THE CIPEC COUNTRIES AND THE FREE WORLD COPPER MARKET

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001600030048-6
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 22
• Document Creation Date: December 22, 2016
• Document Release Date: October 14, 2011
• Sequence Number: 48
• Publication Date: April 1, 1970
• Content Type: IM

 /1,A /. i I
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DIRECTORATE OF
INTELLIGENCE
-eonfidential
Intelligence Memorandum
The CIPEC Countries And The Free World Copper Market
ER IM 70-48
Apri1.._ 19 7 0
Copy 'No. 55
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WARNING
This document contains information affecting the national
defense of the United States, within the meaning of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
Opouf I
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CONFIDENTIAL
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
April 1970
INTELLIGENCE MEMORANDUM
The CIPEC Countries
And The Free World Copper Market
Introduction
Contrary to repeated forecasts of a weakening
world copper market, prices have remained very high.
On the supply side, this condition partly reflects
delays in foreign-financed expansion projects in
Chile, Zambia, Congo (Kinshasa), and Peru. These
four developing countries dominate world copper
exports, accounting for 70% to 80% of the total
during the 1960s. In recent years, they have
adopted increasingly nationalistic policies and have
arranged for cooperative action through the Inter-
governmental Council of Copper Exporting Countries
(CIPEC) -- actions that promise to have a further
impact on world copper supplies. This memorandum
examines CIPEC copper policies in the 1960s, their
impact on world copper supply and prices, and their
probable evolution and effects during the next
several years.
Background
1. The world copper market has three fairly
distinct parts: the United States, the rest of the
Free World, and the Communist countries. The United
States accounts for about 30% of Free World mine
output and 35% to 40% of Free World copper consump-
tion. Domestic output meets about 90% of US require-
ments except during abnormal periods like 1967-68,
when strike disruptions brought a marked rise in
imports despite increased use of domestic scrap and
inventory reduction. Most other Free World copper
is consumed in Western Europe and Japan, which
Note: This memorandum was produced soZeZy by CIA.
It was prepared by the Office of Economic Research
and was coordinated with the Office of Current In-
teZZigence.
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VV1N1'1L12iIN 11f.L
together account for only about 6% of Free World
mine output. Developing countries in Latin America
and Africa (mainly Chile, Peru, Zambia, and the
Congo) produce about two-thirds of the Free World
copper mined outside the United States but use only
negligible amounts themselves. Copper output in
Communist countries is somewhat less than one-fourth
of the Free World total. Traditionally, there has
been relatively little copper trade between the two
areas, but in recent years sharply increased Chinese
purchases have added to pressure on Free World sup-
plies and prices.
2. Before the recent government takeovers in
the Congo, Chile, and Zambia, the Free World copper
industry was dominated by an oligopoly of large
private companies, mostly US-owned but representing
British, Belgian, South African, Australian, and
Canadian interests as well,. In the United States,
about 60% of mine output is from three vertically
integrated companies (Kennecott,. Phelps Dodge, and
Anaconda) and some 90% of refining capacity is con-
trolled by these companies plus American Smelting
and Refining and American Metal Climax. These five
firms also have substantial interests abroad. Un-
til nationalization, US firms controlled 85% of
Chile's mining capacity and owned most of one of
Zambia's two important companies. South African
and British interests controlled the other Zambian
company, and a Belgian corporation owned the Congo-
lese mines. US companies still dominate Peru's
copper industry and, together with West European
and increasingly active Japanese companies, hold
large interests in the Philippines, Bougainville,
Australia, Canada, and South Africa.
3. The copper industry historically has had
great difficulty adjusting supply to demand. Be-
cause of the long leadtime required for new mines,
the frequently large individual additions to capac-
ity, and the tendency of producers to start expan-
sion programs at about the same time, capacity
usually has grown in spurts -- oftentimes after
demand already had peaked. Although demand has
grown fairly steadily and prices have trended up-
ward during much of the postwar period, periodic
surpluses nevertheless have prompted efforts to
shore up prices. As recently as the early 1960s,
there was an extended period of market weakness that
compelled sizable production cutbacks and direct
market intervention by producers in an effort to
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CONFIDENTIAL
maintain prices close to the desired 30 cents a
pound.
