POTENTIAL FOR SOVIET TRADE WITH THE UNITED STATES IN INDUSTRIAL RAW MATERIALS (

Created: 12/1/1971

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NTELLIGENCE

Intelligence Report

Potenlial for Soviet Trade will) ibe United Stales in Industrial Raw Materials

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December

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CENTRAL INTELLIGENCE AGENCY Directorate or Intelligence1

INTELLIGENCE REPORT

POTENTIAL FOR SOVIET TRADE WITH THE UNITED STATES IN INDUSTRIAL RAW MATERIALS

Highlights.

. Kosygin rccenlly proposed thai US firms participate with tbe USSR in the exploitation of Soviet raw material resources such as copper, crude oil and natural gas. diamonds, manganese, phosphates, timber, and titanium. US firms would supply mining equipment and services and bc repaid in the product of the venture. Kosygin's proposaloviet desire to develop its mineral and timber resources to meet export commitments to the Communist countries of Eastern Europe, which arc heavily dependent on the USSR for many raw materials, and to provide saleable items to the West to earn foreign exchange.

The Soviets will need several bdlion dollars of foreign investment capital over the next decade to develop mineral and limber resources If they are lo do so without compromising other high priority objectives. Although the USSR has the capability to develop most of its resources on its own. there arc heavy compering demands on available manpower and machinery produciion capacity. Also, tn some areas, the USSR prcfeis US (or other foreign) equipmeni because of ils superior technical qualities. The USSR is unable to make cash purchases of US equipment and services on the Stale needed, however, becausecarcity of foreign exchange.

The prospectsor an increased exchange of US equipment and technology for Soviet industrial raw materials arc good for crude oil and natural gas: possible, but less likely, for copper, diamonds, manganese, nickel, and timber; and poor for coal, iron ore, phospliaies. and Uranium.

Nole: This report was prepared by the Office of Economicresearch was completed by the time ihe official reportsvisit of Secretary Stans lo the USSR were distributed, the presentconfined to discussion of trade prospects in areas suggested byand oiher Soviet officials al earlier dates. Thus no attentionin this report to several additional maleriais which Premiery Tin St.si i'i:".

liiilo tin, zinc, rare earths, and high-purily metals."

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arc good for crude oil and natur.il nai because the USSK urgently need* modern petroleum facilities and hastrong interest in US equipment and technology, generally the mint advanced in lhe industrial West Moreover. Soviet oil and natural gas probably can be marketed in the United States or elsewhere.

Prospects are mediocre for copper and manganese because, for the next few yean at least. non-Sonet supplies of these minerals will be ample to meet US and other world demandarked rise in prices. Some trade in copper could developowever, if. is seems likely, il becomes necessary to mine lower grade ores in the Uniled States and elsewhere lo meet growing US demand. In the latter half of, some Irade in manganese also is possible because Ihe United Slates is: almost wholly depcndenl on imports. Nevertheless, Soviet terms would have lo be especially favorable lo compete with well-established sources of supply in Brazil and Gabon.

lhe United Slates has imported small amounts of nickel from the USSR in recent yean and will increase such imports under lhe termsontract providing for annual deliveries by the USSRons of nickel to Ihe US Steel Corporation for the next five years Prospects are only fan. however, for any further increase in nickel trade in the next several years

7 Prospects for timber arc slight because ihe USSR probably would no: be willing to sell limber products at prices competitive with those In Canada. US films, however, might bc willing to participateoint developmenl project and to accept some (linbei products for marketing in the United Kingdom or Western Europe. These countries have been relatively large importers of limber products (mostly lumber! fiom the USSR foi several years.

ptospecls for large-scale imports ol Soviel diamondsslight because the marketing of diamonds tn the Uniled Stalescontrolled by the debeers cartel. It is unlikely that USwould be willing toignificant increase in thelow level ol diamond imports outside of tlie establishedof Ihe debeers cartel.

outlook for irade in coking coal, phosphates, non ore,seems especially poor Supplies of coking coal will beworld maikets at lelatively low prices during lhe next decade.United Stales, which produces lhe highesl quality coking coalajor exporter In lhe case of phosphates, bolh theand the USSR are major exporters and hence ire cumjietilors. lhe

USSR has cur into US liuiopean markets to some extent, and. if US firms help (he USSR to develop phosphate deposits in lheegions, Sovic( phosphates might cut into Ihe US share of Ihe large Japanese marker. Tho United Stales is dependent on imports of iron ore for about one-third of its requirements but is not likely soon to need Soviet iron ore to supp!emcn( more reliable sources of supply in nearby Canada and South America. The United Slates has imported small amounts of titanium from the USSR, but US demand for titanium has fallen off sharply wilh the cessation of the supersonic transport program.

(wo olher commodity groups, chrome ore and(lie USSR alreadyajor supplier lo the United Stales.continuation of substantial trade is likely, the USSR has shown noobtaining US or other help from the industrial Wesr to

the period of Ihend beyond, lhe oullook for(he USSR probably is brighter. The Uniled Stales probably willto increase its reliance on foreign suppliers of raw materials asconlinues to grow. 'ITic USSR, with ils extensive resources inthese materials, couldotentially important supplier (oOilier Western markers. Assuming continuation of the East-Westconvcrgenr interests of lhe two countries would seem to makesignificant increase in trade. For example, the USSR might supplyincreasing quantities of other nonferrous metals lo meet growing

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Discussion

Introduction

The USSR recently has shown high-level interest in expanding Soviet-US trade and in obtaining US assistance in developing Soviet mineral and timber resources.. Kosygin. speakingroup of prominent US citizens who had attended Ihe Sixth "Dartmouthn Kiev inrged the removal of US restrictions on trade with the USSR and called for the development of other forms of economic cooperation In particular, he encouraged exchanges of technology ind licensing and mentioned Ihc possibility of joint efforts in the exploration of ihc continental shelf and in development of Soviet raw materials such as copper, crude oil and natural gas, diamonds, manganese, phosphates, titnbci. and titanium. He suggested that US companies participate in the planning of development piojecis. supply equipment and services, and be repaid in the product of the venture. As precedent. Kosygin noted current Japanese participation in development of timber resources in the Soviet Far iuist in exchange for timber, and lhe exchange of Soviet natural gas for steel pipe produced in West Germany. He also observed that the USSR is studying Ihc possibility of some similar arrangement for supplying oil to Western counlncs. These suggestions were repealed by Kosygin in his reccnl discussions wi;fi Secretary Slam in Moscow.

This report examines lhe prospects for irade in lhe commodity groups suggested by Kosygin oi other Soviet officials and in two additional commoditieschrome ore and platinum-groupurrently being exported io ihc Uniled Slates by ihe USSR (seepecial attention is given lo the likelihood of joint efforts and credit compensation arrangements under which US suppliers would extend crcdil to the USSR and be repaid parlly or wholly in goods produced from ihc equipment, technology, or other assistance provided on credit Ihese prospects are considered both for the remaining years of the Soviet Ninth Fivc-Ycarhed for more distant yearsthe "longeretailed ilisctrssion of each of llie resources is contained in lhe Appendix.

Soviet Need for Foreign Assistance

USSR possesses extensive mineral deposits andMany of the nchcsl deposits, howevci. are underdevelopedlocated in ihc regions ol Western and Laslcrn Siberia and in the Soviot

onference of leading US and Soviel citizens liut meets occasionally to discuss inioimally matlcis of inulual tntfrcsi.

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hore severe climate and pooily developed or nonexistent infrastructure present unusually difficult problems of exploitation. West Siberian oil and gas deposits appear, on the basis of limited exploratory dulling, lo bc of excellent quality. The ciude oil. for ihe most part,ow sulfur content, lessnd the gas is low in corrosive properties andigh percentage of methane. Similarly, the Soviets claim thai lhe undeveloped Yakutsk coking coal deposits are of good quality and are low in sulfur content. Chrome ore deposits in Kazakhstan, among the nchesl in the world, contain an abundance of premium-grade ore thai is highly prized in the United Stales for metallurgical applications. Ihc undeveloped copper deposits al Udokan in Siberia arc apparentlyigher quality than most deposits being exploited commercially in the Untied States. Also, lhe quaUty of existing deposits bearing platinum-group metals, and of the platinum deposits as yet undeveloped al Talnakh (nears believed lo bc high. Deposits of Iron ore. however, are only of average quality, and manganese, nickel, and titanium deposits are of questionable quality. More than one-third of the phosphate rock in the USSR is suitable for processing into high-grade concentrates; most of the remainder is lower grade sedimentary phosphorite. Probable locations of the deposits that the Soviets tniend to exploit are shown in the map insets in the Appendix.

Ior some of thesenosl importantly crude oil and natural gashe need to develop new deposits to meei currently planned production goals for the first half ofs urgent. Moreover, if these deposits ate to be developed on schedule, modern petroleum equipment and technology must be acquired from the West. In the case of otheror example,he need to develop new deposits is less urgent, but, because of ihe long lead times before production, development should get under way soon if new sources of supply arc desired by the, foreign assistance is desired for these projects because capacity and technological limitations in many areas of the domestic machine building industry would make il very difficult for the USSR to provide adequate supportroadly-based and economical exploraiion and mining progiam inithout seriously disrupting other high-priority programs. However, limitations exist on Ihc amount of credit lhe USSR can use to obtain such assistance. The USSR owes the West about S2 billion. Debt service now takes upf its export earnings from the West, and continued use of Western credit at the current rate might soon boost this percentageoint beyond which the USSR would not be willing

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y accelerating the development of iis mineral resources, the USSR probably hopes to achieve several objectives: provide for ihc long-range needs of the Soviet economy; meet export commitments to the

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Communist countries of Eastern liurope, which arc heavily dependent on the USSR for many raw materials; and finally, provide for future surpluses that can be sold in the West for hard currency.

Scale and Type of Investments Needed

Ihe USSR is seeking help from the industrial Westery large scale. Although the total dollar value of the foreign investment sought is not known, ir could lotal several billion dollars by the end of the decade. Estimates of the potenrial value of foreign investmenr made by US and rhird country firms for selected raw materials arc as follows: natural gas, SI billion*2', crude0 million initially and up0 million annually for lhe following few years; copper,illion toillion;illion0 million; and timber, at0 million.

