The copper industry 1945–1975

ARTICLE IN PRESS

Resources Policy 32 (2007) 1–18 www.elsevier.com/locate/resourpol

The copper industry 1945–1975 Phillip Crowson 3, Albany Close, Reigate, Surrey RH2 9PP, UK Received 12 February 2007; received in revised form 19 March 2007; accepted 26 March 2007

Abstract During the 1945–1975 period copper differed from other major non-ferrous metals and mineral products in experiencing rising real prices, on a trend basis. This paper examines the major features of supply and demand over the period, including the impact of economic activity, changing locations of consumption and trends in costs. Government controls affecting both supply and demand and US government stockpiling policies were all pervasive especially in the 1950s. Supply was throughout periodically interrupted by lengthy and widespread strikes and was also subject to frequent and wide-ranging political disturbances during the 1960s. From the early 1960s onwards a substantial share of world production became state controlled, profoundly altering the objectives and commercial policies of suppliers. Tightening anti-trust legislation and the changing location of consumption combined with changes in ownership to weaken the willingness and ability of suppliers to influence prices. The paper concludes that the behaviour of copper prices during the 1945–1975 period arose from the particular circumstances of the time and offers very little guidance, if any, to likely future trends. r 2007 Elsevier Ltd. All rights reserved. JEL Classification: L72; N50; Q30; Q31; Q33; Q38

Introduction The post-2004 surge in prices of many mineral products, and especially of copper, has caused many commentators to examine both their forecasting methods and their underlying assumptions about pricing dynamics. The widespread belief that prices, adjusted for changes in the general price level, are on a long-term downward trend has been called into question. Some have asked whether the behaviour of copper prices in the three decades after the Second World War, can provide any guidance about possible future trends. Copper differed from other major non-ferrous metals, and mineral products like coal and iron ore, in experiencing rising real prices, on a trend basis, over the 1945–1975 period, admittedly with marked cyclical fluctuations. This paper traces the main developments in the copper industry over this 30-year period in order both to explain this relatively atypical behaviour of copper prices and to Tel.: +44 1737 248586; fax: +44 1737 249643.

E-mail address: [email protected] 0301-4207/$ - see front matter r 2007 Elsevier Ltd. All rights reserved. doi:10.1016/j.resourpol.2007.03.004

determine whether that period’s experience does provide helpful pointers to the future path of copper prices. There are four main sections. The first describes the path of copper’s prices, both absolutely and relative to those of other metals. This is followed by a discussion of the major features of supply and demand over the period from the late 1940s to the mid 1970s. The balance between supply and demand is a major determinant of prices. Demand is strongly influenced by economic activity and by changes in the geographical location of consumption. Costs are an important influence on supply. The third section of the paper examines some of the underlying influences on both supply and demand. Especially in the first half of the period government controls were all pervasive, affecting both supply and demand. Throughout the United States’ government operated an active stockpiling programme, often with unintended effects on market balance. Supply was periodically interrupted by lengthy and widespread strikes. It was also subject during the 1960s to frequent and wide-ranging political disturbances. From the early 1960s onwards a substantial share of world production became state controlled, profoundly altering the objectives and

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commercial policies of suppliers. Tightening anti-trust legislation and the changing location of consumption combined with changes in ownership to weaken the willingness and ability of suppliers to influence prices. The final section of the paper summarises the main conclusions of the preceding analysis. In brief the behaviour of copper prices during the 1945–1975 period arose from the particular circumstances of the time. It offers very little guidance, if any, to likely future trends.

The behaviour of copper prices US producer and LME prices of copper, both expressed in real 2006 US dollar terms, are shown in Fig. 1. The trend lines are simple linear trends for the entire periods covered by each series. To a large degree the trend lines simplify and obscure the underlying features of the copper market. Moreover they are dependent both on the currency used, and on the choice of terminal years. Fig. 2 shows LME copper prices in sterling terms for the 1948–1980 period, with trend lines for 1948–1975 and 1948–1980. The extension by 5 years converts an upward into a gradually falling trend. This figure alone highlights the dangers of drawing facile conclusions from historic data. They can often be manipulated to produce any convenient answer. This malleability of the data should always be borne in mind. There is nothing sacrosanct about the 1945–1975 period, other than it covers three complete decades. The

later sections of this paper do, however, suggest that a number of influences combined in the early to mid 1950s and again in the 1960s to modify the behaviour of copper prices. Fig. 3 shows that prices of copper rose relative to those of other metals and mineral products in those periods. This suggests that specific factors affected the copper market over and above general political and economic trends and underlying developments within the global mining industry. Fig. 3 contains index numbers, based on 1950 values, of prices of copper relative to prices of other products. The top portion gives United States’ price relatives, and the lower part is based on LME prices. Prices of copper rose relatively in the early 1950s and then weakened more than most in the late 1950s. They increased relatively during the 1960s. LME price relatives are shown separately because they rose much more than the comparable US series in the1960s. The next section examines the developments of copper supply and demand which lay behind the shifts in prices. That is followed by more detailed examination of some of the main influences. The final section draws some broad conclusions.

Supply and demand Market balances It is a truism that prices are determined by the interplay of supply and demand, but one that bears endless repetition. That interplay is reflected in the balance

Copper prices in real terms 340 320

US cents/lb in 2006 terms

300 280 260 LME

240 220 200 180 160 140

US producer

120 100 1947

1949

1951

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

Fig. 1. Copper prices in real terms. Note: LME prices were only quoted from August 1953. The prices given for 1950 to the end of May 1951 are the selling prices of the Ministry of Supply. From June 1951 to August 4th 1953 they are the selling prices of the Ministry of Materials for high conductivity electrolytic wire bars. LME quotations for the period covered were for electrolytic or high conductivity fire refined wire bars. Sterling prices are converted to US currency at the prevailing annual average exchange rates. The deflator to real terms for both price series shown is the United States’ implicit GDP price deflator. Source: Copper prices and sterling/dollar exchange rates from Metal Statistics 1969–1979, Metallgesellschaft (1980, 1981). US implicit GDP price deflator from Bureau of Economic Analysis website (www.bea.gov/national/nipaweb) Table 1.1.9, last consulted on February 6th 2007.