4. Copper demand began to surge ahead of supply
in 1964 because of the Vietnam War and worldwide
economic boom. Pressure on supplies weakened with
the onset of the US and West European slowdowns in
late 1966, but a tendency toward lower prices was
reversed by the US industry-wide strike, which
lasted from July 1967 to April 1968. Subsequent
recovery of economic growth in industrial countries
as well as continued heavy war requirements has
kept demand strong. There were also supply pres-
sures from speculative demands associated with
Western monetary crises and from net Communist
purchases, which increased from about 30,000 tons*
in 1967 to 150,000 tons in 1968 and 215#000 tons in
1969.
5. Capacity limitations, strikes, natural
disasters, and political difficulties all have
adversely affected supply since the mid-1960s.
Free World mine output rose about 311% annually.dur-
ing 1964-66, when mines operated at an average of
94% of capacity, but the US copper strike caused a
7% decline in 1967 output. Free World mine output
regained the 1966 level in 1968 and rose by 9% in
1969, re-establishing the basic growth trend of the
mid-1960s (see Figure 1). For the entire 1964-69
period, annual growth in mine output averaged only
about 3/% while consumption increased almost 5%
annually. To help meet demand, greater use was
made of scrap (about one-fifth of consumption in
recent years), and inventories at every level were
depleted. Moreover, during 1964-67 the US govern-
ment released some 850,000 tons from its copper
stockpile, which has subsequently remained at only
one-third of its quota.
6. The Free World has had a two-tiered price
system since January 1964 because US producers and,
for a time, major foreign producers maintained
comparatively low, controlled prices. Heartened by
their success in stabilizing prices in the face of
slack demand in the early 1960s, the foreign pro-
ducers adopted US-type producer pricing in January
1964 in place of prices based on London Metal Exchange
(LME) quotations. Their system, designed to promote
Tonnages are given in short tons throughout this
memorandum,
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CONFIDENTIAL
price stability, lasted about two years. During
this time the LME pric: climbed from 30 to 85 cents
while major foreign producers raised their price
only from 30 to 42 cents. The producing countries
had accepted the arrangement because the initial
surge in the LME price was considered temporary and
accelerated substitution of other materials was
feared. By March 1966, however, it had become clear
that the heavy demand and higher prices were more
than transitory, and the Chilean government directed
companies operating there to raise their prices by 20
cents a pound. During the next few months, African
and Canadian producers also abandoned the producer
price system, and by August all major producers except
the United States again were selling at the LME price.
7. Although most foreign copper sales are made
under long-term contracts, the main price determinant
is the LME cash quotation on the day of delivery.
Because the LME actually handles only a small part of
Free World copper trade and is used for hedging, day-
to-day price fluctuations often are sharp. Despite
wide price fluctuations, foreign producers greatly
increased their earnings by returning to LME pricing.
Since March 1966, LME prices have averaged 60 cents,
compared with an average US producer price of 42 cents.
After dipping from an average of 69 cents in 1966 to
51 cents in 1967, the LME price almost regained the
earlier peak in 1969 and has averaged more than 75 cents
thus far in 1970 (see Figure 2). The US producer price
was raised only twice during 1966-68, from 36 to 42
cents. Five major price hikes in one year boosted the
price to 56 cents by January 1970, bu-.. the spread from
the LME price remained wide. When US producers raised
their price to 60 cents in early April 1970, the LME
price stood at about 80 cents.
Politics and Policies in CIPEC Countries
8. Sluggish capacity growth in the countries
now comprising CIPEC has contributed to the copper
shortages of the past six years. This lag was not
caused by lack of copper resources but by political
instability and increasingly nationalistic policies.
