Analysis of National Security Issues Associated With Specialty Metals, 8061-8064 [E9-3708]
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Federal Register / Vol. 74, No. 34 / Monday, February 23, 2009 / Notices
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[FR Doc. E9–3808 Filed 2–20–09; 8:45 am]
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DEPARTMENT OF DEFENSE
Office of the Secretary
Analysis of National Security Issues
Associated With Specialty Metals
AGENCY: Office of the Deputy Under
Secretary of Defense for Industrial
Policy, Office of the Under Secretary of
Defense for Acquisition, Technology
and Logistics, DoD.
ACTION: Analysis of National Security
Issues Associated with Specialty Metals.
SUMMARY: Specialty metals are not
‘‘critical materials.’’ There is no national
security reason for the Department to
take action to ensure a long term
domestic supply of specialty metals.
FOR FURTHER INFORMATION CONTACT: Rick
Lowden, (703) 601–5003.
SUPPLEMENTARY INFORMATION:
jlentini on PROD1PC65 with NOTICES
A. Congressional Direction
Section 843 of Public Law 109–364
required the establishment of a Strategic
Materials Protection Board (SMPB)
composed of representatives of the
Secretary of Defense, the Under
Secretaries for Intelligence and
Acquisition, Technology, and Logistics,
and the Secretaries of the Military
Departments. The SMPB is to determine
the need to provide a long-term
domestic supply of strategic materials
designated as critical to national
security, and analyze the risk associated
with each material and the effect on
national defense that non-availability
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from a domestic source would have. 10
U.S.C. 2533b ‘‘Requirement to buy
strategic materials critical to national
security from American sources’’
currently lists specialty metals as
strategic materials critical to national
security.
In its Report to Congress of its
meeting of July 17, 2007, the SMPB
reported that it had formed, met, and
agreed to initially focus its efforts on
determining the need to take action to
ensure a long term domestic supply of
specialty metals as designated in 10
U.S.C. 2533b; and to direct the Board’s
Executive Secretary to conduct an initial
analysis of national security issues
associated with strategic materials
(specialty metals); and to report the
results of that analysis at the next SMPB
meeting.
The SMPB held its second meeting on
December 12, 2008 during which the
SMPB agreed that the term ‘‘Strategic
Material’’ shall mean—A material (1)
which is essential for important defense
systems, (2) which is unique in the
function it performs, and (3) for which
there are no viable alternatives. Strategic
Materials include those specialty metals
listed in 10 U.S.C. 2533b, and any other
materials the Board may designate.
The SMPB also agreed that the term
‘‘Material Critical to National Security’’
(or ‘‘Critical Material’’) shall mean—A
strategic material for which (1) the
Department of Defense dominates the
market for the material, (2) the
Department’s full and active
involvement and support are necessary
to sustain and shape the strategic
direction of the market, and (3) there is
significant and unacceptable risk of
supply disruption due to vulnerable
U.S. or qualified non-U.S. suppliers.
Accordingly, the Board should initially
focus its efforts on determining which
strategic materials are ‘‘materials critical
to national security’’ and require a long
term domestic source of supply.
The SMPB also validated an Initial
Analysis of National Security Issues
Associated with Strategic Materials.
B. Initial Analysis of National Security
Issues Associated With Strategic
Materials
Summary
Reliable access to the materiel it
needs is a bedrock requirement for the
Department of Defense. However,
reliable access does not always
necessitate a domestic source.1 In fact,
1 For the purposes of this analysis, a domestic
source is a member of the ‘‘national technology and
industrial base’’ as defined in Title X of the United
States Code, section 2500: ‘‘persons and
organizations that are engaged in research,
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the Department wants to take full
advantage of the competitive benefits
offered by access to the best global
suppliers; and to promote consistency
and fairness in dealing with its allies, all
the while assuring that an adequate
industrial base is maintained to support
defense needs. Consequently, the
Department uses, and sometimes may be
dependent on, reliable non-U.S.
suppliers. At the same time, the
Department is not willing to accept
foreign vulnerability which poses risks
to national security. Non-U.S. suppliers
represent a foreign vulnerability if their
use would present an unacceptable risk
that the Department would be unable to
access the capabilities, products, or
services that it needs, when it needs
them.
The key finding of this analysis is that
specialty metals, as defined in 10 U.S.C.