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Copper prices in real terms 7500 7000

£/tonne in real 2006 terms

6500 6000 5500 5000

1948-75 trend

4500 1948-80 trend 4000 3500 3000 2500 2000 1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980

Fig. 2. Copper prices in real sterling terms in 1948–1980. Note: Sterling copper prices are deflated to real 2005 terms with the general index of retail prices. Source: prices from Metallstatistik 1975–1985, Metallgesellschaft, Frankfurt am Main, 1986. The general index of retail prices from /www.statistics.gov.uk/StatBaseS.

between the two, as illustrated in Fig. 4. This plots the differences between the production and consumption of refined copper annually from 1947 to 1980 on two bases, for the world as a whole,1 and for Western countries alone. Although trade between the West and Eastern countries was tightly restricted for most of the period after 1948, there were limited net exports to Eastern countries in most years until the early 1970s. This net export trade absorbed part of the Western World’s surpluses when production exceeded consumption and widened its deficits when demand outran production. The global balances effectively take account of this net trade. Subject to the rather doubtful accuracy of the underlying data for the earlier years, there were global deficits in 1947, 1952, 1959, 1963–1967, 1973, and 1978–1980. In many of the intervening years up to the early 1960s the overall annual surpluses were insignificant. Imbalances can arise either because of a sudden unexpected surge in demand or as a result of supply problems. Both would affect prices, but they are not the only factors involved. Fig. 5 illustrates the movement of annual average LME prices relative to the global market balances. The relationship is by no means straightforward as developments in the wider economy outside the copper market have sometimes been important influences. Moreover, market developments rarely fit neatly with calendar years, 1 All the data used are taken from statistics published up to the early 1980s when only limited information was available about some Eastern countries. According to later research the USSR’s output and consumption were progressively overstated, but this does not materially alter the estimated market balances. Eastern countries include the USSR, Albania, Bulgaria, Germany DR, Poland, Romania, Czechoslovakia, Hungary, China, North Korea, Vietnam and Cuba.

and their true impact can be masked by annual averages. That said, prices tended to move inversely with market balances, and the deficits of the 1960s did go with high prices. Conversely, the surpluses of the 1974–1977 period went with declining or much weaker prices. Movements in market balances, taken in conjunction with wider economic and political factors may describe how prices moved but they provide only limited guidance for the future. What forces underpinned the shifts in market balances, and are they relevant for forecasting the future thirty years later? Changes in market balances can occur in widely differing circumstances. Global production and consumption of copper were both rising strongly as illustrated in Fig. 6, and on average rather faster than over the period since 1990. Between 1947 and 1974 (i.e. before the 1975 recession) metal production and consumption increased at an annual average rate of 4.3% and mine output at 4.6% per annum. The growth rates were slightly higher in the earlier part of the period. The development of production and consumption in Western countries alone is illustrated by Fig. 7. Western production and demand grew rather more slowly between 1947 and 1974 than global totals (3.9% per annum for mine output, 3.6% per annum for metal production, and 3.7% per annum for consumption). The annual average rate of growth of consumption between 1947 and 1960 was 3.5%, and the rate accelerated slightly to 3.8% per annum between 1960 and 1974. The pace of growth fell sharply in the 1970s after the 1973–1974 jump in oil prices and the ensuing deep recession of 1974–1975.

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US prices of copper relative to those of other products Index numbers 1950 = 100 300

Index numbers 1950=100

250

Aluminium Lead

Zinc Iron Ore US coal

200

150

100

50 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 LME prices of copper relative to those of other products Index numbers 1950 = 100 450

Index numbers 1950=100

400 350

Lead Zinc IronOre ex Brazil

300 250 200 150 100 50 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974

Fig. 3. US prices of copper relative to those of other products index numbers 1950 ¼ 100. Note: Index numbers of the relevant copper prices are divided by index numbers of the other prices and based on 1950 ¼ 100. Source: Prices of aluminium, copper, lead and zinc for 1969–1975 from Metallgesellschaft (1980, 1981), US producer price indexes for coal and iron ore (1982 ¼ 100) for the top portion of the Figure from Bureau of Labor Statistics /http:// data.bls.govS (Series ID WPU 0512 for coal and Series ID WPU 1011), prices of Brazilian iron ore (cents per dmtu c.i.f. NW Europe) for comparison with LME copper prices from International Financial Statistics, International Monetary Fund, Washington (Series Number 22376GAZZF) /www.imf.orgS.

Copper consumption and economic activity There were marked cyclical fluctuations throughout the period which resulted mainly, but not entirely, from variations in economic activity. Fig. 8 shows the relationship between percentage changes from one year to the next in the industrial production of industrial countries (North America, Australia, Japan, and Western Europe) and the Western world’s consumption of refined copper between 1949 and 1980. Copper demand was more volatile than industrial production, but in most years the two tended to move in step. Where they did not, most obviously in 1953–1954 and again in 1967, specific factors were influencing copper consumption, as explained later.

Another way of looking at the relationship between copper consumption and economic activity is through an index of intensity of use, as given in Fig. 9. This shows how the amount of copper consumed per unit of industrial production moved over time. The index fluctuated without any marked trend in the 1950s, and then declined from 1964 onwards. This was in a period when total and Japanese demand were rising strongly. The regional structure of demand Changes in the regional composition of demand did not sustain the intensity of use, as apparently happened in the 1990s. As displayed in Fig. 10, these changes were considerable, with the United States’ share of

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Refined copper balances (production less consumption) 1947 to 1980 1000 800 600

'000 tonnes

400 200 0 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 -200 -400

Western world World

-600 -800 Fig. 4. Refined copper balances (production less consumption) in 1947–1980. Source: Metallgesellschaft (1980, 1981), successive issues to 1970–1980.

Global copper balances & LME prices 400

1000

350

LME prices (right-hand scale)

600

300

400

250

200

200

150

0 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979

100

-200 Production less consumption (left-hand scale)

-400

Price US cents/lb in real 2006 terms

Balance '000 tonnes

800

50

0

-600 Fig. 5. Global copper balances and LME prices. Source: as Figs. 1 and 4.

Western world consumption falling relatively, but not absolutely. In the late 1940s the United States dominated the global copper industry. In 1947 it accounted for some 37% of the world’s copper mine production and 49% of the 2.7 million tonnes of refined copper produced and consumed globally. It supplied and used nearly 54% of the Western world’s totals. In subsequent decades the recovery of European and Japanese economies from their war-time devastation and the expansion of their economic activity boosted their demand for copper and new sources of

supply were developed to meet it. Nonetheless, the United States remained a dominant force in the industry until the mid to late 1970s. Even in 1970 it produced 27% of the world’s refined copper (38% of Western world production), and used 26% (32% of Western world consumption). Between 1949/1950 and 1973/1974 Western world consumption grew by almost 2.8 times, or nearly 4.3 million tonnes. The United States accounted for 22% of that growth, Western Europe for 40%, Japan for 23% and other countries for 15%.

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World copper production & consumption 1947 to 1980 11000 10000 9000

'000 tonnes

8000 Refined metal consumption

7000 6000

Mine output

5000 4000

Refined metal production

3000 2000 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 Fig. 6. World copper production and consumption in 1947–1980. Source: Metallgesellschaft (1980, 1981), successive issues to 1970–1980.