In general,pecial form of barterncluding credits and repayments innown as "credit compensation" trading, can be arranged, the USSR likely wouldide range of mining, processing, beneficiating. and transport equipment for development of the resources considered in this report. Probably the USSR will supply the equipment Ibr developing the supporting infrastructure (roads, housing, power, auxiliaryul it may ask for foreign investments in this area as welt Finally, because planned Soviet mining operations arc large, complex, and technologically demanding, it is likely that the USSR also will seek foreign management and engineering expertise.

A full shopping list is not available for specific types of equipment and lechnology desired by the USSR from US and other Western suppliers to help develop lhe resources mentioned by Kosygin.seful indication of the scale and diversify of possible Soviet investment needs for Crude oil and natural gas equipment and technology is given below (see

Trade or Joint Ventures

rade between the United Slates and the USSR in industrial raw materials can take one of several forms; the direct sale of Soviel raw materials to the United States for cash is the traditional method. For several years the United Stales has been purchasing chronic ore and plat mum-group metals (mainly palladium) from the USSR in this manner. Probably this trade will continue and even grow moderately during Ihc next severaleverse How of US ijsv materials lo the USSR is unlikely.

2. Excluding facilities lot cxpuit of liquefied nalura! gas. sec pmeraplis

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econd method is the classic barter arrangementtraight exchange of goods. If the US supplier of commodities or equipment is paid partly in cash and partly in counter-deliveries of goods, the transaction is known as "compensation" trading.

Foreign Investment Needs for Oil and Natural Gas -Summaryase Study

Soviet needs for the oil industry are large and include all phases Of Oil exploration, drilling, extraction, and processing. For exploration, the USSR needs digital recording field units for the collection of seismic information, computer playback centers for processing large amounts of seismic data, formation testers, core barrels and bits, and formation logging (OOts to improve Soviet procedures for assessing underground reservoir conditions For production, the USSR needs rotary drilling rigs, drill pipe, drill bits, blowout preventers, mud pumps, down-hole tools, and cementing equipment. Also, high-volume centrifugal and plunger-type pumps arc needed for use in older producing fields, particularly in Ihe Urals-Volga region, where water encroachment haserious problem. For processing, lhe USSR needs technology and equipment to remove water and salt from ciude oil before it is transposed to refineries and secondary refining facililies to improve ihc quality and diversity of Soviet oil products.

The most pressing need of the Soviet gas industry is for large-diamctei pipeline systems.he USSK plans to0 kilometers of pipelines (mostly large-diameter.nd Sfi0 kilometers for natural gas transport0 kilometers for oil. This ambitious plan will require at leastillion tons of pipe. Currently planned unpoits and domestic production will provide aboutillion tons,hortfall olillion toiis.

Duringhe technology and equipment needs of the Soviet gas industry will intensify as produciion expands in West Siberia and Central Asia. Demand (or high-pressure well-head equipment, valves,!u: o;lri.ihaddilion. each of the several gas producing regions has specialised requirements. In the older gas fields in the European pari of Ihe country, compressors and water-flood equipment are needed to maintain pressure in Ihe reservoirs. In Central Asia, production equipment must be manufactured from special alloy steels to prevent corrosion in fields lhal contain si/able amounts of Sulfur and carbon dioxide. In Siberia, forged steel well-head fittings and ball valves nuide from high-slieiigth slecl alloys will bc requited in large number to ensure reliable operation of tlie equipment under permafrost conditions. Also, to facilitate drilling in permafrost, special drilling fluids and insulated casings, or the use O* casing

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wilh refrigerants and slip-joints lo reduce Ihe possibility of ground ihaw around the well bore and lossell, will be needed. In Ihc noithcrn regions of West Siberia, oiher specialized equipmentype not now available in the USSR will be required to remove gas hydrates and condensates from polar gas well streams. Moreover, if, as expected, crude oil is found beneath the gas-producing strata in several of Ihe largest fields, mullizonc producing equipment will be needed. Soviet oilmen have had only limiled experience with such equipment, which is in very short supply in lhe USSR.

The lack of hermetically-scaled casing joints and of adequate well-head equipment and gas collecting and processing equipment causes the USSR touge volume of associated gas.annually.2 billion cubic metersf gas, valued atillion rubles, were flared nl the oil wells.'" Clearly, the USSR urgently needs equipment lo collect and process the associated gas. Ihc dry gas that is recovered can be recycled into Ihc formation, thus increasing the producing life of lhe Oilfield, or collected and shipped via pipeline for consumption as fuel. Gas processing equipment also can provide for the recovery of liquids lhat can be used as raw material for the chemical

Equipment for liquefying natural gas and loi storing and transportinj, the liquefied gas. although not essential to development of Soviet natural gas resources, wiil be required if. asroposal now under discussion, gas is to be exported to nvcrscas markets

PiQS|>ects for Trade in Selected Raw Materials

prospects for expanded sales of mining equipmentto the USSR, or foi direct US participation In Sovietvery largely depend on Ihc willingness of US companiesvS>materials if they arc marketable in the United Stales or inand if the Soviel terms willetter rclumonalternative opportunities in the non-Cornorld.

JO. illion deal concluded by the Soviet Ministryn* SATKAm o! Vwiuy lmi of several Americaniven an initial impetus to expanded trade. Although specific details are not yet available. US firms will supply

his is more than was consumedy Italy, one ol' ihc largest users ofi ;i

A. Otiriiitj ihe pastyears, the USSH purchased $is processing equipment (rom France aei haly; it is now bcinr Installed

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illion worth of ore mining equipment, including dump trucks, cranes, and loaders,illion worth of tubular goods (drill pipe and lubiug) and mud pumps for oil extraction, with payment in nickel

rospects for Soviet trade with the United States in industrial raw materials in the first half ofppear good for crude oil and naturalossible, bul less favorable, for copper, diamonds, manganese, and timber, and poor for coal, iron ore, phosphates, and titanium. An increase in trade in nickel is assuredesultontract negotiated with the US Steel Corporation for deliveriesive-year period Substantial trade already exists in chrome ore and platinum-group rnetals. (Current levels of US production and imports from major suppliers of these and the oilier commodities considered are shown inecause ihcse minerals are in shorthe United Slates, and because the USSRajor supplier, such trade can be expected to continueubstantial level iu the future.

he outlook for US imports from the USSR is discussed in detail below. Unless otherwise indicated, the time frame refers to the period

Good Prospects (Crude Oil and Natur.il Gas)

The prospects for cooperation in ihe development of Soviet crude oil and natural gas resources arc good because the USSR uigeiitly needs modemfacilities and has expressed strong interest in many kinds of US exploration, drilling, production, and pipeline equipment. Moreover, if the international oil companies can bc persuaded to liansporl and process them, oil and natural gas can be taken in payment by US equipment suppliers for sale in Ihe Uniled States or elsewhere. The USSR may bc willing to pay cash for small orders of equipment or technology, but foi large transactions, credit arrangements and repayment by shipment of oil and gas would probably be required.

Petroleum equipment currently in use in the USSR for the extraction of oil and gas is technologically outdated compared.with US equipment. Production methods are also backward. Soviet oil expetisknowSSRl.ew methods if Ihe Siberian areas arc lo become, as planned, the major source or petroleum in the USSRhese areas arc crucial to !'u' 'Nwlh uf S. oil . "p

S Although shipments of equipment ('tan the United Suits iu ihe USSK could take placemports ol Sovietre unlikely before the lallCi half Of.

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exports ol" oil lo Ihc Wcsl dependonsiderable extent on llie acquisition of Wesicrn equipment and possibly on Western credil.

In the competiiion for up-to-date equipment sales, the Uniled Slates has ail advantage over Japan and Western Europe because US petroleum technology and equipment generally are the most advanced in Ihc world. However, in the area of production of large-diameter pipe, third country competitors are abreast, and even ahead, of the United States. In other selected areas of oilfield equipment manufacture, other producers are rapidly approaching the US level of technology.

The USSR has sought the assistance of US companies in lhe construction of facilities for its natural gas industry in exchange Ibr delivery to the United States of liquefied natural gasepresentatives of Tenneco and Texas Eastern Transmission Corporation, the two largest gas wholesalers in Uic Uniled States, recently returned from the USSR where they conducted exploralory talksossible long-term agreement to import atillion cubicillion cubic meters) per day of Soviet LNG into lhe northeastern United Slates. Such an arrangement would involve investment of an estimated S4 billion foriqiicl'.iction plant,hip terminal in the USSR; for someNG tiinkcis, and for ship terminals, storage tanks, and regasification facilities in the United States.

The cost Of delivering gas from Western Siberia by pipeline to an iec-frcc port in the European USSR should be somcwhal less than the cost Of delivering it to Western Europe, which the Soviets have conlracled io do Torer thousand cubicS per ihousand cubicowever, preliminary calculations by Tenneco and Texas Uaslernriceer thousand cubicer thousand cubicoviet pon. This price would be extietnely profitable for the USSR Conversely, the calculated cost ofer Ihousand mirjic feet landed in the Uniled Mates is substantially higher than tlte proposed landed cost tor LNG from7fl4 per ihousand cubic feet, depending On season and port of cutty).

Mediocre Prospects*

USSR is no! likely lo export large amounts of uopjicrUniled Stales or lo other Western markets in the rcxt severalthe following reasons: (I) The USSR probably will have onlyof copper available for export lo uon-Communist markcls.production of copper in Ihc USSRs geared mainly

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eeting domestic and East Europeanorld supplies of copper are expected Io be adequate to meet the near term needs of the United States and other Western countries at prices below the levels of the.

the longer term the United States, Western Europe,are all potential markets for Sennet copper exports. USfrom Chile, Peru, and Canada, normally accountothe refined copper consumed annually In the United States. InUnited Slatesons of copper. Western Europe,moreillion tons of refined coppernd alsoalmost entirely on imports to meet Iheir needs. Demand forall these countries will grow, while production in somecould be unfavorably affected by unsettled politicalIhc long-term trend in the world copper market, thoughis likely to justify new as well as expanded uourccs of supply.

Ihche USSR may heosition toquantities of copper to Ihe industrial West if it is able lo obtain

foreign investment aid to develop the huge Siberian deposits at Udokan. For several years Ihe USSR has been negotiating with firms in the United Kingdom, France, and Japan for help in developing the Udokan resources. More recently, the Soviets have expressed high-loci interest in help from the United States.

firms may be interested in participating in IheIhe Udokan deposits, eitheronsortium or as independentequipment, if Soviet terms are sufficiently advantageous relative loof developing lowei-gradc deposits in Ihc United Slates and incountries.