The countries' aim has been to profit more from
their mineral wealth. In general, they have succeed-
ed. Even moves that discouraged foreign mining
companies from expanding have brought rewards, by
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Figure 1
Million Short Tons .
1964
.4.01
.1963
78074 4-70 CIA
1965 1966
Communist China's Purchases
Refinlbd Production
1
1967
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Copper Prices
CENTS PER POUND (Wirebar )
801 i l
London Metal Exchange Price
Annual Average
Monthly Average
US Producer Price
1959 1960 1961 1962 1963 1964
1965 1966 1967 1968 1969 1970
No posted, price during strike.
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CONFIDENTIAL
contributing to the world copper shortage and the
consequent record rise in prices.
9. Prior to the mid-1960s, the producing coun-
tries relied primarily on tax and foreign exchange
policies to obtain a satisfactory share of copper
revenues. These policies varied considerably among
the four countries in nature and timing. In Chile,
for example, confiscatory policies nearly bankrupted
the foreign-owned copper companies in the early
1950s and reduced the country's share of world pro-
duc'.ion. A more favorable mining code brought sub-
stantial additions to capacity in the late 1950s,
but the investment climate worsened in the early
1960s when political attacks on the companies re-
sumed. As tensions grew, it became apparent that
further major expansion would have to await the
outcome of the 1964 election. In Peru, in contrast,
copper development has become an important issue
only recently. Peru generally has accorded foreign
copper companies more generous financial treatment
than has Chile, probably because nationalistic
hostility focused on the recently expropriated In-
ternational Petroleum Company (IPC). In the Congo
and Zambia, concern about relations with the foreign-
owned copper industry was overshadowed until a few
years ago by problems attending independence. Never-
theless, political uncertainty and popular opposi-
tion to the foreign mining companies delayed new
investment in copper development.
Nationalization Moves
10. The shift in policy emphasis from profit-
sharing to government ownership began with the
"Chileanization" program that Frei proposed in the
1964 presidential campaign as an alternative to the
Marxist candidate's nationalization scheme. The
program and implementing agreements with foreign
companies called for partial government ownership*
* Under the copper agreements, the Chilean govern-
ment acquired a 51% interest in Kennecott's mine and
a 25% interest in two new mines being developed by
Anaconda and Cerro Corporation. In order to retain
full ownership of its two operating mines (which
accounted for some 70% of its copper production and
profits), Anaconda agreed to much larger investments
and lesser tax benefits than did Kennecott.
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and large new company investments in exchange for
reduced and nondiscriminatory tax rates. The agree-
ments, formally approved in 1967 after a long delay
in the Chilean Congress, were to last 20 years.
Encouraged by this government guarantee, the US
copper companies readily agreed to participate in a
$750 million program to almost double Chile's copper
output by 1972. Despite rapid progress under the
investment program and high Chilean earnings,
political pressures for nationalization grew and the
Frei government broke the copper agreements in mid-
1969. Anaconda was forced to turn over a 51% equity
in its two producing mines and agreed to sell the
remainder sometime during 1972-81. In addition,
Anaconda's and Kennecott's profits have been sub-
jected to higher, progressive tax rates whenever
copper prices exceed 40 cents a pound.
11. The Congo is the only CIPEC country that
already has wholly nationalized a foreign copper
enterprise. The government acquired an 18% equity-
interest in the Belgian concern Union Miniere du
Haut Katanga (UMHK) -- the sole producer -- in 1960,
when the Congo won independence, and it assumed full
control of the properties in 1967,* Under a 25-year
management contract signed when compensation was
finally arranged in September 1969, a UMHK affiliate
that has operated the mines since their nationali-
zation will receive 6% of sales revenue less market-
ing expenses during the next 15 years and a 1% fee
thereafter. The extra initial fee in effect repre-
sents compensation to UMHK and could yield between
$300 million and $500 million. The only foreign
firm to invest in Congolese cropper since seizure of
UMHK's properties is the Nippon Mining Company. In
its quest to secure long-term copper supplies, the
Japanese firm has formed a joint company with the
Congolese government (which has a 15% interest) and
plans to invest some $40 million by 1972 to exploit
its two concessions.