Western World copper production & consumption 1947 to 1980 8000

7000

'000 tonnes

6000 Refined metal consumption

5000

Mine output

4000

3000

Refined metal production

2000 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 Fig. 7. Western world copper production and consumption in 1947–1980. Source: Metallgesellschaft (1980, 1981), successive issues to 1970–1980.

Whereas the United States was largely self-sufficient, or a modest net importer in many years, both Western Europe and Japan relied increasingly on imports. It was their demand that fuelled the growth of mine output in the rest of the world. The balance between domestic production (mine output plus refined metal from scrap) and consumption of refined copper is shown annually for the three regions in Fig. 11. The United States imported in the late 1940s and early 1950s but was largely self-sufficient by the late 1950s through the early 1960s, except in 1959. Its net imports rose in 1966–2006, and then dwindled again, with a peak in 1973. By the late 1970s the United States was becoming a large net importer.

During the 1950s Western Europe made most of the running as it replaced war-torn infrastructure and recreated its industrial base. It was the largest net importing region throughout this period. Net imports moved cyclically around a rising total until the early 1960s, but they then became more volatile until the late 1960s. Growth resumed in the early 1970s, again with cyclical fluctuations. Japan’s net demands were insignificant until the end of the 1950s, but then rose rapidly, with a marked recession in 1974–1975 in response to the rise in oil prices. Japan and non-OECD countries were major contributors to the growth of demand in the 1960s, until Western Europe’s demands revived in 1969–1970.

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Western world copper consumption & industrial countries' industrial production: % changes 1949 to1980 25.0 20.0

% change over previous year

15.0 10.0 5.0 0.0 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 -5.0 -10.0

Industrial output Copper consumption

-15.0 -20.0 Fig. 8. Western world copper in consumption and industrial countries’ industrial production: % changes 1949–1980. Source: Copper consumption from Metallgesellschaft (1980, 1981), successive issues to 1970–1980, and Industrial countries’ industrial production from International Financial Statistics, International Monetary Fund (www.imf.org). The series for industrial production only began in 1948. A simple linear regression between percentage changes in industrial production and copper consumption is: c ¼ 1.506p–1.532, where c ¼ % changes in copper consumption and p ¼ % changes in industrial production, R2 ¼ 0.52.

Western world intensity of copper use 120

Index 1960=100

110

100

90

80

70

60 1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 Fig. 9. Western world intensity of copper use. Source: as Figs. 7 and 8.

The costs of supply The peak in prices between 1953 and 1956 coincided with global surpluses, but with deficits in the United States. The high prices of 1964–1970 were accompanied by global deficits. This implies that supply was, for one reason or another, then unable to keep up with growing demand. Certainly consumption grew strongly in 1964 and again in

1969, but the growth rates of the intervening years were not unduly high, and consumption fell in 1967. The 1973–1974 spike in prices was shared by most other metals and minerals and reflected the very strong economic boom of that period. If a lack of investment were the cause of strong prices in the 1960s that might be reflected in rising real costs. The evidence here is both incomplete and inconclusive. Fig. 12

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Western world consumption of refined copper

annual averages '000 tonnes

8000 7000 6000

Other W World Japan W Europe USA

5000 4000 3000 2000 1000 0 1949-50

1960-61

1973-74

Fig. 10. Western world consumption of refined copper. Source: Metallgesellschaft (1980, 1981), successive issues to 1970–1980.

Regional Copper Balances 1947 to 1980 Mine production plus production of refined copper from scrap less consumption of refined copper 500

0 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979

'000 tonnes

-500

-1000

-1500 Japan W Europe

-2000

USA

-2500 Fig. 11. Regional copper balances in 1947–1980. Source: Metallgesellschaft (1980, 1981), successive issues to 1970–1980.

shows estimated cash breakeven costs in real 1992 terms2 for the Western world’s copper mines from 1950 onwards in so far as data are available. They may not be entirely consistent. Where data are available four points on the annual cost curve are plotted, the lower quartile, the mean, the upper decile and the ninth decile. Unfortunately there are gaps for the relevant period of the 1960s, although there does appear to have been a temporary spike in costs at the upper 2 Figs. 12 and 13 are taken direct from their source, which is why they are in 1992 rather than 2006 terms. The US implicit GDP price deflator rose by 34.4% between 1992 and 2006 so that the data in these figures should be raised by that percentage to make them comparable with the Figures containing prices in 2006 terms.

end of the cost curve in 1968. That spike alone seems unlikely to have underpinned prices as Fig. 13 confirms. It compares costs at the ninth decile and upper quartile with prices between 1950 and 1975, again in real 1992 terms. Whereas prices should gravitate over the longer term to the average full costs of the marginal, or highest cost producer required to satisfy demand, the shorter-term relationship between prices and costs is more complex. Once mines have been developed their capital costs are literally sunk and the relevant costs for price determination become the cash breakeven costs of the highest cost producers already in production. Provided they can cover their cash costs and make some contribution to fixed and capital costs they will continue to produce, and in some cases they will bear cash losses for an extended period. Historically prices have risen

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and prices is in any case not straightforward as there are complex lags and feedbacks between the two. Underlying influences3 Governmental controls

Fig. 12. Cash breakeven costs of copper mines in 1950–1975. Source: Copper. The Longer Term Prospects, RTZ Economics Department. December 1992 (Internal Report). The data for 1969 onwards are from the RTZ Mine Information System and those for earlier years come mainly from surveys of costs reported by Sir Ronald Prain.

Fig. 13. Cash breakeven costs of copper mines and average LME prices in real 1992 terms during 1950–1975. Source: Copper. The Longer Term Prospects, RTZ Economics Department. December 1992 (Internal Report).

well above cash breakeven costs at the ninth decile in boom periods, but fallen to their level, or below during recessions. Prices were close to the marginal breakeven cash costs of production, as measured by the costs at the ninth decile, in the early 1960s and again in 1972, but they broke free in the 1950s and again in the 1963–1971 period. Prices were well above marginal costs, as defined, for much of the period, and especially from 1964 onwards. Just as in recent years, their behaviour in those years cannot be explained by movements in cash costs. The relationship between costs