Diamonds

the USSR is anxious to expand exports ofihe prospects for US participation in the development ofdeposits are uncertain. Premier Kosygin calledointprobably lo exploit known deposits in the Yakutskiamonds for US equipment and services The Unitedthe world's Liigest market for gem diamonds, but most of thethe US market are handled through the deBeers cattcl. Ifwere to involve deliveries of diamondscale that wouldsizable share ol the US market, US distributors could be expectedstrong resistance. Latge sales of Soviet diamonds in the Unitedof the established marketing network of the deBeers cartel,the maintenanceirm retail price structure for gem diamonds

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Limited US participation involving relatively small clirccl sales of Soviel gem diamonds probably would be feasible. The United Stales alreadymall amount of gem diamonds from lhe USSR.

Manganese

The near-term prospects for trade in manganese are mediocre to poor. An early increase is not likely in Soviet supplies available for export to non-Communist countries.6 production in the USSR has declined and exports have stabilized. Moreover, supplies of manganese on the world market seem adequate to meet lhe needs of the Uniled States and olher industrialized countries.

Trie long-term prospects for trade arc uncertain. Potentially, the Uniled Stales would appear toood market for substantial quantities of Soviet manganese. The United States is dependent on imports for virtually all of its manganese requirements, and US demand for manganese should increase as lhe Ouiput of steel expands. However, the following factors militate against any major Soviet penetration of ihe US market: (I) world supplies ofrincipally from South Alrica, India, Brazil, and Gaoon seem adequate to cover the needs of the United States and olher industrialized Countries lor tne indefiniteS firms have made substantial investments in Brazil and Gabon to ensure adequate fulurc supplies,S firms may be reluctant tr> develop any significant dependency on Soviet supplies. The memory of Soviel actions at the time of Ihe Korean War, when the USSR abruptly sliul off deliveries of manganese io the United States, will be difficult to erase. Finally, as long as the USSR docs not have most-favored-nation (MPN) status, the high tariff rate) for non-MFN countries would discourage large-scale Soviet exports to the Uniled Slates.

On tile Olher hand. US firms may be interested in accepting ore in payment foroint venture in the development of Soviet manganese deposits if lhe product could be marketed elsewhere in lhe West. Anoiher consideration is ihe location of ihe deposits ihe Soviets intend to exploit. Deposns in the Soviel Far bast would favor Japanese participation; deposits in the Ukraine might be attractive to US investors. In all cases, the Soviet lerms would have to be generous to compare favorably with alternative investment opporluiuties in uon-Communisi countries

significant increase in US imports oi Soviet nickel is alreadv

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lhe US Steel Corporation and the USSR Ministry of Foreign Trade. The

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USSR willons or nickel each yearive-year period,oviel shipments at nickel lo the United Slates amounted toons, or less thaif total US nickel imports thai year.

The prospectsrge expansion in trade in nickel between the United Stales and the USSR, beyond that negotiated wilh Ihe US Steel Corporation, are uncertain. The United Stalesarge market for nickel -imports account (orf domesticul currently demand is lagging and supplies arc more than adequate. Although demand for nickel is expected to grows the tempo of economic activity picks up, the supply of nickel also is expected lo keep pace. The International Nickel Companyarge increase in its Canadian production, and major expansion of output is planned in New Caledonia and Guatemala. The other major nickel producers. Falcon bridge of Canada and Le Nickel of France, abo arc adding new productive capacity

Western Europe and Japan are also heavily dependcnl on imported nickel and aie promising markets for the USSR,oviet sales on these markels were valued at aboul SIO0 million. Apparently, ihe USSR envisions expanded sales to these markets. The USSR has been negotiating with the Uniled Kingdom. France, and Japan for assistance in developing the Buruktal nickel deposits near Orsk in the Southern Urals and plans to repay foreign investors iu nickel ore Thb project also was recommended to Secretary Slans by Foreign Trade Minister Patolichev.

Timber

prospects for timber also are uncertain. The US marketappeal lo offer much opportunity for large Soviet sales.lies to Canadian suppliersanada suppliesf USmajor timber productsoupled with the high cost offrom ihe USSR to the United States, make it doubtful thaiproducts can be sold on Ihe US market al prices competitiveinhe USSR may not be interested in negotiating awith ihe United States at prices that would make Sovieton Ihc US market, because lhe USSR probably can sellsurpluses ai higher prices intope. Moreover. USno significant advantage over West European firms or Canadaof equipmeni for forestry developmenl.

S firm might be willing to participateoint development project and to accept some Soviel timber products for marketing in Ihc United Kingdom or Western Europe The Uniled Kingdom in paiiicul.it. which accountedf Soviet exports of limber products

he tariff mi lumber for non-MFN rouiiliiet iser thousand board teet. Cuirenlly. (ho is only aboutf. piicc for lumbcihe US West Coast. The MFN tariff on lumber, which is eiincntly nominal, will br eliminated

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otentially promising market. Markets in the United Kingdom and Western Europe possibly could be expanded if the USSR is assisted in shifting from exports of lumber (In loose form) and logs to packaged wood and processed wood products, the demand for which is growing rapidly in all industrialized countries.

apan, which accounted for% of Soviet exports of timber products (mostly logs)srowing and potentially large market for Soviet products. However, Japan is very active in its own behalf. An agreement for the joint exploitation of Soviet forests is already in force between the USSR and Japan. Japan is supplying machinery and equipmentimber project in the Soviet Faralued at0 million -and is taking out logs in payment. An additional agreement, valued at0 million for wood-processing facilities, is currently being negotiated.illion pulp and paper project has been negotiated with France involving the exchange of French equipment for Soviet pulp, and discussions also are in progress between Finland and the USSR for forestry development projects.

Poor Prospects

Coal

he USSR is interested in foreign assistance for the development of large coking coal deposits in the Yakutsk region of Siberia. The prospects for US participationoint venture lo develop those deposits, however, are poor. The United States has abundani supplies of high-quality coking coal andajor exporter. Also the long Distances involved suggest that Yakutsk coal could nol be sold profitably in Wesicm markets.

apan represents the best potential markcl for Yakutsk Coking coal, but, even here, prospects are not good. Coal delivered to Japan from these deposits probably would cost moreer ton and would face keen competition from Australian and Canadian coking coals. prices in Japan for these coals were, respectively,. The USSR has urged Japan to participate in the development of these deposits, but the capital requirement would beI billion IOillionand Japan has thus far shown little interest. Moreover, Japan has long-term commitments to many suppliers in non-Communist countries. If the Japanese steel industry does not resume its very rapid growth rates of, an international buyei's market foi coking coal could develop, depressing markcl prices and (iirihcr discouraging the development of large new sources of supply.

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Iron Oic

Utile opportunity exists for trade in iron ore between the United States and the USSR in the. Supplies of iron ore on world markets are plentiful, reflecting the current sluggish tempo of the world steel industry. Moreover, the USSR, although il ranks as the worlds largest producer of iron ore. uses nearly all its ouiput to meet its own needs and those of Eastern Europe. Very little iron ore is exported to non-Communist countries,illion tons or aboull produclion went to Japan, the United Kingdom. Italy, and Austria

The USSR, however, has shown considerable interest In the longertepping up its exports of iron ore to non-Communist countries in return fot their help in developing new deposits. Towaid this end, Ihc USSR has negotiated with Ihe United Kingdom for lhe development of lion ore resources on the Kola Peninsula, and with Japan lor the development ol iron ore resources in the Soviet Ear East. US firms mightoint venture in which iron ore is taken in payment because the United States depends on imporls for about one-third of its iron ore requirements. However. Ihc principal suppliers of lhe Unitedanada and Southrc closer and. because of relatively large differential in transportation charges, probably offer belter investment opportunities US firms have already invested in the development of iron ore resources in those counlries. and, in addition, arc now considering investments in potentially rich deposits in Brazil.

Phosphates

The prospccls for Soviel-US trade in phosphates arc poor. The United Stales and the USSR aie both large and competitive exporters oi phosphates. Soviet phosphate (apatite) exports already have cost the United States some markets in Scandinavia and may have kept the United States from making bigger sales in West Germany. In addition, the world phosphate market currently is characterized by excess capacity, intense competition, and relatively low prices Indeed, world output virtually has stagnatednd large Slocks have accumulated in Florida where most US phosphate is produced Substantial increases in production are likely in lhe developing countries, Morocco and Tunisia arcignificant expansion in production capacity, and Algeria. Egypt. Israel, and Jordan, are cither expanding or planning to expand production.esult, lotal supply probably will continue to exceed consumption, at least

In Ihe longer-run. West Germany andoth large importers of phosphateffer more favorable prospccls for Ihe sale

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or Soviet phosphates than docs the US market. Accordingly, firms in those two countries may be willing to accept phosphates in payment for assistance to the USSR for the developmenl of Soviet phosphate deposits. West Germany already has accepted some phusphate rock as partial payment for phosphorus furnaces exported lo the USSR. On Ihe other hand, US firms arc not likely to be interestedenture to develop Soviet resources for exports, thereby creating stiff competition for US exporters to these markets.

Titanium

The prospects for increased trade iu titanium, oroint venture in the exploitation of Soviet titanium resources, are poor. With the cessation of the US supersonic transport program, and the slowdown in aerospace production generally, demand for titanium sponge (crude metal) in the United States has fallen off sharply. The United States has imported titanium sponge from several countries, including Japan, the Uniled Kingdom, and the USSR, but. for the next several years, probably will have ample production capacity to meet lis needs.

Capacity for Ihe production of titanium in non-Communist countries is likely to be more than adequate to meet demand in ihe near future. Indeed, Japan and the United Kingdom may be forced to cut back production in reaction to the declining US demand. Nevertheless, titanium sponge may continue to be imported in small quantities by some US consumers, namely, independent fabricators. Customarily, independent tabneators have not depended on domestic producers and may continue to obtain whatever sponge they may need from their established foreign suppliers.