12. The Zambian government did not seek owner-
ship rights in the copper industry until 1969, al-
though it began to pressure the companies for
higher taxes much earlier and in 1968 restricted
foreign exchange remittances to 50% of net profits.
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In a surprise move on 11 August, President Kaunda
"invited" the foreign mining firms to offer the
government 51% interests. The two companies involved
are Roan Selection Trust (RST) -- 80% to 85% owned
by American Metals Climax and other US shareholders --
and Zambian Anglo-American Corporation (Zamanglo) --
mostly South African and British owned.* Together,
they produce 98% of Zambian copper. in November
the three parties agreed "in principle" on compen-
sation based on book value, the companies received
10-year management contracts, and the foreign ex-
change restriction was lifted. Two recent policy
changes may lure other copper companies to Zambia,
depending on their reading of the future investment
climate. All mineral concessions, originally held
in perpetuity by RST and Zamanglo, have reverted to
the state. The government has given the companies
25-year leases only for their operating mines and
thus can offer concessions to other investors. Per-
haps equally important is the shift to taxation
based on profits rather than gross sales value -- a
system that could encourage development of poorer
ore bodies.
13. Peru's government has not nationalized any
copper enterprises, but it decreed in September 1969
that all undeveloped concessions issued before June
1965 would revert to the state unless their holders
submitted development plans by 31 December and ad-
hered to them. Development of all the concessions
would cost well in excess of $1 billion and more
than triple Peru's copper output. All foreign mining
companies submitted the required plans despite an
investment atmosphere chilled by the uncompensated
expropriation of IPC, a sweeping agrarian reform,
and the Velasco government's continuing "revolution-
ary" image. In January the Southern Peru Copper
Company (SPCC), which produces two-thirds of Peru's
copper, negotiated a seemingly favorable contract
for developing its large Cuajone concession and is
seeking project financing in Japan and Western Europe
as well as in the United States. To meet opposition
from radical elements that viewed the SPCC contract
as a sellout, however, Velasco promised that all
other contracts would involve tougher terms, possibly
including state participation. His recent speech
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advocating nationalization of all foreign investment
after an "acceptable amount" of profit recovery
will make foreign financing of major projects more
difficult.
Creation of CIPEC
14. Recognizing a common dependence on copper
revenues, representatives of Chile, Zambia, the
Congo, and Peru met.in Lusaka in 1967 to consider
what could be done to safeguard market "equilibrium."
They agreed to establish CIPEC, with a permanent
headquarters and staff in Paris, a governing board
of two representatives from each country that meets
semiannually, and a top policy-making body -- the
Conference of Mini ng'Ministers -- that meets bian-
nually. CIPEC's basic objective is obtaining
"legitimate increased revenues" for its members.
Efforts thus far have involved primarily in-depth
market studies, exchange of information, and consul-
tation on copper policies.
15. The CIPEC countries undoubtedly would like
to prevent a major price decline from recent high
levels. They have been considering various price
stabilization schemes, including formation of a
"copper bank" (preferably with help from interna-
tional financial organizations), simple quadripar-
tite price-fixing, and, if necessary, production or
sales cutbacks. At the same time. CIPEC members
have opposed consultations between producer and
consumer nations, presumably preferring to first
test their ability to sustain high copper prices.
Although the tight market has made CIPEC interven-
tion unnecessary thus far, its potential has caused
much concern among copper consumers.
Trends in Copper Supply and Investment Patterns
16. Free World mine output grew an average of
only a.little more than 3% annually during 1961-69,
as against somewhat more than 4h% during 1951-60.