Until the early 1950s the copper market, both in the United States and globally, was government controlled. The start of the Korean War in 1950 prolonged and even led to a tightening of restrictions on US producers and users. US government policies were designed to increase domestic copper output through subsidies, bonus payments for producing above quotas, purchase contracts and loans on favourable terms. At the height of the Korean War in July 1951 copper raw materials were placed under complete allocation control in the US, as they had been during the Second World War. Military needs and strategic stocks were given precedence. The Copper–Lead–Zinc Committee of the International Materials Conference allocated copper on an international scale. This Committee was dissolved at the end of March 1953. US domestic copper prices were controlled until February 25th 1953, giving rise for much of the preceding period to a two-tier market. Price controls were tightened in early 1951, when ceiling prices were established around cents 24.5/lb ($1.62/lb).4 The ceiling was raised to cents 27.5/lb ($1.82/lb) in July 1951, when trading in copper on Comex was suspended. An agreement with Chile in May 1951 provided for cents 3/lb (cents 20/lb) higher prices for Chilean copper sold into the USA. Prices in uncontrolled European markets were reportedly much higher than US domestic quotations in 1951 and early 1952. German prices, for example, averaged cents 28/lb ($1.85/lb) in 1951 and cents 33.9/lb ($2.21/lb) in 1952. Prices of imported copper were exempted from controls in mid 1952. By then there was a confusing mix of differently priced supplies, resulting from a range of ceiling prices for different producers that were related to their costs. Foreign copper was sold at a substantial premium to US produced copper [in 1952 an average cents 33.6/lb ($2.19/lb) versus cents 24.2/lb ($1.58/lb)], and US export prices were also well above domestic prices [by an average cents 7.55/lb (cents 49/lb) f.o.b. refinery in 1952]. With the ending of price controls most producers sharply raised their domestic prices. At that time foreign copper was selling in the United States for cents 36.5/lb ($2.35/lb)and most domestic copper was selling at a controlled price of cents 24.5/lb ($1.57/lb). It took some months before the prices of the different US producers were broadly aligned around the cents 30/lb ($1.93/lb) level. Trading on Comex resumed on June 1st 1953. 3 This section draws heavily on the chapters on Copper in the Minerals Yearbooks, published for the period by the US Bureau of Mines (United States Geological Survey and US Bureau of Mines, 1990). They are accessible on /http://minerals.usgs.gov/mineralsS. 4 Prices in this section are quoted in money rather than real 2006 terms but with approximate 2006 terms prices in brackets.

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London prices had been fixed by the British Ministry of Supply since the outbreak of war in 1939. Statutory maximum prices were revoked in November 1949, but imports were restricted from January 1951 and maximum prices restored. The Ministry of Materials, which took over copper purchasing in July 1952, based its prices from May 1952 on New York market prices plus a differential for freight etc. In mid 1952 it agreed to prices with producers well above US levels, of cents 33/lb ($2.15/lb), which were raised to cents 33.5/lb($2.18/lb) in August. Its selling prices were in the cents 35.6–35.9/lb ($2.32–$2.34/lb) range. Trading on the London Metal Exchange restarted on August 5th 1953. In summary, US prices, and to a lesser extent London prices, were artificially restrained until mid 1953, with the post-war restraints most severe in 1951–1952. Part of the subsequent rise can be ascribed to the restoration of a free market. From 1953 onwards prices were market determined until the early 1970s. Price controls were introduced in the United States in 1971 but they did not bite until 1973. The US government prohibited any domestic price increase between early June and December 1973, when there was a cents 8/lb (cents 29/lb) (about 13%) increase in US producer prices. Controls were removed at the end of April 1974, whereupon US prices rose by 25% in the ensuing month. They would have moved more closely in step with LME prices had there been no US price controls in this period. US government stockpiling Whereas the US government ran down its stocks of copper in the immediate post-war years, its policy changed abruptly in early 1950 following the outbreak of the

Korean War. Under a series of procurement programmes, partly to encourage domestic production, it purchased copper for stockpiling during the subsequent decade. Apart from some disposals in 1952 the US government stockpile rose throughout the 1950s, with the largest additions in 1953–1954, and in 1957–1958. In both periods purchases were made partly to offset weak demand in the civilian economy. US government inventories reached a peak of 1.06 million tonnes by the end of 1960. Subsequent changes in stockpiling objectives, often in response to strike-related shortages, as in 1967 and 1974, led to the gradual rundown of the inventory. In 1974 the remaining stocks were declared surplus to requirements and available for disposal. Annual changes in US government inventories are shown in Fig. 14. Labour relations. United States: Labour relations were poor in the United States’ copper industry for much of the period, with relatively few years unaffected by strikes at one or more mines or smelters. Labour contracts mainly came up for renewal every 3 years. There was a 6-month strike in 1946, but only limited disruptions in 1949–1950. Many US producers suffered a week long strike in 1951, but it was ended by the invocation of a national emergency injunction. Limited strikes in 1952–1953 were followed by serious strikes between August and October 1954 at several producers, and there were also strike-induced losses in output in 1955. New three year labour contracts were negotiated in 1956, and there were few disruptions at US facilities during its operation. On their expiry in 1959 there was a 6-month strike beginning in mid August and

Changes in US Government Stockpiles of Refined Copper 300 200 100

'000 tonnes

0 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 -100 -200 -300 -400 -500 Fig. 14. Changes in US Government stockpiles of refined copper. Source: 1947–1954: McMahon (1965) and unpublished data from USGS. 1955 onward: United States Geological Survey and US Bureau of Mines (1990), Table 2.

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affecting over 75% of US production facilities. US mine output in 1959 was 26% below its 1956 peak (voluntary cutbacks in 1957–1958, which are discussed later, mask the effect of the strike when 1959 is compared with those 2 years). The next few years were largely strike free, but trouble flared in 1967 when contracts were again up for renewal. Strikes, which began on July 15th, affected 80% of US mine output, 90% of smelter production and 65% of refinery output. They continued well into 1968, with some facilities down for 9 months. They were gradually settled from January 25th 1968 onwards, with all facilities working normally again by April. Estimates of the strike losses vary, but US output of refined metal was probably reduced by about 640,000 tonnes in 1967, and output remained well below its potential in 1968. The losses were in a period of buoyant global demand when production elsewhere was beset by various political difficulties and they were only partly offset by sales from US government stockpiles. US consumption was therefore constrained in 1967 by a lack of supply. When the new labour contracts were renewed in 1971 many mines were again struck, but the stoppages, during July–September were of only 4–12 weeks’ duration, and global demand was relatively subdued. Similarly 1974 contract renewals occurred when US and global economic activity was being seriously affected by the aftermath of crude oil price rises. Nearly all US producing units experienced labour stoppages during parts of July and August. There was a similar performance when contracts were again up for renewal in 1977. Most major producing units were struck but the closures were shorter than generally expected, lasting for a few days up to 10 weeks. Losses of output were less than the pre-strike build-up of inventories. That was far from the case in 1980 when strikes disrupted production for 5 months, resulting in a loss of some 0.3–0.35 million tonnes of refined production. Other countries: The United States was far from alone in experiencing tempestuous labour relations, with strikes elsewhere often having political objectives. There were frequent strikes in Chile, especially at Anaconda’s Chuquicamata and Andes throughout the 1950s and 1960s. Production was disrupted for a total of 7 weeks in 1950, for 2–3 weeks in 1952 and for 6 weeks in 1953. The major mines were closed by strikes towards the end of 1955, with the stoppages continuing into 1956. Braden (El Teniente) was shut for 2 weeks in 1957 and all Chilean mines suffered a prolonged strike in 1958. There were strikes lasting 5–6 weeks at Chile’s major mines in 1965, losing about 50,000 tonnes of mine production, and stoppages at Chuquicamata in 1967 and 1968. Regardless of strikes Chile’s mine output was on a generally rising trend throughout the period, but it often fell short of expectations, with consequent effects on prices. Northern Rhodesia (Zambia) also experienced periodic labour unrest, sometimes with racial undertones. A 3-week closure in late 1952 cost 20,000 tonnes of copper. There

