# From ground to market: Where value sits, and the licence to keep digging

Source page: https://www.materialinsights.org/learn/commodities/from-ground-to-market/p5/

[Understanding Commodities](https://www.materialinsights.org/learn/commodities/) / [Module 2: From ground to market](https://www.materialinsights.org/learn/commodities/from-ground-to-market/) Part 5 of 5

## Where value sits, and the licence to keep digging

A commodity chain is a sequence of businesses with different margins, risks and degrees of concentration. Mining is often spread across many countries; processing is often concentrated in one. This part asks where value and market power sit, why China came to process so much of the world's ore, why producer countries now push back, and why a mine needs its neighbours' consent as well as a permit.

### 5.1 Value and concentration sit in different links of the chain

Pirrong describes every commodity chain as transformations in space, time and form: shipping, storage and processing. Each link earns the difference between the value of the transformed and untransformed product. In his grain example, corn bought in Iowa at $5.00 a bushel and sold in Taiwan at $6.25 leaves the trader $0.10 after $1.15 of elevation, freight, finance and insurance.

Raw materials are worth little per kilogram. Radetzki and Wårell give 2018 values of about $0.07 a kilogram for iron ore, $0.21 for wheat, $0.50 for crude oil and $7 for copper. Importers long protected processing with tariff escalation. In their example, a raw commodity worth $80 pays a 10 per cent tariff and the processed product worth $100 pays 20 per cent, so the effective tariff on the $20 of value added is 60 per cent. In 2009 the US, EU and Japan charged nothing on cocoa beans but 12, 32 and 30 per cent on chocolate.

Concentration usually rises downstream. USGS data for 2024 show China mining about 8 per cent of the world's copper but refining about 45 per cent, and mining 19 per cent of bauxite but making 60 per cent of alumina and of aluminium. Guinea mined a third of the world's bauxite and made almost no alumina. The Lithium tile shows the same pattern in batteries: in 2024 Chile supplied three-quarters of traded lithium carbonate, but China supplied 80 per cent of traded lithium hydroxide. Profit need not follow volume either. Scheyder cites a Citi study putting mining returns in the electric-vehicle chain above 10 per cent, against under 2 per cent for carmakers.
 Case

#### How China came to process the world's ore

Humphreys explains that China, like Japan and South Korea before it, chose to import raw materials and process them at home. Cheap capital and labour helped, and the state added subsidised power and tariff protection, including a 2 per cent tariff on refined copper until 2008. Between 2000 and 2013 China's imports of copper concentrate rose from 1.8 to 10.1 million tonnes, bauxite from 0.4 to 71.6 million, and iron ore from 70 to 820 million, 65 per cent of world trade. Buying bauxite rather than alumina reversed a long trend toward refining near the mine.

- Pirrong (2014), The Economics of Commodity Trading Firms · pdf pp. 6-8
- Radetzki & Wårell (2021), A Handbook of Primary Commodities · pdf pp. 21, 79-81
- USGS Mineral Commodity Summaries 2026, Copper; Bauxite and Alumina; Aluminum [web ↗](https://pubs.usgs.gov/publication/mcs2026) · world production tables
- Scheyder (2024), The War Below · pdf p. 28
- Humphreys (2015), The Remaking of the Mining Industry · pdf pp. 76-82

### 5.2 Producer countries now fight to keep processing at home

The mirror image of tariff escalation is the export restriction. Humphreys lists South Africa, Indonesia, Brazil, DR Congo and Vietnam among countries announcing plans to require some processing at home. Export taxes, quotas and bans make the raw material cheaper at home than abroad. DR Congo tried to ban exports of unprocessed copper and cobalt in 2013, but deferred the ban because it lacked smelters and power.

Indonesia is the case that worked. In 2012 it imposed a 20 per cent tax on unprocessed mineral exports and announced a ban from 2014, which duly took effect that January. Humphreys expected Indonesia to become a smelter and refiner of nickel, copper and alumina, largely with Chinese capital. The Nickel tile shows the result: Indonesia supplied about 62 per cent of world mine output in 2024, an HHI above 4,000. USGS estimates its output rose another 13 per cent in 2025, while Australian production fell by more than half as mines closed on low prices. Processing moved to the country of the ore, but the money and technology came mostly from China.

China applies the same instinct to its own resources. From 2006 it imposed export duties on ferroalloys, refined metals and rare earths and tightened the rare-earth export quotas it had introduced in 2004; in 2010 it cut that quota by 40 per cent (Humphreys). By then, Humphreys notes, China supplied over 95 per cent of the world's rare earths. USGS puts its share of mine output at about 70 per cent in 2025 (270,000 of 390,000 tonnes) and records that it tightened export controls that April. The choke point is processing, which takes years to build. Pitron describes how China's low costs, helped by ignoring environmental damage, drove Molycorp to close California's Mountain Pass mine in 2002.