2533b, are not ‘‘materials critical to
national security’’ for which only a U.S.
source should be used; and there is no
national security reason for the
Department to take action to ensure a
long term domestic supply of these
specialty metals.2 The ‘‘criticality’’ of a
material is a function of its importance
in DoD applications, the extent to which
DoD actions are required to shape and
sustain the market, and the impact and
likelihood of supply disruption. The
analysis showed that specialty metals
are ‘‘strategic materials’’ which may
require special monitoring and
attention/action; but not, in general, a
domestic source restriction.3 Should
reliable supplies/capacities be
insufficient to meet potential
requirements for a projected conflict,
other risk mitigation options, including
stockpiling, could represent an effective
alternative.
High purity beryllium, however, is a
critical material. Even in peacetime,
defense applications dominate the
market; it is essential for important
defense systems and unique in the
function it performs. In addition,
domestic production capabilities have
atrophied, and there are no reliable
foreign suppliers. Accordingly, the
Department should continue to take
those special actions necessary to
maintain a long term domestic supply of
high purity beryllium. In fact, the
Department has established a project
development, production, or maintenance activities
conducted within the United States and Canada.’’
2 Congress has placed no domestic source
restrictions on the ores and other basic materials
that are the precursors to specialty metals.
However, for truly critical materials, reliable
sources of supply for such ores and other basic
materials also may be necessary.
3 Notwithstanding this finding, the Department is
complying, and will comply, with all statutory
domestic source requirements.
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under Title III of the Defense Production
Act with U.S. supplier Brush-Wellman
to build and operate a new high purity
beryllium production facility.
The Strategic Materials Protection
Board (SMPB) should review and
validate any internal or external
recommendations that identify strategic
materials that are essential for a wide
variety of important defense
applications and for which there is a
relatively high potential for supply
disruption. For example, a relatively
high potential for supply disruption
would be represented by a situation in
which reliable supplies (U.S. or nonU.S.) are projected to be insufficient to
support the defense needs of the United
States during peacetime and/or during a
conflict. In such circumstances, DoD
market intervention such as increasing
or establishing reliable production
capability and/or stockpiling may be an
effective risk mitigation strategy.
Analysis
Specialty metals are not ‘‘critical
materials.’’ There is no national security
reason for the Department to take action
to ensure a long term domestic supply
of specialty metals.
The Specialty Steel Industry of North
America (SSINA) produced a report in
December 2005 entitled ‘‘Specialty
Metals and the National Defense.’’ 4 In
it, the SSINA asserted that ‘‘specialty
metals are vitally important to virtually
every U.S. military platform’’ and
provided a listing of the many DoD
weapons systems that contain specialty
metals. While many important DoD
systems do incorporate specialty metals,
incorporation into a DoD system does
not, by itself, make a material ‘‘critical
to national security.’’ If incorporation
alone was sufficient, every type of
material from plastic, to rubber and
glass, would be a critical material. More
discriminating criteria are needed to
distinguish critical materials from the
larger set of strategic materials.
The designation of a strategic material
should be predicated on it meeting a
‘‘technical’’ criterion: The material
should be essential for important
defense systems and unique in the
function it performs—there are no
viable material alternatives available.
Critical materials are a subset of
strategic materials. The Department of
Defense should designate a material as
‘‘critical to national security’’ only if it
meets the ‘‘technical’’ criterion of a
‘‘strategic’’ material; and also meets two
additional criteria:
• ‘‘Business’’ criterion: The
Department of Defense dominates the
market for the material, and its active
and full involvement and support is
necessary to sustain and shape the
strategic direction of the market; and
• ‘‘Security of Supply’’ criterion:
There is significant and unacceptable
risk of supply disruption due to
vulnerable U.S. or qualified non-U.S.
suppliers.
The Department agrees that strategic
materials, including specialty metals,
are essential for important defense
systems, and in many cases are unique
in the functions they perform. Therefore
specialty metals are considered strategic
materials. However, specialty metals do
not meet the other criteria necessary to
be considered critical materials.
The Department of Defense does not
dominate the market for specialty
metals; its active and full involvement
and support is not necessary to sustain
and shape the strategic direction of the
market; and the risk of supply
disruption is not significant. According
to the SSINA, ‘‘defense applications
account for less than 10% of revenues
in specialty metals companies.’’ 5 Recent
Defense Contract Management Agency
analysis of certain metals found that
DoD consumes less than 1 percent of
total U.S. steel production; about 6
percent of U.S. aluminum production;
and between 8 and 10 percent of
domestic titanium production. In 2007,
U.S. and non-U.S. military end-use
applications, including military
aerospace, represented about 5 percent
of worldwide titanium consumption.
