The most serious shortfalls are likely to occur in nonferrous forgings. Unless steps are taken to significantly expand capacity, there will be insufficient capacity to meet defense, let alone nondefense, requirements under a scenario of the type used for stockpile planning. They are not necessarily representative of special type forgings where the balance between requirements and capacity could be much worse than the industry average. PLATINUM GROUP METALS Platinum group metals (PGM), dominated by platinum and palladium, are strategic and critical materials that are essential in the manufacture of catalysts used in the automotive, chemical and petroleum refining industries. Electrical and electronic industry applications in contacts, circuits, thermocouples and electrodes depend upon chemical inertness and thermal stability properties of PGM. Potential substitutes include gold, silver, and tungsten in electrical uses and nickel, vanadium and titanium in catalytic uses. However, these substitutes result in high performance penalties. The current low level of PGM use in expected to recover with the U.S. economy. For example, 1981 U.S. platinum consumption of 848 thousand troy ounces is forecast to double by 1988 according to Supply and Use Patterns for the Platinum-Group Metals published recently by the National Materials Advisory Board. This same source projects U.S. palladium consumption of 815 thousand ounces in 1981 growing to more than a million ounces annually by 1988. In most years, imports have accounted for more than 90 percent of annual U.S. PGM consumption. The Republic of South Africa and the U.S.S.R. together account for 93 percent of PGM world production. Two-thirds of platinum production occurs in South Africa while roughly two-thirds of world palladium output is produced in the U.S.S.R. For 1977-1980, the Republic of South Africa accounted directly for 55 percent of total U.S. imports of PGM and indirectly through U.K. PGM refining for another 11 percent. The platinum import share of South Africa was considerably higher. The U.S.S.R supplied 18 percent of PGM imports by the U.S., largely palladium. The current National Defense Stockpile deficit for platinum is 870 thousand ounces and 1.75 million ounces for palladium. At an annual DPA project output rate of 100 thousand ounces of platinum and 350 thousand ounces of palladium, the platinum deficit would be reduced 34 percent and palladium 60 percent. However, primary PGM production is practically nonexistent in the U.S. and the small secondary U.S. refinery operations essentially recycle imported PGM products and wastes. However, two separate explorations by domestic industry have recently found substantial U.S. PGM supplies in the Stillwater, Montana complex. Substantial U.S. PGM resources have also been discovered in the Duluth, Minnesota complex; however, industry feasiblity studes are still preliminary so that a complete evaluation cannot be made at this time. REFRACTORY BAUXITE Refractories are consumed in virtually every industrial manufacturing process using high temperatures, including energy and chemical industries. The highest grade refractories are used in large volume in metals smelting and related applications, processes in which the performance requirements are great, and the possibilities for substitution are limited. Prolonged shortages of refractory bauxite, and related strategic abrasive and chemical grades of bauxite, would severely impair this nation's ability to smelt metal, manufacture and fabricate tools and weapons, or even treat domestic water supplies. Refractory grades of bauxite are the most concentrated but most geologically rare of bauxites. There are virtually no domestic reserves of bauxite that meet the required specifications. Refractory grade material currently is mined in Guyana, Surinam and mainland China. Quantities of refractory grade material have been proved in Brazil, but are not expected to be available in quantity until the mid-1980's or later. The stockpile goal for refractory grade bauxite is 1.4 million tons; inventory of the materials is 0.175 million tons. The goal is large because all industrial processes that require high temperatures incorporate refractories, and prolonged shortages of refractory material would have an especially serve impact on the production of metals. Substitution of lower performance domestic materials during an emergency as a result of reduced supplies would entail severe disruption and reduced output. In many cases, existing current capacity could not be used without high performance refractories. During mobilization, this capacity and its output would be unavailable or its capability substantially diminished. TITANIUM Titanium sponge is a strategic and critical material required in jet engines, aircraft frames, and chemical processing equipment. Although the U.S. is normally 87 percent self-sufficient, estimated annual wartime requirements are more that three times the level of current U.S. capacity. Increased imports in wartime are not likely, since U.S.S.R and mainland China are significant suppliers in the world market. The current stockpile goal is 195,000 short tons. This represents the shortfall between requirements and supply for the first three years of a war. Titanium inventories in the National Defense Stockpile are 32,331 short tons, or only 17 percent of the goal. The stockpile deficit of 162,669 short tons would take over 16 years to fullfill if 10,000 short tons of titanium were purchased each year. Since the industry has been operating at close to full capacity since 1979, and since foreign capacity has also been operating at a maximum level, purchases of 10,000 tons per year would not be possible. The United States is dependent on imports for 13 percent of total supply. In 1977-1978, Japan provided 74 percent of total U.S. imports: the U.S.S.R 14 percent; the Peoples Republic of China 9 percent; and the U.K. 3 percent. U.S. imports in 1981 were 7,300 short tons. This total would have been substantially higher, however, if the U.S.S.R did not have a high titanium requirement for a new submarine and if the Japanese did not have a large requirement for desalinization equipment for the Middle East, thus diverting material that would have been exported to the U.S. Import dependence will probably increase in the future since foreign expansion plans exceed domestic expansion plans. VACUUM MELTING CAPACITY (SUPER ALLOYS AND HIGH ALLOY STEELS) Vacuum melting is necessary to impart the cleanliness, chemistry Mr. KRUEGER. Some of those are a fallout of the work that we do in a related field for the national defense stockpile. Chairman LAFALCE. Fine. Mr. KRUEGER. The stockpile goal, in effect, indicates the size of the shortfall. So that there is some quantitative rigor behind all of those materials which are in stockpile. Some of the other items are more subjective in terms of the size of the shortfall. Chairman LAFALCE. Do you get into the strategic oil reserve at all? Mr. KRUEGER. No. That is separate authority. It does not come under