Chrome Ore

United States probably will continue ro importof high-grade chrome ore from the USSR foi theAlthough the recent legislation to end lhe embargo on importsmay lead to an increase in supplies of chrome ore availableconsumers and case the pressure on prices, the United States willon the USSR for much of us chrome ore. Even prior toof Rhodcsian sanctions, Ihc USSRf theoie imporlcd by the United Slates. However, little likelihoodfins irade will be expanded to include US assistance lor theSoviet chrome resources. The USSR seems to have provided for anof production al its majoi deposits in Kazakhstanthere is no evidence it cither needs or wanls US equipment

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CONFIDENTIAL

I'lalinum-Ooup Mclals*'I

rospccls arc goodontinuing growih in Ihc IradilKHial tr.ui-between the United States and the USSR in platinum group metalsS imports from Ihc USSR of metah in this group were valued atillion. These imports, expressedhare of total US supply, varied widely by type of metal, ranging fromf the supply of palladiumf the supply of rhodium to only aboutf the supply of platinum.

The USSR probably will conlinuc to be Ihe principal supplier of platinum-group mclals on world markets^ because Iheyajor source of foreign exchange earnings for the USSR.oreign exchange earnings from sales of these metals to non-Communisi countries, including the United Stales, amounted to0 million As in the past, however. Soviet offerings of the metals may he restricted periodically and. in view of Ihe limited availability from other sources, may result in an upward pressure on prices.

The USSR has shown no interest in obtaining US or othern development of its resources of plalutum-grouphe USSR alreadyominant supply position on world markcls and probably is reluctant loenture lhat would commit it lo deliveries of specified amounts of platinum-group metals at prc-detcrmined piices. Moreover, ihe USSR probably does not wish lo have US firms involved in activities in the Noril'sk region where most of Ibe platinum-group metals are obtained as by-products in Ihe mining of copper and mckel ores. Becauseongstanding Soviet reluctance lo release production or capacity information on nonferrous metals. Ihe Noril'sk Combine, probably Ihc largest nonferruus metals pioducsng center in the USSR, may be considered "off limits" to any suable contingent of Western technicians.

latmum. palladium, rhodium, iridium, osmium. 3nd1 -

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COins' TIAL

Chrome Ore

Resources

The USSR claims io have the world's largest reserves of chrome ore. Details to support this claim are lacking, but Soviet reserves undoubtedly arc extensive Most of Ihe Soviet reserves are located in Kazakhstan. Additional reserves are in the Ukraine. Urab. Azcibaid/hiii. -nd in lhe Far East. The Domkoye group of deposits near Khrom-Tau in Kazakhstan have tbe higher grade metallurgical ores of excellent quality,hromic oxide with low silicahtome-to-iron ratio of as higho I. Commeicial ores, sold as fines, friable, and hard lumps, contain athromic oxide and normally higher percentages

Pi oduclion

lhe USSR, the lurgjst producer of chiome oic in the world, produced inillion tonsr more than Ihe combined total for South Africa and the Philippines, the next iwo largest producers. In contrast to thu Unned Stales, which is dependent on imports for all ofsupply (other (tun that drawn down from governmentovietdequate to meet all domestic needs and toarge surplus for export. Although produciion targets for the Ninth Five-Yearave noi been announced. Soviel output of chrome ore probably will continue lo eicpand during the next several year*.

confidential"

1 he USSR Is Ihc world's largest expotier of chrome ore. Soviel exports have tripled during the past decade, rising fromillion tons0illion tonshe USSRarge share of the chrome ore requirements of the Communist countries of Eastern Europe, but moref total exports goes to non-Communist countries wilh the United States Ihc principal recipient.hipments to the United States amountedons, with Western Europe and Japan receiving nearly all of the remainder of exports to non-Communist countries.

Market Conditions

Chrome ore has been in tight supply in recent years. Following the imposition of the UN sanctions againsteading world producer, chrome ore prices have risen steadily. The recent Congressional action to permit US firms to resume imports of chrome ore from Rhodesia should help to augment US supplies and to cose prices However, the USSR, as the world's largest producer of high-qualily metallurgical ore, will continue toajor supplier to the United States, Western Europe, and Japan. Even prior to the Rhodesian sanctions, the USSR accountedf the US imports of such ore.

Soviet Interest in Foreign Assistance

The USSR, already established as the woild's largest producer and exporter of chrome ore. has given no indication of any interest in obtaining US or other foreign assistance for further development of this resource.

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CONFIDENTIAL

Coal

(nam Yakutsum

Ri-sonicc

The USSR cbims lhat itrillion ions of coal reserves or more lhan half of Ihe total world reserves. However, onlyf the total Soviet reserve* ire in the "actual" or proved category,rendrc classified asink more lhan one-lenth of Soviet claimed reserves are located in the developed Western regions, and lh? remainder mostly low-grade bituminous oi brown coal. is found easi of the Urals. Il has been estimated also Out more lhan half of the Soviet coil reserves arc located north ofn permafrost soils.

The potential non-Communist markets for Soviel coal arc limited mainly lo coking coal. However, the USSR is cot producing high-quality coking coal in any of ils currcnlly exploited deposits. Most of lhe coking coal deposits in the Western USSR are charaeler-.zed by high sulfur content; reserves east of lhe Urals are largely either high-ash or high-phosphorus coals One unexploited hut potentially rich deposit of reportedly good-quality coking coalow sulfur content has beer, reported al Chul'man in ihc Yakutsk report of Easlcm Siberia.

Produclion

0 Ihe USSR producedmillion tons of raw coal,

includingillion ions ofcoal. Almost all of the

coking coal has lo be cleaned toash and sulfur content to

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CONTID/NTIAL

CONFI

acceptable levels. Available clean coking coal amounted0 million tonsf the coking coal came from four major basins Donets, in the; Kuznets, in West; Karaganda, in Kazakh; and Pechora, in Northern European

The Donets coal is relatively high in sulfur content (upnd has to be mixed" wilh low-sulfur coals before use. Because Ihe coal is mined at great depth from relatively thin coal seams, production costs in Ihe Donels Basin are the highest in the USSR. The best-quality coking coal, high in phosphorus content but low in sulfur, comes from the Kuznets Basin, some of which is produced at relatively low cost by strip mining. Coking coal from the other two maior basins, Karaganda and Pechora, is high in ash content, which is difficult to reduce by cleaning. Present plans call for an increase ofillion tons from the Kuzncls Basin. Most of this increase will be slrip mined coking coal

Fx ports

lhe USSR isajor exporter of coking coal.nlyillion Ions were shipped abroad, compared withillion tons for the United States. Exports were almost evenly split between Communist counlnes and the non-Communist world wilhf Soviel exports to the non-Communist9 million rons) going to Japan.

Markcl Conditions

Overt decade, strains have developed in the world market for coking coalesult of the phenomenal growth in demand by Japan for use in its burgeoning iron and steel industry. Japanese imports of coking coal increased dramaticallyillion ionso nearlyillion tonsxcess production capacity in producing countries gradually was used up, and new mines were noi commissioned in sufficient numbers to meet the sudden spurt in demand This situation was brought home forcefully in the fall ofhen an acute shortage ol coking coal for use in eleclric power generation iu the United States led to demands for an embargo or. US coal shipments lo Japan

tr.nk -iCIivily in ihe Western industrialized nationslump in the Japanese iron and steel industry combined to reverse the condition of lhe world coking coal market. Demand fell off significantly, and world stocks of coking coal rose.

The prospectsore stable world market during the next several years arcurther slcp-np in supply seems assured as new mines nre coming into production, and recently commissioned mines are reaching

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CONFI

designed capacity. If, however, the Japanese iron and steel industry fails to resume its former rapid growth rales, intense competition in marketing the output of lhe newer mines could further depress world prices. Kvenaster tempo of production there will be some slackening in the rate of increase in consumption of coking coal in Japan as improvements in Masl furnace technology yield further savings^ in coke consumption per ton of pig iron produced.

Soviet Interest in Foreign Assistance

The USSR has not sought US assistance for the development of coal reserves but has tried to obtain Japanese investment for the development of coking coal deposits in Ihe Yakutsk area. The Japanese, who thus far have shown little interest, have estimated that lhe tola! capital requirements forroject are "enormous" and would amount to SI billion toillion. Moreover, little precise information aboul the sire and quality of the Yakutsk deposit is available, and an extensive preparatory drilling and prospecting program is required. Thus the lack of prospecting results, coupled with Ihe very high investment requirements, makes it unlikely that any major foreign investment would take placef at all.

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Resources

The USSR claims to have the world's largest reserves of copper. Although up-to-date evidence is lacking to substantiate this claim, Soviet reserves undoubtedly are among the largest in the world. Available data indicate that measured reserves in the USSR at the endS amounted to more thanillion tons of contained metal While Over the past six years proved reserves undoubtedly have increased somewhat, total reserves may not exceed the US level of aboutillion tons of contained metal.

The principal deposits currently being cxploiled are located in Kazakhstan. Other important deposits are found in the Urals. Central Asia, the Kola Peninsula, and the region near Noril'sk. However, the most notable deposit discovered in recent years is the giant Udokan orehe Transbaikal region of last Siberia. The Udokan deposit, which the USSR alleges to be the largest single copper deposit in lhe world, reportedly has the potential toons of refined copper per year for overears. Tlie quality of the ore is said to be high,& loopper content. In the United Stales, commercially exploited ores often average considerably less to terms of copper content.

The USSR has increased production of copper steadily in lbe past decade fromillion tons0illion tons

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Soviel ouipul0 was ihc second largest in the world but still only aboul half the US toialillion Ions. Nevertheless, current production is adequate to meet domestic needs andurplus for export. Production is scheduled Io increase.

Exports

Duringnd, the USSRet importer of copper.owever, annual net exports have rangedons. The Communist countries of Eastern Europe continue to receive most of the copper exported by the USSR,ew non-Communist countries import small quantities.

Market Conditions

The immediate outlook for copper on world markets is one of generally adequate supplies, largely reflecting the lowered tempo of econoniic activity in Ihe industrial West.esult, world copper prices currently arc considerably below the high levels reached during the period of tight supply in the.

Over the longer term the demand for copper probably will increase slcaddy in developing as well as industrialized countries. The US Bureau of Mines estimates that, at cuirenl relative prices for copper and its close substitutes, demand for copper in lhe non-Communist countries5 will increase at rales ranging from abouthus, in the long term, growth in world demand for copper could justify development of ihc Udokan deposits.