The health of the domestic specialty
metals industry is, and will continue to
be, determined by its ability to sell core
commercial products to commercial
customers.
Whether or not DoD applications are
dominant in the specialty metals
market, the Department has the ability,
when necessary, to require that its
orders be filled in advance of non-DoD
orders. Under the Defense Priorities and
Allocations System (DPAS; 15 CFR 700),
U.S. suppliers must give DoD orders
delivery preference over non-DoD
(commercial) orders in the event of a
supply constraint or delivery conflict.
DPAS authorities, coupled with the size
of the domestic specialty metals
production capacity relative to limited
DoD consumption, ensures the
Department is able to purchase the
quantity of specialty metals it needs
from U.S. industry.
For a material to be elevated to
‘‘critical material’’ status there must also
be a significant risk of supply
disruption. For specialty metals, in
addition to strong U.S. suppliers, there
are reliable foreign suppliers. Specialty
steels and metal alloys are produced
globally; leading producers include
Japan, South Korea, Germany, India,
Brazil, Mexico, Canada, Australia, and
the UK. Titanium and titanium alloys
are produced in Japan, Italy, Germany,
France, and the UK. Zirconium and
zirconium alloys are produced in
Canada, Germany, France, and Japan.
Although many metals are commodities
and traded throughout the global
market, there are cases in which the
price of a metal varies by region. Table
1 summarizes the sources and prices for
a select set of metals. It highlights the
extent to which such metals are
imported into the United States, the
largest producers world-wide and the
largest importers into the Unite States,
and differences in metal prices in
domestic and foreign markets. (Note that
there is no statutory domestic source
restriction for titanium sponge.)
TABLE 1—SOURCES AND PRICES FOR SELECT METALS
Material
Import
reliance
(%)
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Aluminum ...................................
26
Raw Steel ..................................
12
4 SSINA is a Washington, DC-based trade
association representing virtually all continental
specialty metals producers. The December 2005
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Largest world producers
(% of world production)
China
Russia
Canada
China
Japan
32 .............................
11 ............................
8 ............................
37 .............................
9 ...............................
Largest U.S. import sources
(% of U.S.
imports)
Canada
55 ..........................
Russia
17.
Brazil
4.
Canada
17 ..........................
E.U.
16.
report is available at https://www.ssina.com/news/
releases/pdf_releases/12_06_05_Defense_Paper.pdf.
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5 SSINA
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Domestic
source price
($/metric
ton)
Foreign
source price
($/metric
ton)
$1,942
$1,852
756
710
press release, June 23, 2005.
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Federal Register / Vol. 74, No. 34 / Monday, February 23, 2009 / Notices
TABLE 1—SOURCES AND PRICES FOR SELECT METALS—Continued
Material
Import
reliance
(%)
Cobalt ........................................
78
Copper .......................................
37
Nickel (metal) ............................
21
Titanium (sponge) .....................
64
Zinc (refined) .............................
58
High Purity Beryllium .................
(1)
Largest world producers
(% of world production)
Largest U.S. import sources
(% of U.S.
imports)
U.S. 7 .....................................
Congo
36 ............................
Canada
13 ..........................
Zambia
11 ...........................
Chile
37 ..............................
Peru
8 .................................
U.S.
8 ..................................
Russia
19 ............................
Canada
15 ..........................
Australia
11 .........................
Japan
28 .............................
Russia
23 ............................
China
23 .............................
China
27 .............................
Peru
14 ...............................
Australia
13 .........................
U.S.
77 ................................
China
15 .............................
Mozambique
5 ....................
Mexico
11.
Norway
21 ..........................
Russia
19.
Canada
10.
Chile
39 ..............................
Canada
32.
Peru
15.
Canada
41 ..........................
Russia
16.
Norway
11.
Kazakhstan
51 ....................
Japan
37.
Russia
7.
Canada
64 ..........................
Mexico
17.
Kazakhstan
9.
Kazakhstan
42 ....................
Germany
24.
U.K.
6.