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was a 2-month strike in early 1955 losing around 40,000 tonnes, and there were further strikes in 1956, 1957 and 1958. Mufulira and Nchanga both suffered lengthy strikes in 1963. There were also disruptions in the summer of 1967. In Canada there were lengthy strikes at some mines in 1957–1958, but this was at a time when demand was relatively subdued. The main strike-related losses were in 1969, when there were extended strikes in Eastern Canada, most notably at Inco. Canada’s output of refined copper was off by some 70,000 tonnes. Political influences Although some major copper producing countries suffered periodic bouts of labour unrest, and the Chilean government regulated the terms of copper exports during the 1950s, the industry was largely run by private sector companies. That progressively changed during the 1960s. The change was neatly summarised by Sir Ronald Prain as follows: ‘‘At the beginning of the [1960s] copper production in which government held any sort of interest did not amount to more than 100,000 tons per year, or 2.5% of capacity in the so-called ‘free world’. By 1970, this total had risen to some 2.5 million tons, or about 43% of capacity. More than a quarter of the world’s copper was being produced by mines totally owned by government, 12% by companies in which the State had a majority interest, and 5% by companies in which government had minority interests’’ (Prain, 1975 quoted in Radetzki, 1985). This change in ownership was often preceded by political unrest and disruptions that may not have dramatically affected output and sales, but which profoundly influenced market sentiment and prices. So did the accompanying changes in senior management and in corporate objectives. From 1960 onwards European users in particular faced considerable uncertainty over the security of their copper supplies. That uncertainty was partly captured in the volatility and level of prices, and many consumers responded by substituting away from copper wherever they could, and by encouraging new production in ‘politically safe’ areas. The Belgian Congo (Zaire and now the Democratic Republic of Congo), which accounted for almost 9% of the Western world’s copper mine production in 1959, became independent on June 30th 1960. The country had been given only 4 months’ notice, and was totally unprepared. In August the copper producing region of Katanga seceded under the leadership of Moshe Tshombe, allegedly with the active encouragement of Union Minie`re du Haut Katanga (UMHK). Katanga was invaded by the Congolese government and UN peacekeepers were dispatched in February 1961. They in turn briefly attacked Katanga in September 1961. The region remained relatively quiescent until the Congolese government again attacked in December 1962 and quashed the secession in January 1963. Military operations carried on elsewhere in the country through 1964. Copper production continued throughout

ARTICLE IN PRESS 12

P. Crowson / Resources Policy 32 (2007) 1–18

the period, but with frequent disruptions and rising costs. Many senior expatriates fled overseas. Congolese mine output was some 10% lower in 1963 than in 1960, and it did not regain the 1960 level until 1966. Disputes between UMHK and the Congolese government, which affected output in 1966, resulted in its nationalisation on January 1st 1967. Northern Rhodesia (Zambia) mined over 0.5 million tonnes of copper in 1959, or 17% of the Western world’s output. The country had been in the unstable Federation of Rhodesia and Nyasaland since August 1953. Tensions between the European dominated Southern Rhodesia and the other members had always persisted, but they gathered strength during the 1950s, with growing pressure for the dissolution of the Federation. Whereas copper production was mainly concentrated in Northern Rhodesia, Southern Rhodesia controlled coal and power production and provided the main transport arteries for the Copper Belt. Copper production had been held back in the late 1940s and early 1950s by shortages of coal. Kenneth Kaunda became head of the Zambian African National Congress in October 1958, and the organisation was banned in March 1959. Tensions mounted, especially in Nyasaland, until the Federation was dissolved at the end of 1963. Copper production continued rising during this period. Zambia was created on October 24th 1964 and on November 11th 1965 Southern Rhodesia made its Unilateral Declaration of Independence. This led to considerable problems for the Zambian copper producers with fuel shortages and transport difficulties. These were at their most acute between October 1966 and May 1967. They affected Zambia’s metal production much more than its mine output, but even that fell by over 70,000 tonnes, or 10%, in 1966 and it did not regain its 1965 peak until 1969. In August of that year all ownership rights reverted to the state and a 51% mineral tax on profits was imposed in place of existing taxes. Copper companies were ‘invited’ to offer 51% of their shares to the government, and agreement to that end was reached in November. In the following year (1970) a serious cave-in at Mufilira in September badly hit production, lowering 1971’s output by over 100,000 tonnes. Although it came close in 1972, Zambia’s copper mine output never regained its 1969 peak. In January 1973 Rhodesia closed its northern border and Zambia discontinued its use of transport routes through Rhodesia. The copper mines subsequently relied either on rail to Lobito in Angola or on lengthy road transport to Dar es Salaam and Mombasa. They suffered increased transport costs, and their supplies were often late to arrive, with occasional spot shortages. In August 1973 the Zambian government greatly tightened its control of the mines and set up a wholly owned marketing company for all Zambian copper. Chile mined a similar tonnage to Northern Rhodesia in 1959, also accounting for 17% of the Western World’s output. Its production was dominated by US companies, notably Anaconda (Chuquicamata, El Salvador and La