Soviet Interest in Forciiqi Assistance

Tlie USSR has shown interest in obtaining foreign participationoint venture for development of its Udokan coppci deposits. More specifically, Soviel officials have been negotiating5 with Japanese, British, and French industrialists to workutually satisfactory agreement. The negotiations have been extremely arduous hecausc of the enormity of the project. Estimates of the total cost* to develop the deposit range up toagnitude that suggesls thaionsortium oi interested companies would bc able tohe necessary capital. Moie recently. Premier Kosygin suggested US pailicipaiion in this project.

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Resources

Piospected reserves of natural diamonds in the USSR arc estimatedillionillion carats, the second largest in the world afterormerly Congohe largest deposits are lode-type deposits in the Yakutsk region at Mirnyy, Ayklial. and Udachnaya. Small placer deposits also are found in Magadan Oblast and in Yakutsk.

The remote location of the deposits and severe climatic conditions have retarded exploitation efforts. Placer deposits are worked only during lhe summer mouths. Underground mining operalions in the lode deposits In Yakutsk are carried on throughout the year, but related processing and suppoit activities on the surface are hampered during the winter

I'lOll

The USSR ranks behind South Africa as the world's second largest producer of diamonds. Soviet production of natural diamonds lias increased steadily since lhend.s estimated lo have reachedillion carats of gem quality stor.es and moreillion carats of industrial stones. Soviet produclion is adequate lo support domestic needsubstantial export trade as well Soviet plans for furl her expansion of production arc not known.

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CONTIOJ'/rnAL

Exports

Tlie USSK exports both gem quality and industrial diamonds. Industrial diamonds are shippedarge number of Communist and non-Communist countries, but. in terms of value, shipments are relatively small, amounting onlyew million dollars in recent years. Virtually all of the gem diamonds exported by the USSR arc directed lo the industrial West, with sales increasing sharplyillion57 millionhe Uniled Kingdom received SIS6 million of the total shipmentsnd the United Slates received the remainingillion.

Soviet exports of gem diamonds to the United Kingdom are believed to be marketed in London through lhe central sales organization ofartel that controlsf lhe toial world supply of gem diamonds. By absorbing the Soviet diamonds, deBeers is able to control the supply and, in turn, the prices on non-Communistarge share of Soviet diamonds probably is re-exported to lhe United Stales and Western Europe.

Market Conditions

The world market for gem diamonds is centered in the United States and Western Europe, which taken together probably account for more than three-fourths of all diamond sales.ales of diamonds by Ihc deBeers organization droppedrom9 level, reflecting Ihe generally poor economic conditions in the Uniled Stales and Western Europe. Given the observed secular trends of the past, the long-term growth in demand for diamonds undoubtedly will resume with an upturn in economic activity in the industrial West.

Soviel Intcrcsr in Foreign Assistance

Joint Soviet-US exploitation of diamond deposits was proposed by Premier Kosygin with payment for US equipment and services in diamonds. The USSR is not known to have approached any other non-Communist; ih 'i r'i^istiirc' inuV u' di'i-ioiu! deposits.

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Iron Ore

.Kovdoi

Resources

The USSR lias the largest iron ore reserves in lhe world. Accordingecent UN survey of world iron ore resources, Soviet reserves of exploitable iron oreillion ions and account for moref the world lotal. For the most part. Soviet iron ore is of no more than average quality and generally requires upgrading- While the major producing area Currently is in the Klivoy Rog Basin in the Ukraine, the Kursk Magnetic Anomoly, located between Orel and Kliar'kov, is said to contain the world's largest reserves of rich ore. Output is still relatively small compared with that ai Knvoy Rog. but eventually it is scheduled to rival or surpass the latter. Other important producing deposits include: the Sokolov-Sarbay deposits in Northern Kazakhstan, the Goiniya Shoriya area south of Novo Kuznetsk; Ihc Olenegorsk and Kovdor deposits in the northwest: the Magnitogorsk and Kaehkanar deposits in the Urals; and the Abadan,nd Dashkesan deposits

Produclion

The USSR is the largest producer ol iron ore in lhe world, nol only providing completely for ils own needs but. in addition, furnishing more than half of the requirements of the Communist countries of Eastern liurope.he USSR> millionf usable ore. The United Stales, in contrast pioduced lessalf that amount and imported aboutillion tons

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In recent years lhe USSR has increased expenditure on beneficialion facilities to upgrade the quality of iron ore, which, on the average, has been declining. Also in its campaign to improve its blast furnace technology, the USSR has emphasized construction of sintering and pclletizing facilities, toetter charge for the blast furnaces.

Exports

The USSR has steadily increased its exports of iron ore in the past decade from aboutillion tons0 toillion tonsost of the exports go to the Communist countries of Eastern Europe. Shipments to these countries0 amounted to aboutillion Ions, and the remainder ofillion tons went to Japan, the United Kingdom, Italy, and Austria.

Market Conditions

Demand for iron ore currently is less than brisk, reflecting the sluggish tempo of the world steel industry and economic activity in general.esult, supplies on world markets continue lo be plentiful. Over the longer term, however, demand for iron ore shouldteady growth as the world's need for iron and steel products continues to grow. According to estimates of the US Bureau of Mines, world demand for iron will growompounded rate of%% for the foreseeablere

n teres! in Foreign Assistance

The USSR has been negotiating with the United Kingdom forxpanding iron ore production on the Kola Peninsula and with Japan IO develop iron ore resources in the Soviet Far East. In addition, the Soviets haveelletizing plant from Ihe United Kingdom and have negotiated with several other countries, including ihe United Slates, for additional pelletizing facilities. The USSR has not sough; US assistance for the development of ils iron ore resources.

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Manganese

Cfclatura

Main Khlnghan

-

Resources

Among the major steel-producing countries of the world, only the USSR is fully self-sufficient in manganese. The extremely large reserves of the USSR, estimated toillion tons of ore, arc second only to those of South Africa, Soviet reserves arc located principally in the Nikopol' district of the Ukraine and in the Chiatura district of Georgian SSR. Another important deposit is found near Bol'shoy Tokmak in the Ukraine with additional, but smaller, deposits located in Kazakhstan, the central Urals. East Siberia, and the Far East. The quality of Soviet manganese ore deposits, with- manganese content, is somewhat lower than thai of the major producing countries in the non-Communist world. The USSR currently has to bencficialc all manganese Ore.

Production

The USSR is the world's largest producer ot manganesef world output. Inoviet production ofamounted1 million tons, nearly three limes the nextSouth Africa. Produclion has declined in recentboutiiiiion- . k year

for Soviel production of manganese ore. Nevertheless recent levels of production are currently adequate to satisfy domestic requirements andubstantial export trade

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CONFI

and Chiatura. Produciion costs in these areas are relatively high compared with most major manganese mines in non-Communist countries, lu the open-pit operations al Nikopol', the Soviets must contend with an unusually high ratio of waste material to ore. In addition, the underground mining operations at both Nikopol1 and Chiatura involve difficult problems of access and construction.

During the last half of, the USSR exportedillion tons of manganese ore each year. The Communist countries took about Iwo-thirds of lotal shipments, with most of the remaining third going to the United Kingdom, France, and Japan. The United States, which is dependent on imports for virtually all of its requirements, currently docs not import manganese ore from the USSR. The high tariff rate to non-MFN countries ofould discourage large-scale exports lo the United States. The MFN rate is

Market Conditions

World demand for manganese ore probably will continue to grow steadily in the foreseeable future, largely to support further expansion of tlie world steel industry. Because US steel outpui is expected lo growate below the woild average, however, demand for manganese ore in the United Stales will grow more slowly than in the rest of the world.

Reported programs for expansion of production capacity indicate that at prevailing prices the world supply of manganese ore is likely lo keep pace with the growth in demand in the near future. South Africa, Gabon, Brazil, and India probably will continue to be the main suppliers to nOn>Communisl countries, although Australia may gain in importanceupplier as its mineral resources are developed further.

Soviet Interest in Foreign Assistance

Premier Kosygin has expressed an interest in having lhe United Stales participateoint program for the development of the Soviet manganese industry, with US assistance paid for by Soviet exports of manganese ore lo the Uniled States. So far. it has not been made clear whether the USSR is seeking aid to expand operations at deposits presently under exploitation or to develop other deposits in lhe Ukraine or possibly ihc Far East.

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Nickel

CONFIDENTIAL

ftuiuklal

Resources

The USSR claims io have ihc world's largest reserves of nickel ores, although information lo support this claim is not available. Independent estimates by the US Bureau of Mines put Soviet reserves equal to those of Canada but less than those of Cuba and New Caledonia.% of Soviet deposits are located in the copper-nickel sulfide deposits at Pechenga, Monchegorsk, Noril'sk, and Talnakh in tbe Soviet North. The remaining deposits consist of latcric deposits ir. the Urals and Kazakhstan and nickel-cobalt arsenides in Tannu-Tuva. Soviet ores are generally low grade; ihc nickel content of the sulfides averages%% and of the laterttes

Production

The USSR is second only to Canada va the production of nickel and nickel products. Production0 is estimated atons,f Canadian Output but about ten times (IS produciion The Noril'sk deposit accounts for about hall" of Soviel nickel production and the Monchegorsk and Pechenga deposits another third Although no goals have been given for the new Five-Year Plan, undoubtedly another substantial nickel output will:u. ivi:^ tc increase al the same average annual rate achieved during WofV'O, Soviet outpui5 will reachons.

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IAL

olls

Tlie USSR exports considerable nickel to Western Europe and Japanmall quantity to the United Stales.. total exports to the industrial West ranged00 tons, with annual hard currency earnings averaging up0 million. The USSR also exports nickel to other Communist countries, but the amount is not known.

Markcl Conditions

For moreear the nickel market lias been very weak,agging level of world demand.ignificant growth in demand is expected5 and beyond, (as the economies of the industrialized countries emerge from Ihc currcnl economicew supplies of nickel probably will keep ahead of demand even at current prices. The International Nickel Companyubstantial increase in its Canadian produclion alonepart from major expansions of ouiput in New Caledonia and Guatemala. Moreover, the other major nickel producers, Falconbridge of Canada and le Nickel of France, arc adding new productive capacity. Finally, discoveries in Australia give promise of important contributions to potenlial world supply.