Domestic
source price
($/metric
ton)
Foreign
source price
($/metric
ton)
43,266
44,899
3,715
3,716
11,248
10,698
18,060
7,800
1,231
1,152
357,000
(2)
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Sources: USGS 2008 Mineral Commodities Summaries, American Metal Market, COMEX, CRU Monitor, London Metal Exchange, Metal Bulletin, New York Dealer, New York Mercantile Exchange, Platts, Purchasing Magazine.
1 Net exporter.
2 Not available.
In accordance with DoD Handbook
5000.60–H, ‘‘Assessing Defense
Industrial Capabilities,’’ reliable foreign
suppliers are usually acceptable, and in
fact are encouraged to allow the
Department to obtain a wider
competitive cost and technology base.
Foreign dependence does not
necessarily mean foreign vulnerability.
Therefore, the Department uses foreign
sources where advantageous and within
the limitations of the law. However, in
some circumstances foreign suppliers
are not acceptable:
• Foreign sources may pose an
unacceptable risk when there is a high
‘‘market concentration’’ combined with
political or geopolitical vulnerability. A
sole source supplier existing only in one
physical location and vulnerable to
serious political instability may not be
available when needed.
• Suppliers from politically
unfriendly or anti-American foreign
countries, as defined by statute or U.S.
Government policy, are not used to meet
U.S. defense needs.
• A U.S. source may be needed for
technologies and products that are
either classified, offer unique
warfighting superiority, or could be
used by foreign nations to develop
countermeasures.
• Suppliers that cannot or will not
provide products for military
applications for political reasons are not
feasible sources.
• The Department of Defense is
required by law to purchase a particular
product from U.S. sources only.
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In some instances, the Department
must pay a premium in order to
maintain a domestic production
capability. For ‘‘critical’’ materials and
comparable ‘‘critical’’ military-unique
systems, subsystems, and components,
the Department is willing to pay that
premium to mitigate risk and ensure
national defense/security. However, in
addition to a price premium, in such
cases the Department also may assume
risk associated with insufficient
production capacity to meet rapidly
increased contingency or operational
requirements. ‘‘Captive’’ DoD markets
frequently size themselves to meet
steady-state ‘‘peacetime’’ DoD demand
and may not be able to surge production
as rapidly as desired.
For example, the Department recently
experienced a significant shortfall in
thin gauge MIL–A grade steel armor
production capacity necessary to
support rapid production of the Mine
Resistant Ambush Protected (MRAP)
vehicle and other operationallyimportant ground vehicles requiring
protective armor. The availability of
steel, generally, was not a production
constraint; but the availability of the
specialized thin gauge, quenched and
tempered steel (a ‘‘specialty metal’’)
needed for DoD armor applications was
a constraint. The Department was
required to waive various statutory
domestic source restrictions to meet
operational requirements. The primary
‘‘beneficiary’’ of the waivers was U.S.located Evraz-Oregon Steel. Although
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Oregon Steel quenches and tempers its
steel in the United States, it does not
have a blast furnace and buys its ingot
from Mittal in Mexico. The addition of
Oregon Steel increased relevant
domestic production capacity by about
40 percent.
Conclusions
In summary, the fact that specialty
metals are essential for important
defense systems does not mean that
specialty metals are critical materials,
nor that national security requires that
only U.S.-produced specialty metals be
used for DoD applications.
Beryllium
High purity beryllium is both a
strategic and a critical material.
High purity beryllium is essential for
important defense systems, and it is
unique in the function it performs. High
purity beryllium possesses unique
properties that make it indispensable in
many of today’s critical U.S. defense
systems, including sensors, missiles and
satellites, avionics, and nuclear
weapons.
The Department of Defense dominates
the market for high purity beryllium and
its active and full involvement is
necessary to sustain and shape the
strategic direction of the market.
There is a significant risk of supply
disruption. Without DoD involvement
and support, U.S. industry would not be
able to provide the material for defense
applications. There are no reliable
foreign suppliers that could provide
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Federal Register / Vol. 74, No. 34 / Monday, February 23, 2009 / Notices
high purity beryllium to the
Department.
Recognizing that high purity
beryllium meets all the conditions for
being a critical material, the Department
should take, and has taken, special
action to maintain a domestic supply.
The Department has used the authorities
of Title III of the Defense Production Act
to contract with U.S. firm BrushWellman, Inc. to build and operate a
new high purity beryllium production
plant. The new facility will produce
pure beryllium capable of meeting the
specifications required for myriad
national security applications.