Africana), Kennecott (Braden) and Cerro Corporation. Disputes over transfer prices, tax payments, and labour policies had simmered throughout the post-war period, occasionally flaring into confrontation. As noted earlier labour relations were often confrontational. In late 1964 a new (Christian Democrat) government was elected that was pledged to acquire stakes in the Chilean copper producing subsidiaries of three US companies, Anaconda, Kennecott, and Cerro Corporation. The package also involved expansion of existing mines, the development of new deposits, and the stabilisation of taxes. Legislation was before Congress at the end of the year, but progress was slow. Kennecott sold 51% of El Teniente to the Chilean government with effect from April 1967. Chile’s negotiations with Anaconda were prolonged and acrimonious and agreement was not reached on the sale of 51% of Chuquicamata and El Salvador until the end of 1969. The agreement allowed for Chile to purchase the remaining 49% between 1972 and 1982. Anaconda retained 75% of Exotica which entered production in 1970. Cerro Corporation was involved in a joint venture with Chile’s Corporation del Cobre to develop the Andina property, which started up in mid 1970. The presidential elections of 1970 further moved the goal posts. Salvador Allende was inaugurated in November 1970, and his government immediately moved to nationalise the large copper mines. This took place in July 1971, with compensation fixed after consideration of ‘excess profits’. That resulted in negative payments for Anaconda and Kennecott which led to extended litigation and political lobbying against Chile both in the United States and internationally. Mine output was disrupted by the drying up of foreign credit, the resignation of supervisory, technical and managerial personnel at the mines, and by difficulties in procuring equipment and supplies. It continued to rise, but much more slowly than projected. Following the overthrow of Allende in September 1973 there was further disruption and output remained well below nominal capacity. The imposition of martial law enabled the military junta to raise production substantially closer to capacity in 1974. Chile was not alone in Latin America in acting against foreign investors in copper mining assets, but the other countries concerned were much smaller suppliers to global markets. Peru cancelled concessions held by US companies in 1970, having foreshadowed such action in September 1969. Anaconda, Asarco and Cerro Corporation were the companies concerned. Although none of the deposits involved was then producing copper, confidence was adversely affected. In late 1971 Anaconda’s copperproducing operations in Mexico were ‘Mexicanised’ when 51% of the shares were sold to Mexican investors. As Fig. 15 demonstrates, the copper mine production of the three largest non-US producing countries increased during the 1960s against the background of political disruption and organisational changes. Those did, however, create considerable uncertainty about the availability

ARTICLE IN PRESS P. Crowson / Resources Policy 32 (2007) 1–18

of supplies and dented users’ confidence. Moreover, mine output rose much less than expected, and specific developments did sometimes disrupt supplies. Neither Zambia nor Zaire was able to sustain its production rate during the 1970s partly because of continuing political disruptions elsewhere in Africa, but also because of the policies adopted by the state-owned companies. Uncertainty about the future policies of copper producing nations was heightened by the formation of CIPEC (Inter-Governmental Council of Copper Exporting Countries) by Chile, Peru, Zaire and Zambia on June 1st 1967. Although no precise commitments were made, there was a general perception that coordinated action by the four countries, which together controlled about 40% of world copper supply, could have a considerable impact on copper supply and prices. These fears were intensified when OPEC started flexing its muscles from 1970 onwards, although the threats were more apparent than real as market developments in 1974 were to demonstrate (see the Section on Producer discipline). ‘Producer discipline’ Until well into the 1960s the Western world’s copper industry was dominated by a handful of companies. The major US companies had extensive interests overseas, largely in Latin America, Australia and Canada, with Anaconda, Kennecott, Phelps Dodge and Asarco the major firms. The latter concentrated on smelting and refining. The output of the African Copper Belt was controlled by Anglo American, RST, and UMHK, and Canada’s metal output was in the hands of Inco and Noranda. The main copper mining countries were integrated through to smelting, if not refining, and

13

international trade was mainly in blister and wirebars, with only limited movements of ores and concentrates. Fig. 16 shows balances between mine and smelter production at 5-yearly intervals from 1950 to 1975 for major producing and consuming countries. Mine and smelter output were in broad balance in the United States, Zaire and Zambia throughout the period. Chile had always exported limited quantities of concentrates but they only became important during the 1970s. Canada’s concentrate shipments became significant earlier with the development of mines in Western Canada remote from the smelters of Quebec and Ontario. The other main concentrate suppliers, developed to satisfy burgeoning Japanese demand, were also located mainly around the Pacific Rim, in Indonesia, the Philippines and Papua New Guinea. That demand developed in the late 1950s but only became substantial in the 1960s. Fig. 17 summarises the data of Fig. 16 by showing mine output as percentages of smelter output for the same years and countries. When mine and smelter output are integrated producers can have greater influence over sales than where there are intervening sales of concentrates and custom smelters can source their raw materials from a range of competing suppliers. Market discipline becomes greatly weakened. Although overt collusion to fix prices inside the United States was prohibited throughout the period under antitrust legislation the US government took a fairly relaxed attitude. In Europe and Japan there were no effective sanctions as copper was imported. In the immediate postwar decade governments were in any case far more concerned about the adequacy of copper supplies than with their price. The United States’ government, for example, provided incentives to stimulate new production. It suspended excise duties on imports of refined copper for

Copper mine production in Chile, Zaire & Zambia 1947 to 1980 1200

1000

Chile

Zambia

UDI in Rhodesia

Zaire

51% nationalisation in Zambia

'000 tonnes

800

600 Codelco's 51% stake in large mines

400

Zambia independence Codelco wholly nationalised

200 Zaire Independence

Gecamines nationalised

0 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 Fig. 15. Copper mine production in Chile, Zaire and Zambia in 1947–1980. Source: Metallgesellschaft (1980, 1981), successive issues to 1970–1980.

ARTICLE IN PRESS P. Crowson / Resources Policy 32 (2007) 1–18

14

Copper mine and smelter production at five yearly intervals 1950 to 1975 (‘000 tonnes) W. Europe Mine Smelter USA Mine Smelter Japan Mine Smelter Canada Mine Smelter Chile Mine Smelter Zaire Mine Smelter Zambia Mine Smelter Other W. World Mine Smelter Western World Mine Smelter

1950

1955

1960

1965

1970

1975

Changes 1950-60

1960-70

1955-75

114 176

110 174

130 211

150 264

206 342

296 518

16 35

76 131

186 343

825 915

906 1004

980 1119

1226 1240

1560 1489

1282 1313

155 204

580 370

376 309

39 37

73 82

89 188

107 260

120 501

85 742

50 151

30 313

12 660

240 210

296 257

399 361

461 385

610 450

734 488

159 151

212 89

438 231

363 346

434 406

532 505

585 558

692 647

828 724

169 159

160 142

395 319

176 172

235 232

302 302

289 289

387 386

495 463

126 130

85 84

260 230

298 281

359 348

576 576

696 696

684 683

677 648

279 295

108 107

318 300

233 149

319 204

608 391

626 445

916 604

1306 733

376 242

308 213

987 530

2287 2285

2731 2707

3617 3653

4139 4136

5174 5103

5703 5629

1330 1368

1558 1449

2972 2922

Fig. 16. Copper mine and smelter production at 5-yearly intervals 1950–1975 (‘000’ tonnes). Source: Metallgesellschaft (1980, 1981), successive issues to 1970–1980.