In the earlier period, CIPEC countries helped to
boost the growth rate by expanding output at an
average of about 6h% annually, while in the later
period their 2/% expansion rate helped.to drag it
down (see Figure 3). By 1969 their share of Free
World output had slipped to 41%, compared with 44%
in 1960. Although they lost part of their market
to other producers in the 1960s, the CIPEC countries
still accounted for 70% of the shipments of net
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Growth of Copper Mine Production
CiPEC Countries and Free World Total
Indexes of Copper Content
(In percent of Free World Total)
44.0%
is and Free World Total
of Copper Content
(In percent of Free World Total)
44,0%
Figure 3
200
1950 , 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960
1955 1956 1957 1958 1959 1960
INDEXES (7960 =I 00)
1960 1961 1962 1963 1964 1965 1966
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ofopper Mine Production
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CONFII)]'N'I'1AI,
exporting nations in 1968 (see Figure 4). The re-
mainder came largely from Canada (15% of the total),
South Africa (5%), and the Philippines (48). CIPEC
countries remain especially important in supplying
Western Europe -- the main importing area -- and
are meeting more and more of Japan's growing needs.
Even the United States, the world's largest copper
producer, depends largely on CIPEC countries for
its import 3 .
roe World Copper Trade In 1968
17. Free World copper mine capacity is expected
to increase fairly rapidly during 1970-73. Sched-
uled projects would increase CIPEC countries' capac-
ity by about 29% and that of other producers by
almost 40% (see the table). As a reisult, the CIPEC
countries' share of Free World capacity is expected
to decline further, from 40% to 38%. Chile will
account for nearly all the rise in capacity and
should again become the group's largest producer
this year or next. Only minor projects are under
way in Zambia, Peru, and the Congo, and major new
projects could not produce as early as 1573 because
of the long leadtime required.
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Estimated Changes in Free World Copper Mining Capacity
1970-73
Annual Production Capacity
(Thousand Short Tons, Copper Content)
it
l C
apac
y
Percent of Tota
Estimated
Scheduled
Additions
Scheduled
Estimated
Scheduled
3
969
f
1970-73
in
D
End of 1973
End of 1969
End of 197
1
End o
g
ur
670
975
2
39/
37h
CIPEC countries 2,305
,
825
100
925
14
11/
Zambia
Chile 830
470
1,300
14
16/
6
o (Kinshasa) 400
Con
55
455
7
1
g
Peru 250
45
295
431
3
1
405
1
930
4
60/
62/
Otter countries 3,525
,
,
ited States 1,775
U
460
2,235
30/
28"
n
ada 710
Ca
210
920
12
11/
n
ico 80
Me
100
180
1/
2/
x
an 135
Ja
20
155
2/
2
p
ines 2.35
Phili
115
250
2/
3
pp
Australia 150
35
185
2/
2/
South Africa and
210
3
2/
uth West Africa 175
S
35
o
80
Negl
1
/tonesia
I"
Negl.
80
.
:
ainville
Fou
Negl.
200
200
Negl.
2A
g
e
E
220
50
270
3h
3h
urop
Other
14$
100
245
211
3
Total
2,075
7,905
100
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CONIC I1ENI IAl.,
18. Although CIPEC countries possess the major
share of known copper reserves, including many of
the richest deposits, political uncertainties have
continued to delay their development. These uncer-
tainties, together with mining innovations and high
prices, have stimulated investment in copper do-
posits elsewhere, including some previously consid-
ered uneconomic. For example, US mine capacity is
expected to rise by almost one-fourth during 1970-73
with much of the increase stemming from exploitation
of low-grade ores.*
19. C111EC countries' copper exports could in-
crease by some 500,000 tons (or more than 25%)
during 1970-73, if all planned now capacity came in
and were fully exploited. The countries' aharo of
total net exports nevertheless would decline some-
what i! copper development plans were realized in
other exporting areas such as the Philippines,
Indonesia, and Bougainville. Although Canada plans
to boost capacity by about 30%, its export share
may change little because of substantially increased
domestic demand. South Africa's share of the world
market probably will decrease, since no major expan-
sion projects are under way, and Australia -- al-
though potentially important -- is unlikely to be-
come a large exporter by 1973. Barring exceptional
production interruptions, CIPEC nations probably
will provide some 65% of Free World exports by 1973,
as againat 70% in 1968 and 778 as recently an 1965.