Dated: February 6, 2009.
Patricia L. Toppings,
OSD Federal Register Liaison Officer,
Department of Defense.
[FR Doc. E9–3708 Filed 2–20–09; 8:45 am]
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DATES: March 9–10, 2009.
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March 9, 2009
7 a.m.–12 p.m. (Open Session).
12 p.m.–2:15 p.m. (Administrative
Working Meeting).
2:15 p.m.–5:15 p.m. (Open Session).
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8 a.m.–4:30 p.m. (Administrative
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ADDRESSES: Flagler Ballroom, Marriott
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Dated: February 17, 2009.
Patricia L. Toppings,
OSD Federal Register Liaison Officer,
Department of Defense.
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]]>Agencies
[Federal Register Volume 74, Number 34 (Monday, February 23, 2009)]
[Notices]
[Pages 8061-8064]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-3708]
=======================================================================
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DEPARTMENT OF DEFENSE
Office of the Secretary
Analysis of National Security Issues Associated With Specialty
Metals
AGENCY: Office of the Deputy Under Secretary of Defense for Industrial
Policy, Office of the Under Secretary of Defense for Acquisition,
Technology and Logistics, DoD.
ACTION: Analysis of National Security Issues Associated with Specialty
Metals.
-----------------------------------------------------------------------
SUMMARY: Specialty metals are not ``critical materials.'' There is no
national security reason for the Department to take action to ensure a
long term domestic supply of specialty metals.
FOR FURTHER INFORMATION CONTACT: Rick Lowden, (703) 601-5003.
SUPPLEMENTARY INFORMATION:
A. Congressional Direction
Section 843 of Public Law 109-364 required the establishment of a
Strategic Materials Protection Board (SMPB) composed of representatives
of the Secretary of Defense, the Under Secretaries for Intelligence and
Acquisition, Technology, and Logistics, and the Secretaries of the
Military Departments. The SMPB is to determine the need to provide a
long-term domestic supply of strategic materials designated as critical
to national security, and analyze the risk associated with each
material and the effect on national defense that non-availability from
a domestic source would have. 10 U.S.C. 2533b ``Requirement to buy
strategic materials critical to national security from American
sources'' currently lists specialty metals as strategic materials
critical to national security.
In its Report to Congress of its meeting of July 17, 2007, the SMPB
reported that it had formed, met, and agreed to initially focus its
efforts on determining the need to take action to ensure a long term
domestic supply of specialty metals as designated in 10 U.S.C. 2533b;
and to direct the Board's Executive Secretary to conduct an initial
analysis of national security issues associated with strategic
materials (specialty metals); and to report the results of that
analysis at the next SMPB meeting.
The SMPB held its second meeting on December 12, 2008 during which
the SMPB agreed that the term ``Strategic Material'' shall mean--A
material (1) which is essential for important defense systems, (2)
which is unique in the function it performs, and (3) for which there
are no viable alternatives. Strategic Materials include those specialty
metals listed in 10 U.S.C. 2533b, and any other materials the Board may
designate.
The SMPB also agreed that the term ``Material Critical to National
Security'' (or ``Critical Material'') shall mean--A strategic material
for which (1) the Department of Defense dominates the market for the
material, (2) the Department's full and active involvement and support
are necessary to sustain and shape the strategic direction of the
market, and (3) there is significant and unacceptable risk of supply
disruption due to vulnerable U.S. or qualified non-U.S. suppliers.
Accordingly, the Board should initially focus its efforts on
determining which strategic materials are ``materials critical to
national security'' and require a long term domestic source of supply.
The SMPB also validated an Initial Analysis of National Security
Issues Associated with Strategic Materials.
B. Initial Analysis of National Security Issues Associated With
Strategic Materials
Summary
Reliable access to the materiel it needs is a bedrock requirement
for the Department of Defense. However, reliable access does not always
necessitate a domestic source.\1\ In fact, the Department wants to take
full advantage of the competitive benefits offered by access to the
best global suppliers; and to promote consistency and fairness in
dealing with its allies, all the while assuring that an adequate
industrial base is maintained to support defense needs. Consequently,
the Department uses, and sometimes may be dependent on, reliable non-
U.S. suppliers. At the same time, the Department is not willing to
accept foreign vulnerability which poses risks to national security.