Copper mine output as percentages of smelter output 1950 to 1975 1950

1955

1960

1965

1970

1975

W. Europe USA Japan

64 90 106

63 90 89

61 88 47

57 99 41

60 105 24

57 98 11

Canada Chile Zaire Zambia Other W. World

114 105 102 106 156

115 107 101 103 157

110 105 100 100 155

120 105 100 100 141

136 107 100 100 152

150 114 107 104 178

Western World

100

99

100

101

101

101

Fig. 17. Copper mine output as percentages of smelter output in 1950–1975. Note: The smelter output is from ores and concentrates only. Source: as Fig. 16.

many years, although that suspension was subject to periodic renewal. The duty of cents 2/lb (cents13/lb)5 applied from July 1st 1950 until April 1st 1951, and it was not re-introduced until July 1958. It was then cents 1.7/lb (cents 9.7/lb) when the price exceeded cents 24/lb 5 Excise duties are quoted in money terms with their 2006 real terms equivalents in brackets.

($1.37/lb). The duty was again suspended in 1966 until mid 1972. It was re-applied at cents 0.8/lb (cents 3/lb) until mid 1973, when it was again suspended until mid 1975. Even when suspended the duty provided some defence against imports undercutting domestic US prices. As the major copper producing companies collectively controlled most Western world production in the 1950s and shared similar financial objectives they were not

ARTICLE IN PRESS P. Crowson / Resources Policy 32 (2007) 1–18

unduly troubled by ‘free riders’. They were prepared to adjust their output or stockpile in order to sustain prices in periods of falling and weak demand. In the second quarter of 1949, for example, industrial recession in the USA reduced demand for copper, and the producers responded with a 17% cut in working hours. They were mainly back to full production by the end of the year. In the 1953–1954 recession a political dispute over Chilean supplies to the United States delayed the need for widespread cutbacks in the USA until early 1954. Then the principal US producers again reduced working hours in order to limit their production. These cutbacks were lifted by mid year, before strikes kicked in. Also their impact was weakened by the start-up of new mines. Meantime unsold metal accumulated in Chile in 1953. Cutbacks were more widespread and persisted longer in the 1957–1958 downturn. Most of the major US producers closed some mines in 1957 and shortened working hours at others. Production was also cut at mines in Chile, Canada, the Belgian Congo, Peru and Northern Rhodesia. The cutbacks, which were in many cases of 10% or more, were maintained until well into 1958. Supplies next began to exceed requirements in 1962 and cutbacks in production or sales were introduced in mid July, both in the United States and in Africa. Zaire’s output was largely curtailed by political disruptions, but production was reduced by 10–15% in Zambian mines. The cutbacks were reversed late in 1963. A combination of strikes and political disruptions kept supplies generally tight for the remainder of the 1960s and through the 1971 recession, avoiding any need for voluntary restraint. That would have become more difficult with the changes in ownership that were taking place, and with the development of new mines to meet expanding demand, especially for concentrates in Japan. Serious imbalances arose in the 1974 recession, with Japanese demand particularly hard hit. The Japanese smelters cut their production by 20%, offloaded excess metal into LME warehouses and renegotiated reductions in purchases of concentrates under their long-term contracts. This created consternation amongst miners and partly in response the four CIPEC countries agreed to cut exports by 10% from December 1st 1974. The cutbacks were increased to 15% the following April until mid 1976, but they were not fully honoured, especially in Zaire. US and Canadian producers made much larger cutbacks in 1974. The impact of the supply cuts on prices was muted by the severity of the drop in demand and by the build-up in exchange inventories. CIPEC had demonstrated that it was not as effective in tailoring supply to demand as privately owned companies, partly because their objectives were different. Also the development of a separate large market for copper concentrates had reduced the restraints on smelters. In subsequent recessions producers paid far more attention to their relative costs than attempting to achieve a balance between supply and demand. Added complications were the collapse of the Bretton Woods system of fixed exchange

15

rates from 1971–1973, and the tightening of competition laws, especially in Europe. During the post-war decades the shareholder owned copper producers were keenly aware of the competitive threats from plastics and aluminium. Until the mid 1960s most major producers operated producer pricing systems of varying degrees of effectiveness. LME quotations were largely for marginal supplies. By 1966 most non-US producers had switched to LME pricing, leaving the US producers continuing to sell at producer prices. Sales from US Government stockpiles (see Fig. 14) to domestic US users, and price controls in 1973–1974 held US prices below international levels. Also US producers priced with restraint in order to limit substitution. One indicator of the way in which market conditions altered is given by shifts in producer and exchange inventories, as illustrated in Fig. 18. Producers sometimes built up inventories as an alternative or supplement to reducing output. The coverage of the data widened slightly over the period, but was never comprehensive. The main omission, the exclusion of Japanese metal producers, was important from 1973, but not in the earlier years. Consumer inventories tended to be far more stable than producer stocks, and their inclusion would not alter the picture. US producer stocks were particularly low in the early 1950s, in 1959, and in the 1964–1969 period. The rise in non-US producer stocks in 1953 was caused by the previously mentioned Chilean dispute with the USA. Until the 1970s merchant/exchange inventories were relatively insignificant, even in years of weak demand. Thereafter they bore the brunt of changes in supply/demand balances. The costs of financing inventories had escalated with the inflation-boosted interest rates of the period. State-owned producers were more concerned with sustaining income and employment than with taking actions with uncertain results in order to support copper prices. Shareholderowned companies were struggling to reduce costs and ensure their survival. Selling to merchants and placing metal on warrant both boosted immediate cash flow and offloaded the costs of holding inventory. The ratio of inventories to Western world consumption, shown in Fig. 19, clearly brings out the nature of the change in stock-holding behaviour. During the 1964–1969 period the copper industry was running on an historically low ratio of producer and exchange stocks to consumption. It even dipped below the ratios recorded during the Korean War. The cushion against unexpected supply disruptions was very thin in a period when those were both frequent and severe. Conclusions The 1945–1975 period in context Fig. 20 sets the period in the longer-term context. The upward trend of copper prices during the post-war decades

ARTICLE IN PRESS P. Crowson / Resources Policy 32 (2007) 1–18

16

Producer and Merchant /Exchange Stocks of Refined Copper 1946-75 1200 Non US exchanges and merchants

1000

US exchanges and merchants Other producers

'000 tonnes end year

US producers

800

600

400

200

0 1946 1948 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 Fig. 18. Producer and merchant/exchange stocks of refined copper in 1946–1975. Source: Annual Yearbooks of the American Bureau of Metal Statistics reporting data from the Copper Institute (American Bureau of Mineral Statistics, successive issues to 1975). The stocks of Japanese and some European companies were not included. Comex and LME warehouses account for most of the stocks held by exchanges and merchants.