either the Strategic and Critical Materials Stock Piling Act or the Defense Production Act. It is a separate authority which is given directly to the Secretary of Energy. Chairman LAFALCE. Is there some fragmentation there? I mean, certainly, that is especially important for mobilization purposes. Mr. KRUEGER. In terms of the Defense Production Act and the Executive order that implements many of the authorities of the Defense Production Act, which is Executive Order 10480, FEMA has less of a coordinating and central role to play in the energy area than any other place. Some of that is because Congress, in granting these authorities, specifically gave them to the Secretary of Energy rather than to the President for further delegation. Within the resource area and within the whole emergency preparedness area, that's the one resource for which FEMA does not have the central coordinating role. [Slide.] I'll just mention in passing that one of the things that we have done here is reinstitute a program that was very successful in the early 1950's. One of the problems in any mobilization has always been the availability of machine tools and, in particular, the very long time that it takes to make machine tools from the time of receipt of order to delivery. The machine tool industry is known to be subject to very wide fluctuations. In the 1950's, during the Korean war, the Government went out to machine tool manufacturers and just ordered machine tools without any specific purchaser in mind. The reason for doing this was to get the machine tool manufacturers making these tools prior to receipt of an actual order to cut down the long lead times associated with these things. In doing so, the Government would guarantee a customer, and, in fact, the Government would be the customer of last resort and would pay 80 percent of the wholesale price of the machine tool. We have restarted that program and now have a total of 28 U.S. machines tool manufacturers under contract for some 432.5 million dollars' worth of machine tools. These are contingency contracts that can only be exercised at the Government's option. The Government would say, OK, it's time to mobilize and would give a call to the various machine tool manufacturers under contract and say, start manufacturing these machine tools. We have worked with the Department of Defense to determine which types of tools are needed in defense production, and with the Department of Commerce as to who are the actual people manufacturing this type of machine tool, and with GSA, who actually does the contracting with these firms. That is an example of using the authorities of the act which does not require any money to implement the preparedness planning. Chairman LAFALCE. It is my understanding that the machine tool inventory is about 25 years old or so and that the Defense Science Board has urged its replacement. I am wondering whether, for example, the $200 million for fiscal year 1984 that the President has requested would contemplate some replacement of the machine tool industry? Mr. KRUEGER. The Defense Department does retain inventories of machine tools which it at one time purchased as part of a defense plant, but those are not the machine tools that were purchased under these particular authorities. You are correct in saying that that inventory is quite old. It may not be as useful today as it was when it was first purchased. I think there is concern within the national security side of Government, with the health of the machine tool industry, particularly as Japan is more active in selling machine tools, including the highly sophisticated, numerically controlled, numerically designed type of machine tools. The United States still maintains a technological lead in some areas, but as we get into the area of robotics, which is just a fancy name for machine tools, I think we're seeing where the United States is lagging. Even though it does have some technological advantages in the manufacture of them, it is certainly lagging in the use of them. There are defense programs which address some of this. If there was a specific need in a program where use of title III was cost effective, we could, in fact, use some of that $200 million. At this point in time, I don't think that that is being contemplated. Chairman LAFALCE. The answer is no, then, despite the recommendations of the Defense Science Board? Mr. KRUEGER. I think it's being addressed using other authorities. Chairman LAFALCE. Like what? Mr. KRUEGER. The Department of Defense spends some $400 million a year in a program called manufacturing technology [Mantech]. Chairman LAFALCE. Mantech, yes. Mr. KRUEGER. And I think it's being addressed under that program. [Slide.] I'm going to move on now to some of the authorities in title VII which are currently being used. There are two in particular which we think are very important. One is called voluntary agreements. There are a number in current force. They are all concerned with either manufacture of defense materials or delivery of material to the Department of Defense. The purpose of voluntary agreements is to allow companies to get together during time of mobilization and exchange proprietary information in the interest of national security. Ordinarily, this would be in violation of antitrust laws. A voluntary agreement is a legal document that involves the Federal Trade Commission and the Department of Justice which provides a legal framework for companies in the same industry to cooperate. This cooperation does not occur prior to a mobilization, but does allow- Chairman LAFALCE. By legislation or by practice? Chairman LAFALCE. It doesn't occur prior to a mobilization because legislation prohibits it or because that's been the historical practice? Mr. KRUEGER. I don't know the answer to that. Mr. Marvin. Mr. KRUEGER. But it does set up the legal framework and mechanism to permit this cooperation. Chairman LAFALCE. So we don't have any such agreements in existence now? Mr. KRUEGER. We have the agreements; that is, the legal framework exists. The firms are identified. The Department of Justice and the Federal Trade Commission have, in fact, authorized that this cooperation take place. However, because of the anti-trust statutes and the limitations of the Defense Production Act, there is not an actual exchange of proprietary information. Chairman LAFALCE. Is there anything in the statute which would limit it to tanker capacity, small arms ammunition, propellants, or is it what is the language of the statute with respect to the type of stand-by agreements that could exist? For example, if we wanted to have an agreement so that IBM could get together with, I don't know, Control Data, whoever it might be, in order to compete with Fujitsu or Hitachi, could we exercise the existing law under the DPA now for that purpose or do we have to limit it to tanker capacity, small arms ammunition? Mr. KRUEGER. It would have to be limited to national defense and providing for defense production capability and distribution during a mobilization. 18-968 0-83-3 |