Non-U.S. suppliers represent a foreign vulnerability if their use would
present an unacceptable risk that the Department would be unable to
access the capabilities, products, or services that it needs, when it
needs them.
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\1\ For the purposes of this analysis, a domestic source is a
member of the ``national technology and industrial base'' as defined
in Title X of the United States Code, section 2500: ``persons and
organizations that are engaged in research, development, production,
or maintenance activities conducted within the United States and
Canada.''
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The key finding of this analysis is that specialty metals, as
defined in 10 U.S.C. 2533b, are not ``materials critical to national
security'' for which only a U.S. source should be used; and there is no
national security reason for the Department to take action to ensure a
long term domestic supply of these specialty metals.\2\ The
``criticality'' of a material is a function of its importance in DoD
applications, the extent to which DoD actions are required to shape and
sustain the market, and the impact and likelihood of supply disruption.
The analysis showed that specialty metals are ``strategic materials''
which may require special monitoring and attention/action; but not, in
general, a domestic source restriction.\3\ Should reliable supplies/
capacities be insufficient to meet potential requirements for a
projected conflict, other risk mitigation options, including
stockpiling, could represent an effective alternative.
---------------------------------------------------------------------------
\2\ Congress has placed no domestic source restrictions on the
ores and other basic materials that are the precursors to specialty
metals. However, for truly critical materials, reliable sources of
supply for such ores and other basic materials also may be
necessary.
\3\ Notwithstanding this finding, the Department is complying,
and will comply, with all statutory domestic source requirements.
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High purity beryllium, however, is a critical material. Even in
peacetime, defense applications dominate the market; it is essential
for important defense systems and unique in the function it performs.
In addition, domestic production capabilities have atrophied, and there
are no reliable foreign suppliers. Accordingly, the Department should
continue to take those special actions necessary to maintain a long
term domestic supply of high purity beryllium. In fact, the Department
has established a project
[[Page 8062]]
under Title III of the Defense Production Act with U.S. supplier Brush-
Wellman to build and operate a new high purity beryllium production
facility.
The Strategic Materials Protection Board (SMPB) should review and
validate any internal or external recommendations that identify
strategic materials that are essential for a wide variety of important
defense applications and for which there is a relatively high potential
for supply disruption. For example, a relatively high potential for
supply disruption would be represented by a situation in which reliable
supplies (U.S. or non-U.S.) are projected to be insufficient to support
the defense needs of the United States during peacetime and/or during a
conflict. In such circumstances, DoD market intervention such as
increasing or establishing reliable production capability and/or
stockpiling may be an effective risk mitigation strategy.
Analysis
Specialty metals are not ``critical materials.'' There is no
national security reason for the Department to take action to ensure a
long term domestic supply of specialty metals.
The Specialty Steel Industry of North America (SSINA) produced a
report in December 2005 entitled ``Specialty Metals and the National
Defense.'' \4\ In it, the SSINA asserted that ``specialty metals are
vitally important to virtually every U.S. military platform'' and
provided a listing of the many DoD weapons systems that contain
specialty metals. While many important DoD systems do incorporate
specialty metals, incorporation into a DoD system does not, by itself,
make a material ``critical to national security.'' If incorporation
alone was sufficient, every type of material from plastic, to rubber
and glass, would be a critical material. More discriminating criteria
are needed to distinguish critical materials from the larger set of
strategic materials.
---------------------------------------------------------------------------
\4\ SSINA is a Washington, DC-based trade association
representing virtually all continental specialty metals producers.
The December 2005 report is available at https://www.ssina.com/news/
releases/pdf_releases/12_06_05_Defense_Paper.pdf.
---------------------------------------------------------------------------
The designation of a strategic material should be predicated on it
meeting a ``technical'' criterion: The material should be essential for
important defense systems and unique in the function it performs--there
are no viable material alternatives available.
Critical materials are a subset of strategic materials. The
Department of Defense should designate a material as ``critical to
national security'' only if it meets the ``technical'' criterion of a
``strategic'' material; and also meets two additional criteria:
``Business'' criterion: The Department of Defense
dominates the market for the material, and its active and full
involvement and support is necessary to sustain and shape the strategic
direction of the market; and
``Security of Supply'' criterion: There is significant and
unacceptable risk of supply disruption due to vulnerable U.S. or
qualified non-U.S. suppliers.