Producer & Merchant /Exchange Stock Ratios 1947-75 in weeks' Western World consumption 12

Weeks' consumption

10

8 Producer +Merchant/Exchange

6

4

2 Merchant /Exchange

0 1947

1949

1951

1953

1955

1957

1959

1961

1963

1965

1967

1969

1971

1973

1975

Fig. 19. Producer and merchant/exchange stock ratios in 1947–1975 in weeks’ Western world consumption. Source: as Figs. 7 and 18.

continued a trend that had begun in the early 1930s. Whereas the rise from the early 1930s reflected a rebound from the Great Depression, prices initially fell back after the 1939–1945 World War. Their subsequent increases were unusually prolonged. This was not, however, the first occasion in which the longer term downward trend in real prices had been interrupted. There had been an earlier reversal in the late 1890s and early years of the twentieth century, culminating in a sharp spike during the 1914–1918 World War. The fluctuating path of prices over the longer term raises

questions about the immutability of any underlying trends. These are, however, outside the scope of this paper.6 The 1945–1975 period in summary Copper market conditions were returning from war-time conditions to normal in the late 1940s but were then distorted by the onset of hostilities in Korea, and rearmament programmes. Supplies were inadequate and 6

See references in Chapter 4 of Tilton (2002).

ARTICLE IN PRESS P. Crowson / Resources Policy 32 (2007) 1–18

17

700

US cents per pound in 2006 terms

600

US prices LME prices Ten year moving average

500

400

300

200

100

0 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 Fig. 20. Copper prices from 1970 to 2006 in real 2006 terms. Source: as Figs. 1 and 2, and Jolly (1993).

measures were taken to stimulate new supply. Prices were controlled until 1953, with US producer prices held down below free market prices elsewhere. The post-1953 rise in prices partly reflected the restoration of free markets. This coincided with an economic boom when strongly rising demand temporarily outstripped supply. The measures that had been taken in the early 1950s to stimulate investment took some time to achieve their full impact, but came to fruition in the late 1950s and early 1960s. Global copper markets achieved a dynamic equilibrium in the late 1950s and early 1960s. Adequate investment in new or expanded capacity was forthcoming to meet rising demand, even with the strong growth in Europe and Japan. From the early 1960s, however, global output never achieved its true potential because of a potent combination of labour stoppages and political disruptions in the major copper mining districts. Even when markets were in near balance prices contained a sizeable ‘political’ premium. The various disruptions to supply did not influence prices mainly by raising the underlying costs of production, however temporarily, but by holding offerings well below both capacity and expectations. Since they were often acting simultaneously, and their effects were cumulative it is very difficult, if not impossible, to ascribe appropriate weightings to each separate event. Until the 1970s the major copper producing companies exerted a marked degree of ‘self-discipline’ over their pricing and production. They were willing and able to tailor their supplies to market demand in the expectation that other producers would follow and that cutbacks would improve market balance. Inventories were largely held and managed by the producers themselves and merchants and exchanges were relatively unimportant. Until well into the 1960s the greater part of Western world copper output was integrated, at least up to the production of wirebar. Mines and smelters thus had a

common interest in ensuring balanced metal markets. Market discipline increasingly weakened as the 1960s progressed through the combined influence of changed ownership and control on the one hand and the widening geographical dispersion of centres of consumption and production on the other. Implications for subsequent years The 1973–1974 boom and the 1974–1975 recession brought into focus several basic changes that had been germinating for some years:

 





 

The reduced influence of the shareholder-owned copper companies, following state takeovers in Latin America and Africa from 1967 onwards. A consequent divergence of objectives between stateowned and private companies. Profitability was much less important for the former than the latter, and they were therefore less willing to reduce output in periods of oversupply, especially after their disappointing experiences in 1974–1975. The gradual separation of primary copper production from further processing as a result of the nationalisation of the upstream assets of previously integrated USowned copper companies. The emergence of a large copper concentrate market. This further weakened market discipline. Smelters’/ refiners’ interests were not always aligned with those of miners, as the actions of Japanese smelters demonstrated in 1974. An increased importance of exchanges as markets of last resort for cash-strapped metal producers. A growing focus on the objective of achieving low relative costs in order to survive in a world of greatly weakened producer discipline.

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P. Crowson / Resources Policy 32 (2007) 1–18

An increasing role for merchants as intermediaries between miners and users of refined copper. This was fostered and facilitated by the other changes already listed. A trend towards ever-increasing economies of scale as the smaller and weaker producers were forced out by adverse market conditions. Hitherto they had been partly sheltered by the production and sales policies of the majors.

altered patterns of ownership and prospectively increased the copper industry’s concentration. Whether or not that will restore the type of market discipline that prevailed in the post-1945 period remains to be seen. The behaviour of copper prices during the post-war decades offers little, if any, guidance to their likely performance from 2006.

Taken together with the impact of increased oil prices on the level and rate of growth of demand from 1974 onwards these factors profoundly altered the copper industry’s relationships between supply (and costs) and demand. They influenced the nature of the copper market for the next 30 years. The seeds of the downward trend of real prices in that period were sown during the 1960s and flowered in the 1990s when some of those influences had played themselves out or had fully matured. The structure of the world’s copper production and usage is today very different from that of the 1945–1975 period. Although state ownership is no longer the powerful influence that it became during the 1960s most of the other structural changes of the late 1960s and early 1970s remain in place. Certainly recent mergers and acquisitions have

American Bureau of Metal Statistics, successive issues to 1975. American Bureau of Mineral Statistics Yearbooks. American Bureau of Metal Statistics, New York. Jolly, J.C., 1993. Mineral Prices in the United States through 1991. US Bureau of Mines, Washington, DC (Copper Chapter). McMahon, A.D., 1965. Copper: A Materials Survey IC 8225. US Bureau of Mines, Washington, DC. Metallgesellschaft, 1980, 1981. Metal Statistics. Metallgesellschaft, Frankfurt am Main (successive issues). Prain, R., 1975. Copper, the Anatomy of an Industry. Mining Journal Books Ltd., London. Radetzki, M., 1985. State Mineral Enterprises. Resources for the Future, Washington, DC. Tilton, J.E., 2002. On Borrowed Time? Assessing the Threat of Mineral Depletion. Resources for the Future, Washington, DC. United States Geological Survey, US Bureau of Mines, 1990. Minerals Yearbooks. US Bureau of Mines, Washington, DC (successive issues 1949 to 1975, Copper Chapter).



References