Soviet Interest in Foreign Assistance

The USSR has negotiated with the Uniled Kingdom, France, and Japano faror anillion0 million invesimeni for development of the Buruktal nickel deposits near Orsk in lhe Southern Urals. Payment would be in nickel. During Secretary Stans' recent visit to Moscow, Foreign Trade Minister Patolichev strongly recommended the Buruktal depositsromising project for US investment.

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Petroleum

Caucasus #

Uialt-Volga

in*ula

CRUDE OIL

Resources

The USSRabundant potential resources of peirolcum. However, more thin one-third of these reserves arc locitcd in permafrost

regions where extraction is both difficult and costly. As of the endexplored" reserves'" of crude oil in ihe USSR were estimated to beillionillion tons,ear supply at0 rale of production, or aboulf estimated total "proved'* reserves of oil in lite world. By comparison, Ihe United Slates, as of llie endad proved reservesillion tons of oil,year supply and about OT of the world

I. Thr Soviet eoncepi ofeserve* is broader tfun (lie US concept ol "proved" reserves. Under the US definition, proved rctcives are established on lhe basis of dnllmr.ndude only ihc crude oil andecoverable from known depusiii uidei ea.it economic and operating cordmons. Samel "explored" reserves arc inferred ui cst'tatcd on thef tennlmg.capability for economic cxtracliOfl isequirement foiIlencc. in terms of lhe USsiCi reieirri ildnutler dure cf ihe worldore (dan hall of the world'* piowd oil reserves arc located in Ihc Persianegion of ihr Middle Fast andoitli Alnca

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Soviel proved reserves of oil are con cert Ira led in the Urals- Volga region. However, these reserves have been exploited since World War II and are being depleted rapidly. About three-fourths of the potential resources of petroleum (lhal is, proved and unprovedccording to Soviet claims, are located in Siberia and Central Asia. In addition, the continental shelf areas of Ihc USSR may contain large unproved reserves of oil and gas. The most promising areas are located in the Caspian Sea (where drilling has been conducted forhe Black Sea, in the Far East off Sakhalin, and in the Northern Arctic waters beyond the Ob' River delta.

The quality of Soviet crude oils varies somewhat from region lo region. The oil of the older fields near Baku on the Caspian Seaaraffin base and contains few corrosive elements such as sulfur and salt. That of the Urals-Volga region has an asphalt base and is higher in sulfur and salt content. The oil of the newer fields on the Mangyshlak Pcnninsula and in West Siberia is more like lhat of Baku, except that the Mangyshlak oilery high wax content and pour point and tends to solidify at temperatures belowFahrenheit.

Production

The USSR is second only to the United States in the production of crude oil.0 the USSR producedillion tons of crude oil, roughly one-sixth of the world total; by comparison the United Stales producedillion ions of crude oil. or about one-fifth of the total world output. During the past decade, the average annual rate of increase in the output of crude oil in the USSR has been very rapid, aboul three times faster than in the United States Soviel plans call for crude oil production loillion tons by the end5

Most of the increase in produciion inesulted from lhe intensive developmentumber of very large oilfields in lhe Urals> Volga region. The regionhole currently accountsf the domestic output of crude oil. Reserves, however, have been prematurelynd by the, West Siberia will supersede the Urals-Volga area as the principal oil producing region in lhe USSR. The role of two areas of Centralazakh SSR and Turkmen SSRalso will increase.roduction of crude oil in West Siberia is planned loillion tons, and in Central Asia,illion tons. By contrast, output in the Urals-Volga region could fall below the current level ofillion Ion*.

lan goals, produciion was forced by improper water-flooding of oilfields duniig initial stages o! exploitation io ma imam picssire This procedure resulted in unexpected water encroachf the fieldsedaction in oil recovery snd lossignificant pail of ihc reserves in place.

-

Crude, oil produciion in the USSR is characterized by rising average costs. Higher cosis are generated by the greater technological requirements for developing new deposits and by the incteased requirements for pumping and water separation in older fields. The lowest production costs are in the Urals-Volga region where relatively shallow deposits arc situated in strata well-suited for exploitation using current Soviet equipment and technology. In West Siberia, where extremes of climate, difficult terrain, and distance impose special requirements for equipment, costs are much higher. According to published Soviet data, the average cost of producing oil in West Siberia7 was about five times that in the Urals-Volga region.owever, as development has progressed in Siberia, costs have declined somewhat.

recent years, Soviet exports of oil have been the largest single source of foreign exchange earnings.otal exports of crude oil and oil

products amounted to aboutillionent to the industrial West and earned0 million in hard currency. The United States, which imports small quantities of fuel oil from the USSR for industrial use on the Eastern seaboard, purchasedons in

However. Communist countries of Eastern Europe receive the largest Share of Soviet oil exports. The areahole (excluding Romania, whichet exporter of oil) has become increasingly dependent on the USSR, which now providesf its total oil supply.

Soviet exports of crude oil to Eastern Europerc scheduled toillion tons,, more than lhe volume of exports of the previous five year period. Shipments of that magnitude wouldalue ot some S4nd would constitutef Soviet crude oil production during the cuirent hive-Year Plan period.

Although lhe expected level of exports to rhe Wests not known, probably some modest growth in lhe volume of ex pons will take place. For the longer term, the amount of petroleum that will become available for export lo ihc West may well depend on the cxlcnt lo which foreign technology and equipment are acquired to expand oil production in West Siberia If the USSR relics solely on ils own induslnal resources,

illion tons of crude oil andillion ton* nf products.

A tariff tate1 pei barrel or aboutpplies iu non-MFN countries, such tlw USSK. comparedateer band or slightly more than

KN cCtinlrics.

ubles |ier Innive averagen recent years

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CONFIDENTIAL

the annual rate of increase in oil productionS probably will decline, and oil available for cxporr to all customers might not exceed the prescnr level ofillion tons.

Market Conditions

emand for oil in the non-Communist world amounted toillion tons;0 it mayillion tons. Demand is growing fastest in Western Europe and Japan, which, together, account forf all the oil consumed in the non-Communist world, excluding the United Slates. Most of the petroleum needs of Japan and Western Europe will have to come from the Middle East and Africa. Produclion in those regions probably will keep pace with the growth in demand.

S demand for oil may reachillion tons. However, the National Petroleum Council has estimated that domestic US output may notillion tons, and, accordingly, foreign sources may he needed to supply up lo nearly half of the US market demand.

The growing dependence of the United States, Western Europe, and Japan on foreign sources for petroleum presents the USSRtrong opportunity to expand its hard currency earnings through increases in exports to those markets. However,ubstantial input of foreign technology and equipment to help develop the extensive petroleum resources in Siberia, the USSR may be unable lo maintain its present level of oil exports ro ihc non-Communist world.

Soviel Interest in Foreign Assistancc

Within the pastonths the USSR has stepped up its effortsa variety of geophysical exploration and oilfieldfrom the United Slates. The USSR has cither purchasedhuls on equipment and technology valued at about SlOO o" n:ly d ilnl the:

Soviet Union mightarket for veryounts of exploration, drilling, produclion, and pipelineerhaps as much asillion perf unilateral US trade controls are relaxed.

The USSR also has expressed interest in US participation in Soviet offshore oil and gas drilling and produclion operations. Soviet experience in offshore deep water drilling is quite limited. For example, the USSR has only three mobile drilling platforms, all located in the Caspian Sea. Most of the offshore drilling operations in the Caspian have been accomplished by means of fixed liCStles that extend from the shore for several miles into shallow waters. Current pl&ns call for the constniction of (en more mobile drilling platforms during.

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NATURAL GAS

Resources

By ihe endexplored" reserves of natural gas in rhe USSR were reported by the Soviets to bcrillion cubic metersycar supply at present rates of production. However, because Soviet estimates of "explored" Tcscrvcs are based on insufficient drilling and are grosslyoviet reserves of natural gas that have been proved by drilling and are available for production are eslimated to amount to onlyrillionyear supply. This reserve compares with proved reservesrillion cu.m. in Ihc Unitedycarndrillion cu.m. for the worldhole.

At leasi half of the "explored" gas reserves in ihe USSR arc located in pennafrosl regions of West Siberia (in the Ob" Rivernd about onc-fourlii of the total are found in the deserts of Central Asia. Most ot the remainder lie in the Ukraine, North Caucasus, and Urals-Volga region in the European part of the country.

Most Soviet gas is rich in methane andigh calorific content. However, the gas of Central Asia reportedly has some highly corrosive properties, and thai of Western Siberia in most cases is accompanied by sand and water, which will complicalc production operations.

During the past five years, the Soviet Union claims to have discoverediant gas fields;focated in the Ob' River delta of Westre expected to be major producers. However, none of the latter have been developed yet because of the overlying permafrost, which complicates drilling, production, and pipeline

Other factors affecting the development of these deposits aie poorly consolidalcd sand reservoirs in the Siberian structures, the presence of

or example, negotiations for sale of Soviet gai from Sakhalin to Japan were suspended0 when Piemler Alcxei Kosygin revealed that reserves ot gas in Sakhalin were actually onlyillion cu. m. and notillion cu. m. as claimed in official Soviel statistics. Thus the reserves of gai were not adequate io supply Japanillion cu.m. annually forean JS had been discussed in the negotiations. S. The difficulty ol extracting naturalermafrost areas is well illustrated by ihe ease of the Tazov gasfteld. one of the rnajot rields in West Siberia. Failure to insulate the well casing in permafrost resulted In the wjrni gas niching the permafrost, causing ihe casing to collapse and extensive cratenng of tbe areaugeas Ion. and the USSR no longer lists this fieldne of ihe country's most important gas deposits.

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natural gas liquids lhat must be disposed of, and the formation of gas hydrates that freeze at the well head and stop the flow of gas. In addition. Soviet engineers are faced with the formidable problem of building long-distance, large-diameter pipelines over peimafrosl and difficult terrain to move the gas to major consuming ateas in the European part of the USSR.

Production

The United States leads the world in tlie production of nalural gas; lhe USSRistant second.0 the United States producedillionf the world's total output. The Soviet Union, on the other liand. produced slightly lessillionbout one-sixth of the world total. The gap between Soviet and US gas production, however, is closing. During the past livehe Soviet average annual rate of increase in atural gasasreater than that in the United States.

