.”

In hindsight, it is fair to say that the planners had their basic facts straight. The items in the stockpile were — and remain — the backbone of a modern industrial economy. Without these metals and minerals, you can hardly keep the lights on, let alone build advanced systems like power plants, or war machines like jet aircraft and submarines.

But the Cold War ended in the early 1990s. So in the post-Cold War euphoria of the 1990s and early 2000s the U.S. government sold off almost all of the strategic stockpile material. (The Russians sold a lot as well, but not all of it — characteristically.) So today, the U.S. strategic stockpile is gone. The warehouses are empty. Heck, the U.S. government even sold off many of the warehouses.

Selling the stockpile did raise a bit of cash for the federal coffers, but it also produced some unintended consequences out in the real world:

  • First, it depressed world prices for most of these commodities. This worked against new investment in mines, mills and factories. And few firms were hiring and training new workers.
  • Second, the sell-off forced many former producers out of business. Think about it. When you are competing against government sales from a stockpile, how can you afford to keep running a mine, or mill, or processing factory? So the mines closed. The mills closed. The factories shut down. The skilled employees moved on to other jobs.

And guess what? Here in the year 2008, we are now witnessing worldwide shortages of many of these critical metals and minerals. So prices for almost all of these strategic goods are climbing. And as I just noted above, the mines are closed. The mills are shut down. The factories are shuttered. The workforce has moved away. So what happens now?

Well, the very few companies that are still in the business of producing critical and strategic materials will profit handsomely going forward. I recently recommended the shares of a beryllium producer to the subscribers of Energy and Scarcity Investor. Beryllium is critical to high tech, aerospace, the nuclear industry, medical imaging and numerous other advanced industries. And demand for this critical medal is growing. Just look at what’s happening in the aviation and aerospace industries, which are both major beryllium consumers.

The order books of Boeing and Airbus are filled through the next decade. (Have you tried to buy a B-787 Dreamliner lately? The line is sold out to 2017.) And governments all over the world are getting into the business of launching rockets and orbiting satellites.

Meanwhile, as the developing world builds out its capital base, one of the things that citizens of other nations demand is better medical treatment. Much of modern medicine is predicated on exotic machines like CT and MRI scanners, and these devices use beryllium metal.

But beryllium is only one of the strategic metals in relatively short supply. There are others, and I’ve been keeping a close eye on them, as well as a close eye on the companies that produce them. I am on the prowl for companies that mine and process other critical elements on the periodic table as well. Some of these items are truly in shortage.

The end of the strategic stockpile will be providing some astonishing new investment opportunities.

Until we meet again…
Byron W. King
March 25, 2008