Chile's share of the market should increase from its
present level of 25%, while Zambia, the Congo, .nd
Peru probably will. fall below their present shares
of 25%, 13%, and 8%, respectively.
20. In the longer run, the CIPEC countries'
role an a copper supplier can be expected to de-
teriorate markedly if investor incentives are not
strengthened Their scheduled average increase in
mining capacity during 1970-73 of about 6/% annually
(compared with 8S% for other Free World countries)
is due almost entirely to Chilean investments under
ILLEGIB
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way before the recent nationalization moves. No
now projects are being considered in Chile. New
copper investments in Zambia and the Congo are only
beginning to be discussed, Even in Peru, where
private foreign companies probably could triple
copper output within 5 to 10 years, development
is being slowed and may be halted by the unstable
investment climate.
21. By the middle and late 1970s, areas now
considered comparatively safe from adverse policy
changes -- notably Canada, Australia, Botswana, and
some Far Eastern areas -- are likely to bulk much
larger in world copper trade.. Recently discovered
copper deposits in certain Latin American and African
countries (for example, Argentina) also have aroused
the interest of foreign firms. But prospective
risks and profits probably will be weighed carefully
before large amounts of capital are invested even
in these countries.
Prospects for the Free World Market
22. Copper market trends during the next
several years cannot be predicted with much confi-
dence, considering that past projections frequently
have proved wrong and that many uncertainties lie
ahead. Many industry and government estimates now
point to market balance by the end of 1970 and in-
creasingly large surplus supplies during the next
several years- Underlying these forecasts are such
assumptions as the following:
Mining capacity will rise about as
nchcdulcd, with very large additions coming
in during the np??t year or so.
Production will be maintained at near-
capacity levels.
Demand growth will slacken over the
short term because of the US economic slow-
down.
Demand during the next several years
will grow at an average rate of not more
than 4',% (the average since World War II).
If these assumptions proved valid, supp'y probably
would substantially exceed demand and prices would
fall substantially.
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23. It does seem reasonable to expect a softening
market during the next year or so. But a reasonably
strong case can be made that the surplus will not
last long and that the market may remain fairly
tight over the long term. This view rests on the
following assumptions:
As in the past, copper expansion pro-
grams will rarely be completed on schedule..
As in the past, production will be dis-
turbed by strikes, natural disasters, tech-
nical difficulties, and political factors.
Inventory rebuilding (and perhaps
additions to US strategic stockpiles) will
offset a good part of reduced industrial
demand in the short term.
The growth of consumption during the
1970-73 period as a whole will exceed the
long-term norm (as it did in 1964-69 despite
very high prices and severe supply bottle-
necks) even if Vietnam War requirements
continue to decrease gradually.
Under these assumptions, supply would at best merely
keep up with the growth of demand during 1970-73
and might fall considerably short of it.
24. Over most of the 1970s, Free World copper
demand should remain fairly strong, expanding at a
more rapid rate than GNP. The major copper-consum-
ing industries are expected to be among the fastest
growing in the 1970s, and now uses for copper are
likely to continue developing rapidly. Moreover,
because the easiest, most profitable substitutions
of other materials already have taken place, copper
use probably will not slow much oven if prices re-
main high. Rising consumption in China and in Free
World developing countries also could add consid-
erably to demand in the years ahead.
25. Since the CIPEC countries have grown accus-
tomed to high and sharply rising copper revenues,
any appreciable weakening of the market would
promptly test their price-fixing capabilities.