5 the USSR plans toillion cum. of natural gas, an ambitious goal in light of the gas industry's chronic failure to fulfill plans throughout the past decade. Attaining the target5 will require an average annual increment in output ofillionrore than the average ofillion cum. per year attained during the previous five years.

About half of the Soviel production of natural gas0 came from four large deposits: Shebeltnka in the Ukraine. Krasnodar and Stavropol' in the North Caucasus, and Gazli in Central Asia. However, all of Ihese gas fields have icached their peak levels of production, and gas production from them will decline in the future.

Preliminary plans0 call lor nalural gas ouiput from Wesl Siberia toillionillionnd fromai Asia,illionillion cu.m. These levels of output, coupledtabilized productionillion cum. in the European pari of the country, would boost total outputillion cu.m. by Ihe end of lhe decade. Even assuming that proved reserves are adequate, however, the attainment of this output will require overcoming production and transportation difficulties noted above.reater share of nalional output is obtained from West Sibeiia. the average cost of producing natural gas,v,-Iyhfvnvdo customers in the Euiopean part of the USSR will he pushed up even higher because of the additional cost of piping Siberian gas over longer distances.

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Although tlie USSR iset importer of natural gas. it does export small quantities.. exports of somewhat moreillion% to Eastern Europe) were more than offset by imports ofillion cu.m. from Afglianistan and Iran. Nevertheless,5 the USSR shouldubstantial net exporter of natural gas. Total exports of Soviet gas in that year may amount toillion toillion cu.m. and0 may reachillion toillion cu.m. Hence, even though the USSR plans to increase its imports of natural gas from Afghanistan andt shouldet exporterillion toillion cu.m.5 and of someillion cum.

Soviet exports of natural gas iniobably will be divided about equally between Communist and non-Communist countries. Throughout Ihe decade, exports to Communist countries are expected to increase sharply, reachingillion cu.m.nubstantial increase in exports to non-Communist countries is indicated by the Soviet success in the past two or three years, including agreements with Austria. West Germany. Italy. Finland, and France lo supply natural gas forears in exchanp: for large-diameter pipe and ancillary oil and gas pipeline equipment. Austria now rs receivingillion cu.m. per year, and,. Italy, West Germany, and France should begin lo receive Soviet gasinchmchl diameter pipeline now under construction through Czechoslovakia. Moreover, negotiations for sales of Soviet gas Io Japan have been under discussion for some time, and an agreement may be reached in the near future.

Market Conditions

The demand for natural gas in the non-Communist worlds expected to rise at an average annual rate ofn the United States, natural gai now providesf lhe total energy supply, although this share may dechne somewhat0 Accordingecent study by Ibe National Petroleum Council, under current government regulatory policies, US production of natural gas may fall far behind domestic demand in, and0 the shortfall in supply could be as muchillionr about one-third of total demand Another, more conservative estimate, by -the Director of Conch Methanelaces the probable deficit in US domestic supply0 atillion cu.m. lu any case, it appears probable that imports of natural

nm these countries aie scheduled to rise ioillion cu. m.> lent yeais. could reachillion cu. m. per yeaiecond pipeline eh has been under discussion, can be jistilied economically.

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hich0 totaled aboutillion cu.m. or aboutf the total US gas supply, will increase significantly during the latter half of the decade.

Soviel Interest in Foreign Assistance

The USSR has shown an interest in having the United Slates assisl in the construction of facilities for ils natural gas industry in exchange for delivery to (he United States of liquefied natural gasate. Kortunov, Minister of the Gas Industry in the USSR, proposedepresentativeS firmS consortium be established to buy Soviet LNG and to arrange for delivery to the USSR of predetermined "turnkey" plants. Recently, representatives of Tenneco and Texas Eastern Corporation discussed with Soviet officials, the possibility of importing Soviet ING for the northeastern United Slates. It was contemplated lhat such imports would begininimumillion cubic feet per day6 or later, and that Ihey might riseillion cubic feet per dayhe capital requirements for such an arrangement would be high, perhaps in the neighborhood of S4 billion.

The USSR also haseen interest in Japanese particpalionimilar arrangement in the development of Soviel gas resources in Eastern Siberia and, although no firm agreement has been made, negotialions have been under way for more lhan two years. The Soviet proposal, which willapanese investment of at leastillion,atural gas pipeline to be built from Eastern Siberiaovielsl port, the constructioniquefaction plant at Ihc port, and shipment of liquefied natural gas to Japan by tanker. In view of Japan's rapidly growing energy demands and its lack of domestic sources of supply, an offer of an assured long-term supply of natural gas may be inviting.

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Phosphates

9 Kh.uio*

Kinaltepp

Resources

Reserves of phosphaten Die USSR are the third largest in the world, ranking only behind those of the United States and Morocco. The phosphorus content of Soviet reserves is estimated by the US Bureau of Mines atillion metric tons. More than one-third of these reserves consist of apatites that can be processed into high-grade concentrateshich, in turn, arc suitable for conversion to superphosphate or complex fertilizers and to olher phosphate products. The USSR also has resources of phosphorus in the form of sedimentary phosphorites that aie difficult and cosrly to process. Thus far. they have yielded primarily low-analysis ground phosphate (phosphorite meal) used for direct application as fertilizer.

Morel" the apatite reserves are located at the Khibiny apaiitc-ncphelinc deposits in the central part of the Kola Peninsula. Kola apatites are the source of thiee-fourths of the phosphate fertilizers produced iu Ihe USSR (excluding ground phosphate used for directxploitation of these Kola deposits has been expensive because of the long hauls required to transport the apatite lo the Ukraine and other major fertilizer-consuming regions.

I Phosphate rockatural ioek used in ihc manufacture nf phosphatehosphoric acid, phosphorus, and animal feeds The chemical composition is expressed in terms of tlie contcnl of phosphorushosphnms penioxidct bone phosphate of lime.

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Oilier deposits ol ajiaiiic ate located al Beloziminsk and Ulan-Ude in Easternrocessing complex is currently under construction fo work the Bcloziminsk deposits. In addition, apatites are said to be recoverable from iron ore now being extracted from deposits on the Kola Peninsula.

The principal sedimentary phosphorite deposits are located in the Karatau region of Kazakhstan and at Kingisepp and Voskresenski in the European RSFSR; less important phosphorite deposits are found in Estonia, Western Kazakhstan, and Central European RSFSR.

Difficulties in mining the Karatau deposits, coupled with problems in removing admixtures from the ores, tend to make production relatively costly. Similarly, phosphorite deposits in the European regions now being exploited are costly to process.

Finally, very large deposits of phosphate arc said to exist in the llobsogol' area of the Soviet Union's nearby client state of Mongolia. These deposits have been jointly prospected by Soviet and Mongolian geologists and are said to contain phosphate lock reserves totaling one billionongolia has proposed thai lhe USSR and other members of the Council for Mutual Economic Assistance (CEMA) creel facilities to produce phosphoms from these deposits.

Production

0 the USSR produced an eslimalcdillion tons of phosphate rock, more lhan half of the amount produced in the United States, and more than one-fifth of the cslimaled world output ofillion tons. The Kola apatite deposit accounted for moref total Soviet outpulhe remaining output conies frcn sedimentary phosphorites, with the Karatau and Kingisepp facilities being the principal producers. At all three locations, output has fallen below Soviet expectations. In Ihe case of Karatau, production has lagged because efforts to bencficiate lhe ore by normal flotation processes have not been vety successful. With the aid ot Western equipment, some of the low-grade Karatau ore now is being processed into phosphorus usingenna! processing techniques.'J' hi ihe case ofifficulties in the processing phase also have

2. Believed io be expressed In terms of phosphate cock rather than in lerms of

;t Tlie electric furnaces used in this process wens suppliedest Geiman firm, whici; has accepted partial payment Inpatiic concentrates 4. Partially developedoint invesimeni project or ihc USSR and several members Of CEMA.

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hampered (he produciion of high-quality concentrate and forced the use of much of the phosphate in direct fertilizer applications.

Total exports of phosphate rock (ores, concentrates, and meal)0 came to moreillion tons, accounting forf world exports of phosphate rock. Shipments abroad consist primarily of apatite concentrate from the Kola deposits along with small quantities of apatite ores and ground phosphate rock (phosphorite meal).

Two-thirds of Ihe Soviet exports of apatite concentrate go to Eastern Europe, with mosl of the remainder going to West Germany, Finland, Belgium, the United Kingdom, and Scandinavia. In its quest for hard currency, the USSR probably will continue to export substantial quantities of phosphate rock to the industrial West. However, any growth in such exportsrobably will fall short of the more% increase achieved. The Soviets will need increasing quantities of phosphates to suppott internal goals for the production of fertilizers. Output of phosphate fertilizers in the USSR is scheduled to rise. comparedise.

Market Conditions

The world phosphate market is characterized by excess capacity, intense competition, and relatively low prices. During, the production of phosphate rock outran demand and leduildup of large stocks of both phosphate rock and phosphalc fertilizers. World output virtually has stagnatedS output of phosphate rock was aboutillion tons9 andillion tonsomewhat below4 million tons producedS. Export prices for US phosphate rock have fallen considerably in the last live years.

Moreover, in lhe near future, world production of phosphate rock may continue to outpace world consumption.orld consumption5 will reach an estimated level ofillion tons, and, if present plans are carried out, production could reachillionn the USSR the output of apatite concentrate alone probably will grow byillionillion tons, and the production of sedimentary phosphorite probably will increase also. Members of CEMA are being urged to assist the USSR in construction of facilities to produce phosphorus in

f as seems likely, prices in ihe industrial West continueelatively low level,ven decline further, the indicated plansu Communist producers may be ievi.sed downward

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the area of Karaiau. The ample reserves of phosphate rock in Ihe world suggesl lhat supply will be adequate lo meet demand even5arked increase in prices.

Soviet Interest in Foreign Assistance

Premier Kosygin has expressed interestoviet-US joint venture lo develop Soviet phosphate deposits. Allhough no other non-Communist country is known to have discussed participation in development of Soviel phosphate deposits. West Germany and Japan, both large importers of phosphates, may be interested. As indicated above. West Germany already has accepted some phosphate rock from the USSRartial payment for phosphorus furnaces.