The Department agrees that strategic materials, including specialty
metals, are essential for important defense systems, and in many cases
are unique in the functions they perform. Therefore specialty metals
are considered strategic materials. However, specialty metals do not
meet the other criteria necessary to be considered critical materials.
The Department of Defense does not dominate the market for
specialty metals; its active and full involvement and support is not
necessary to sustain and shape the strategic direction of the market;
and the risk of supply disruption is not significant. According to the
SSINA, ``defense applications account for less than 10% of revenues in
specialty metals companies.'' \5\ Recent Defense Contract Management
Agency analysis of certain metals found that DoD consumes less than 1
percent of total U.S. steel production; about 6 percent of U.S.
aluminum production; and between 8 and 10 percent of domestic titanium
production. In 2007, U.S. and non-U.S. military end-use applications,
including military aerospace, represented about 5 percent of worldwide
titanium consumption. The health of the domestic specialty metals
industry is, and will continue to be, determined by its ability to sell
core commercial products to commercial customers.
---------------------------------------------------------------------------
\5\ SSINA press release, June 23, 2005.
---------------------------------------------------------------------------
Whether or not DoD applications are dominant in the specialty
metals market, the Department has the ability, when necessary, to
require that its orders be filled in advance of non-DoD orders. Under
the Defense Priorities and Allocations System (DPAS; 15 CFR 700), U.S.
suppliers must give DoD orders delivery preference over non-DoD
(commercial) orders in the event of a supply constraint or delivery
conflict. DPAS authorities, coupled with the size of the domestic
specialty metals production capacity relative to limited DoD
consumption, ensures the Department is able to purchase the quantity of
specialty metals it needs from U.S. industry.
For a material to be elevated to ``critical material'' status there
must also be a significant risk of supply disruption. For specialty
metals, in addition to strong U.S. suppliers, there are reliable
foreign suppliers. Specialty steels and metal alloys are produced
globally; leading producers include Japan, South Korea, Germany, India,
Brazil, Mexico, Canada, Australia, and the UK. Titanium and titanium
alloys are produced in Japan, Italy, Germany, France, and the UK.
Zirconium and zirconium alloys are produced in Canada, Germany, France,
and Japan. Although many metals are commodities and traded throughout
the global market, there are cases in which the price of a metal varies
by region. Table 1 summarizes the sources and prices for a select set
of metals. It highlights the extent to which such metals are imported
into the United States, the largest producers world-wide and the
largest importers into the Unite States, and differences in metal
prices in domestic and foreign markets. (Note that there is no
statutory domestic source restriction for titanium sponge.)
Table 1--Sources and Prices for Select Metals
----------------------------------------------------------------------------------------------------------------
Domestic Foreign
Import Largest world Largest U.S. source source
Material reliance producers (% of import sources (% price ($/ price ($/
(%) world production) of U.S. imports) metric ton) metric ton)
----------------------------------------------------------------------------------------------------------------
Aluminum........................ 26 China 32........... Canada 55......... $1,942 $1,852
........... Russia 11.......... Russia 17.........
........... Canada 8........... Brazil 4..........
Raw Steel....................... 12 China 37........... Canada 17......... 756 710
........... Japan 9............ E.U. 16...........
[[Page 8063]]
........... U.S. 7............. Mexico 11.........
Cobalt.......................... 78 Congo 36........... Norway 21......... 43,266 44,899
........... Canada 13.......... Russia 19.........
........... Zambia 11.......... Canada 10.........
Copper.......................... 37 Chile 37........... Chile 39.......... 3,715 3,716
........... Peru 8............. Canada 32.........
........... U.S. 8............. Peru 15...........
Nickel (metal).................. 21 Russia 19.......... Canada 41......... 11,248 10,698
........... Canada 15.......... Russia 16.........
........... Australia 11....... Norway 11.........
Titanium (sponge)............... 64 Japan 28........... Kazakhstan 51..... 18,060 7,800
........... Russia 23.......... Japan 37..........
........... China 23........... Russia 7..........
Zinc (refined).................. 58 China 27........... Canada 64......... 1,231 1,152
........... Peru 14............ Mexico 17.........
........... Australia 13....... Kazakhstan 9......
High Purity Beryllium........... (\1\) U.S. 77............ Kazakhstan 42..... 357,000 (\2\)
........... China 15........... Germany 24........