- Humphreys (2015), The Remaking of the Mining Industry · pdf pp. 90-92, 186-187, 236-237
- USGS Mineral Commodity Summaries 2026, Nickel; Rare Earths [web ↗](https://pubs.usgs.gov/publication/mcs2026) · Events, Trends, and Issues; World Mine Production
- Pitron (2020), The Rare Metals War · pdf pp. 54-55

### 5.3 A social licence to operate now decides whether mines open and stay open

Humphreys traces how the industry learned that its legitimacy depends less on what it produces than on how. After a string of disasters, including tailings dam failures at Ok Tedi in Papua New Guinea in 1984, Marcopper in the Philippines in 1996 and Baia Mare in Romania in 2000, industry leaders launched the Global Mining Initiative of 2000-2002 and later the ICMM. The aim was a licence to operate reaching well beyond legal obligations. Radetzki and Wårell warn that a company failing its stakeholders may be forced into premature closure.

The environmental burden is concrete. Humphreys estimates that mining and quarrying move about 52 billion tonnes of material a year, 40 per cent of it waste. Water use rises as grades fall: he cites typical figures of 172 tonnes of water per tonne of copper, 107 per tonne of nickel and 716 tonnes per kilogram of gold, often in water-short regions such as the Atacama and the Pilbara. Tilton's remedy is to make firms pay these costs through regulation, taxes or tradable permits, so technology attacks pollution as it once attacked labour costs.

The social side can be decisive. Scheyder recounts the 2019 Brumadinho dam collapse in Brazil, which killed nearly 300 people, and Rio Tinto's legal destruction of the 46,000-year-old Juukan Gorge shelters in 2020. Conway reports that Serbia revoked Rio's exploration licences for the Jadar lithium project in early 2022 after mass protests. Humphreys adds the obsolescing bargain: once an investor's money is sunk, its leverage is gone and terms can be reopened. Society's tolerance, he suggests, may prove the real limit on supply.
 Case

#### Bougainville: the mine closed by rebellion

Humphreys calls the Panguna copper mine on Bougainville the reference point for breakdowns between companies and communities. The deal was struck in the late 1960s between the company, CRA, and the government in Port Moresby, while Papua New Guinea was under Australian administration. The mine split the island between those who benefited and those who did not, and it was blamed for damaging the ecosystems people depended on, including the Jaba River. Many islanders questioned Port Moresby's right to decide. An armed uprising closed the mine in 1989. A national permit had not been enough.

- Humphreys (2015), The Remaking of the Mining Industry · pdf pp. 44-48, 190-192, 233-235
- Radetzki & Wårell (2021), A Handbook of Primary Commodities · pdf pp. 189-191
- Tilton (2003), On Borrowed Time? · pdf pp. 99-101
- Scheyder (2024), The War Below · pdf pp. 26-27
- Conway (2023), Material World · pdf p. 294

### See it in the table
[H₂O Water](https://www.materialinsights.org/commodities/water/)[Oil Crude oil](https://www.materialinsights.org/energy/crude_oil/)[Cu Copper](https://www.materialinsights.org/commodities/copper/)[Al Aluminium](https://www.materialinsights.org/commodities/aluminum/)[Ni Nickel](https://www.materialinsights.org/commodities/nickel/)[Fe Iron ore](https://www.materialinsights.org/commodities/iron_ore/)[Au Gold](https://www.materialinsights.org/commodities/gold/)[Li Lithium](https://www.materialinsights.org/commodities/lithium/)[Co Cobalt](https://www.materialinsights.org/commodities/cobalt/)[REE Rare earths](https://www.materialinsights.org/commodities/rare_earths/)[Wh Wheat](https://www.materialinsights.org/commodities/wheat/)[Cc Cocoa](https://www.materialinsights.org/commodities/cocoa/)

### Check your understanding

A raw commodity worth $80 pays a 10 per cent import tariff; the processed product worth $100 pays 20 per cent. What is the effective tariff on the processing step?
 The processed product pays $20 of tariff against $8 on the raw input. The extra $12 falls on $20 of value added, an effective rate of 60 per cent (Radetzki and Wårell).

What is the obsolescing bargain?
 Humphreys notes that investors have most leverage before they commit. Once a mine is built they are exposed to changes in tax and rules, as the oil industry learned first.

What did Indonesia's 2014 ban on unprocessed ore exports achieve by 2024?
 Humphreys expected Indonesia to become a nickel smelter with Chinese capital. The Nickel tile shows it with about 62 per cent of mine output in 2024, while Australian output was falling.

[← Part 4: Hydrocarbons and harvests: the other extraction chains](https://www.materialinsights.org/learn/commodities/from-ground-to-market/p4/)[Mark read · Wrap-up →](https://www.materialinsights.org/learn/commodities/from-ground-to-market/review/)

## Other sections

- [Module overview](https://www.materialinsights.org/learn/commodities/from-ground-to-market/index.md)
- [What the ground offers: deposits, grades and waste](https://www.materialinsights.org/learn/commodities/from-ground-to-market/p1/index.md)
- [From discovery to closure: the mine life cycle and how ore is extracted](https://www.materialinsights.org/learn/commodities/from-ground-to-market/p2/index.md)
- [Turning rock into metal: concentration, smelting and refining](https://www.materialinsights.org/learn/commodities/from-ground-to-market/p3/index.md)
- [Hydrocarbons and harvests: the other extraction chains](https://www.materialinsights.org/learn/commodities/from-ground-to-market/p4/index.md)
- [Key terms, quiz and sources](https://www.materialinsights.org/learn/commodities/from-ground-to-market/review/index.md)