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Resources

Soviet reserves of platinum-group metals, estimated by the US Bureau of Mines to beillion troy ounces, are the largest in the world. The USSR hasf the world's known reserves off the palladium, andf the rhodium. Soviet pi at mum-group metals are recovered principally as byproducts from the Noril'sk Copper-Nickel Combine. Extension of the present ore deposits in the Noril'sk region and the discovery of new deposits nearby at Talnakh have insured continued high output for many years Platinum-group metals are abo recovered from the copper-nickel facilities at Pechenga and Monchegorsk in the Kola Peninsula and placer facilities in the Urals near Nizhniy Tagil and Sysert. The yield of platinum-group metals from existing deposits is good. Reportedly lhe undeveloped deposits at Talnakh are also rich in plalinum-gioup metals.

Production

The USSR, with an estimated annual productionillion troy ounces, is the world's largest producer of piahmtm-group metals. Soviet production accounts for nearly two-thirds of world output and is more than twice that of South Africa, lhe world's second largest producer. Aboutof Soviel production consists of palladium,. is platinum, and the remainingonsists of other metals of the group. Because n

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makeselatively small share of the total, however, Soviet production of platinum is only about three-fourths as great as (hat of South Africa.

Fx pulls

The USSR hasajor supplier of platinum-group metals to the non-Communist world for many years. Only small amounts of these metals are exported to other Communist countries. Soviet exports of platinum-group metals to non-Communist countries increased fromillion5 to0 million. of ihese exports consisted of palladium, reflecting the high proportion of palladium in Soviet production of platinum-group metals.0 the United Stales importedunces of platinum-group metals,

valued atillion from the Soviet shipments

accounted for aboutf the US supply of platinum,f the rhodium, andf the palladium.

Market Conditions

World demand for platinum-group metals probably will increase steadily in the years ahead to meet varied and growing uses in catalytic agents for the petroleum industry, industrial chemicals, electrical devices, and dental, medical, and jewelry applications. The US Bureau of Mines, in its long-range projection to thestimates that demand in lhe United Slates will grow steadily butomewhat lower rate than in the rest of the world. The estimated growih ol demand in the United States%% per year compaied with% in the rest of of the world.

Soviet Interest in Foreign Assistance

The USSR has shown no interest in obtaining foreign assistance to expand the production of platinum-group metals. Soviet interest is unlikely because most of the platinum-group metals are obtained as by-product from the mining of copper and nickel ores in Noril'sk. With few exceptions, this area is closed to foreigners.

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TIMBER

Resources

The USSR has the most extensive forest resources of any country in the world, although the usable resources arc probably less than implied in official data. According to official data, forests coverillion hectares, or about one-fifth of the forest covered area of the worldittle more than the combined forest area of the United States and Canada. Conifers occupy about three-fourths of Ihc total forest area within the USSR. The maximum quantity of timber thai could be felled annually from all forests is reported officially loillion cubic metersore realistic figure, taking into account forest areas where access is extremely difficult, isillion cu.m. The corresponding figure for the United States rsillion cu. m

East Siberia and the Ear East are Ihc regions of greatest potential development containing aboul two-thirds of tlie volume of growing stock of timber. Largely unexploitcd. these forests currently account for only about one-fourth of the annual wood supply. The Yemsey-Angara River basin and Khabarovsk Kray ire areas ol particular potential.

The USSR leads the world in total annual wood removal by volume, with the United Stales in second place.0 million cu. m. of wood were removed from Soviet forestsompared withillion cu. m. in the United States.f the Soviet wood is used for industrial purposes, compared withn the United States, and the remainder is used for fuel

Product ion

The USSR exceeds the United Slates in the production of lumber -aboulillion board feel0 compared with aboutillion in the United Slates. In lhe production of the more valuable (pet unit of wood) wood-based products, however, the Umlcd States enjoys an enormous advantage. For example, lhe United States produces annually about seven

i il,il hi. .nut n Hit :

of particle board is almost twice that of the USSR, and fiberboard about four limes. The relatively inferior performance of the USSR in lhe ouipul ol those items is accounted foi. very largely, by shortages of wood processing facilities and by the failure to convert mote of the wood wa*tc into useful wood-bated products

In the current Five-Year Plan period, lhe USSR is emphasizing lhe construction of wood-processing facilities rathei than limber felling. Also,

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a major campaign is under way io reduce Che wasle of wood raw materials. Output of wood-based panels and pulp is scheduled lo increase significantly.

Market Conditions

The world demand for timber products is expected to rise steadilyrowing use of wood-substitute materials in construction. Moreover, world production of timber products is expected to keep pace with the increased demand. Packaged lumber is becoming increasingly preferred by major non-Coimnunist countries because of increasing costs associated with the handling of loose lumber in docks and yards. The USSR couldisadvantage in international marketshift to the produclion of packaged lumber is not accelerated. The demand for processed wood products such as plywood, other wood-based panels, paper, and paperboard is also on the increase throughout the world, particularly in the United States.

There does not appear to be any significant potential for direct Soviet sales of lumber and other wood products in the United Stales for the foreseeable future. Canada supplies most of the US import needs for softwood lumber, newsprint,ood pulp. Because of the abundance of its resources, the high quality of its products, its MFN tariff advantages, and its geographic proximity, Canada will continue io be the major supplier of these products to the US market indefinitely.

Asianouth Korea. Taiwan. Japan, and thennually supply most (more than yOW> of the plywood imported by lhe Uniled States. Because of llie US preference for plywoods from tropical hardwoods, this market also is virtually closed to the USSR. Lesst the plywood imported into litr. United Slates is from btrchood that is abundantly available in tlie USSR, established suppliers in Finland and Canada can meet US needs adequately.

Exports

The USSR is the world's filth leading exporter of timber products (after Canada, the United States, Sweden, andxportseak of0 million. of whichas conifeious lumber and logs.

, of Soviet exports of timber products, by value, weni to the Communist countries (mostly io Eastern Europe)o non-Communis! countries. Exports to rhc Uniled Siaies were insignificant, consisting ofmall quantity of plywood. Japan and ihcngdom, the chief non-Cornmunisl customers, accountednd,. o! exports

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Soviet Interest In Foreign Assistance

An agrecmcnl for the joint exploration of Soviet forests is already in force between the USSR and Japan. Japan is supplying machinery and equipmentorestry exploitationhe Soviet Far Bast valued at0 million and is taking mainly logs in payment. Japan and the USSR currently are negotiating an additional ten-year agreement, valued at0 million, for the delivery of wood chips and pulpwood for the Japanese pulp and paper industry. As in the earlier agreement, Japan would provide the machinery and equipment for the wood processing facilities in the USSR. Discussions arc also in progress between Finland and the USSR for Finnish aid in at least three forestry developmentwo near the Finnish bolderuch laiger one inrench firm is supplying the equipmentoint pulp and paper project valued0 million in which lhe firm will take payment in deliveries of pulphree-year period. The French firm also hasontract for additional purchasest of the pulp produced by the Soviet plant over (he succeeding fifteen years. Canadian officials also have had talks with Sowel representatives about forestry development.

Premier Kosygin's recent callovrel-US joint venture was the first indication of Soviet inlcrest in US help for the development of Soviet timber resources.

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Titanium

>^ Kola

.U'Hi

moth is

Resources

The USSR claims to have 'inexhaustible" reserves of titanium-bearing ores, most of which consist of ilmenite and litaniferous magnetites. Reserves of rutilc are limited. Rutile is the principal low-cost mineral used for making titanium in non-Communist countries

'Ilie most important Soviet deposits of ilmenite are located In the easily accessible areas of the Dncpr-Donclt valley iu the Ukraine and the Turgay region of Kazakhstan. Titan iferou* magnetites are found in the Urals, Karelia, and the Kola Peninsula Geological surveys currently arc being conducted along Ihe Baltic Sea and lire Sea of Atov to identify and define new und deposits to enlarge reserves of rattle.

Pioduclion

The USSR is the world's largest pjodueer of titanium sponge, lhe crude metal lhat requires further processing into ingot metal. The industry has gjown rapidly since the, and the output of titanium sponge0 is estimated0 tons,reater than US production for that year. Total capacity of the three Soviet sponget0 tons At one lime, the Soviets discussed the construction of new titanium facililies in East Siberia that would increase production lo0 Ionsowever, no information is available on Ihcse or any other long-range plans for Ihe industry.

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F-XUPrtS

The USSR exports litanium sponge chiefly lo Japan, Ihe United Stales. West Germany, and France.0 the Soviets exportedons of titanium sponge, of whichons were sold in the Uniled States. Exports of litanium sponge to Japan and Western Europe amounted toons. The Soviets now arc attempting to increase their exports of titanium sponge. Inor example, the Soviels engaged in contract negotiations with US firms for ihc export of titanium sponge and were willing toive-year contract for any amount the US firms specified, at prices considerably below the US producers' price.0 the USSR hadaximum limilons per annum in its negotiations with the United States. The willingness of the USSR to sell such large amounts of titanium sponge suggests that final demand for titanium in the Soviet economy has not kept pace with production of titanium sponge in recent years.

Market Conditions

World capacity for the production of litanium is likely to be more lhan adequale to meet demand in the near future. The United States, Japan, and the USSR account for mosl of ihc world produclion of titanium sponge. Al present, only six countries use significant amounts of titaniumhe Uniled States, Japan, the USSR, llie United Kingdom, West Germany, and France. The United States, Ihe world's largest consumer of litanium, has been using0 ions of litanium sponge per year. Fulurc US demand for titanium, which earlier had been estimated at0 tons per annumas predicated, in large part,arge production program for the US supersonic transportach aircrafl would have requiredons of litanium. With the cessation of lhe SST program, and the slowdown in aerospace production generally, US demand for titanium sponge has fallen off sharply. Two of the three major American producers of titanium sponge recently shut down their production facilities. The US Bureau of Mines estimatesS production of litanium sponge1 will drop at least one-third comparedhe decreased US demand may, in turn,clhark in production of titanium sponge in Japan and ihe United Kingdom, both suppliers of titanium Sponge lo the United Stales.

Soviel Interest in Foreign

I'lemiei Kosygin has suggested Soviet-US joint venture for the development of Soviet titanium resources. This proposal is surprising in view of the established position of the USSR as the world's largest producer of titanium spongeabricator of litanium products.

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Original document.

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