........... Mozambique 5....... U.K. 6............
----------------------------------------------------------------------------------------------------------------
Sources: USGS 2008 Mineral Commodities Summaries, American Metal Market, COMEX, CRU Monitor, London Metal
Exchange, Metal Bulletin, New York Dealer, New York Mercantile Exchange, Platts, Purchasing Magazine.
\1\ Net exporter.
\2\ Not available.
In accordance with DoD Handbook 5000.60-H, ``Assessing Defense
Industrial Capabilities,'' reliable foreign suppliers are usually
acceptable, and in fact are encouraged to allow the Department to
obtain a wider competitive cost and technology base. Foreign dependence
does not necessarily mean foreign vulnerability. Therefore, the
Department uses foreign sources where advantageous and within the
limitations of the law. However, in some circumstances foreign
suppliers are not acceptable:
Foreign sources may pose an unacceptable risk when there
is a high ``market concentration'' combined with political or
geopolitical vulnerability. A sole source supplier existing only in one
physical location and vulnerable to serious political instability may
not be available when needed.
Suppliers from politically unfriendly or anti-American
foreign countries, as defined by statute or U.S. Government policy, are
not used to meet U.S. defense needs.
A U.S. source may be needed for technologies and products
that are either classified, offer unique warfighting superiority, or
could be used by foreign nations to develop countermeasures.
Suppliers that cannot or will not provide products for
military applications for political reasons are not feasible sources.
The Department of Defense is required by law to purchase a
particular product from U.S. sources only.
In some instances, the Department must pay a premium in order to
maintain a domestic production capability. For ``critical'' materials
and comparable ``critical'' military-unique systems, subsystems, and
components, the Department is willing to pay that premium to mitigate
risk and ensure national defense/security. However, in addition to a
price premium, in such cases the Department also may assume risk
associated with insufficient production capacity to meet rapidly
increased contingency or operational requirements. ``Captive'' DoD
markets frequently size themselves to meet steady-state ``peacetime''
DoD demand and may not be able to surge production as rapidly as
desired.
For example, the Department recently experienced a significant
shortfall in thin gauge MIL-A grade steel armor production capacity
necessary to support rapid production of the Mine Resistant Ambush
Protected (MRAP) vehicle and other operationally-important ground
vehicles requiring protective armor. The availability of steel,
generally, was not a production constraint; but the availability of the
specialized thin gauge, quenched and tempered steel (a ``specialty
metal'') needed for DoD armor applications was a constraint. The
Department was required to waive various statutory domestic source
restrictions to meet operational requirements. The primary
``beneficiary'' of the waivers was U.S.-located Evraz-Oregon Steel.
Although Oregon Steel quenches and tempers its steel in the United
States, it does not have a blast furnace and buys its ingot from Mittal
in Mexico. The addition of Oregon Steel increased relevant domestic
production capacity by about 40 percent.
Conclusions
In summary, the fact that specialty metals are essential for
important defense systems does not mean that specialty metals are
critical materials, nor that national security requires that only U.S.-
produced specialty metals be used for DoD applications.
Beryllium
High purity beryllium is both a strategic and a critical material.
High purity beryllium is essential for important defense systems,
and it is unique in the function it performs. High purity beryllium
possesses unique properties that make it indispensable in many of
today's critical U.S. defense systems, including sensors, missiles and
satellites, avionics, and nuclear weapons.
The Department of Defense dominates the market for high purity
beryllium and its active and full involvement is necessary to sustain
and shape the strategic direction of the market.
There is a significant risk of supply disruption. Without DoD
involvement and support, U.S. industry would not be able to provide the
material for defense applications. There are no reliable foreign
suppliers that could provide
[[Page 8064]]
high purity beryllium to the Department.
Recognizing that high purity beryllium meets all the conditions for
being a critical material, the Department should take, and has taken,
special action to maintain a domestic supply. The Department has used
the authorities of Title III of the Defense Production Act to contract
with U.S. firm Brush-Wellman, Inc. to build and operate a new high
purity beryllium production plant. The new facility will produce pure
beryllium capable of meeting the specifications required for myriad
national security applications.
Dated: February 6, 2009.
Patricia L. Toppings,
OSD Federal Register Liaison Officer, Department of Defense.
[FR Doc. E9-3708 Filed 2-20-09; 8:45 am]
BILLING CODE 5001-06-P