These countries almost certainly want to maintain
a considerably higher price than the private copper
companies would be satisfied with. Their view of a
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"break-even" price is based on short-term budgetary,
balance-of-payments, and development needs rather
than profit margins? The Chilean government, for
example, judges that a 60-cent price is needed to
balance its 1970 budget, and this estimate prob-
ably will rise as the budget is implemented.
26. The CIPEC countries should have little
difficulty in counteracting a moderate, temporary
softening of the market if they can agree on what
to do. However, if more severe market weakness
necessitated large or prolonged production cutbacks,
their price support efforts would be very costly
and perhaps even less palatable politically than
revenue losses from declining prices. Moreover,
intergovernmental policy differences (which have
been conspicuous in schemes for regulating prices
or supplies for oil and other commodities) and
CIPEC's lack of marketing experience could reduce
the effectiveness of price stabilization maneuvers
o'er both the short and long term. If high copper
prices could be sustained, Western Europe and Japan
would continue to bear the brunt. US copper prices
might not be much affected by CIPEC's actions be-
cause domestic producers may well raise output
faster than consumption in the early 1970s, there-
by further reducing import requirements.
27. The CIPEC countries' most important impact
on the world copper market over the next decade
may be in restraining growth in production capac-
ity. Because of the CIPEC countries' policies,
foreign investors already have become wary of
risking large amounts of capital in politically
insecure countries, oven though their copper
resources are generally superior. Concentration
on more stable areas such as the United States,
Canada, and Australia, while better assuring a
reasonable return on investment, probably will en-
tail larger exploration costs, even longer lead-
times, and higher production costs As a result,
the task of increasing supply in line with demand
growth and affording consumers some relief from
high copper prices will be even more difficult than
in the past.
28. Because of the deteriorating investment
climate in important copper-producing countries,
new approaches may have to be used to assure ade-
quate copper supplies over the long run. Private
copper companies may, for example, devise fairly
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CONFII)EN'.11AL
elaborate shared-risk schemes among themselves to
lessen the impact of a government takeover or other
confiscatory measures. Some companies also are
moderating their attitudes concerning joint ven-
tures, in the hope of lessening the likelihood of
expropriation. Even so, sufficient private capi-
tal may not be forthcoming without more adequate
investment insurance and other government guaran-
tees. In particular, copper companies can be
expected to push for improved government insurance
against forced sell-outs, arbitrary and immediate
shifts in tax laws, and other risks not now covered.
Conclusions
29. Political disturbances and rising nationa-
lism in the CIPEC countries have contributed to
the tight world copper supply and may impede fur-
ther development of their ccpper resources.
Political opposition to foreign ownership, unfa-
vorable tax po)icies. and instability delayed new
projects in the early 1960s, and nationalization
moves in Chile, the Congo, and Zambia in 1967-69
further dampened the investment climate. Although
Peru has not nationalized copper companies, it is
pressing them hard to go ahead with major invest-
ments, and probably will insist at the least on
partial state ownership in new mines.
30. Copper output in the CIPEC countries has
responded to some extent to the strong demand
generated since 1963 by Vietnam Wat requirements
and generally rapid economic growth in industrial
countries. But their copper expansion remained
below the Free World average in 1964-69, as in the
early 1960s, whereas it was a major contributor
to the large rise in Free World, output in the 1950s.
CIPEC output consequently slipped from 44% of the
Free World total in 1960 to 41% in 1969.
in the next few years Total Free World mining
capacity is scheduled to increase substantially,
and the tight supply conditions contributing to
continued high prices ,,jnsequently could ease in
31.
Because of iarge additions to
Chilean
mining
capacity initiated under Frei's
short-lived
copper
agreements, CIPEC's position as
a world
copper
supplier will deteriorate only
moderately
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I CONFIDENTIAL,
the short run. If market weakness threatens, how-
ever, CIPEC countries can be expected to test their
combined ability to stabilize prices, perhaps at
as high a level as 60 to 65 cents a pound. They
probably would have little technical difficulty
doing so in the face of a temporary and moderate
market slump. The economic and political costs
of withholding large amounts of copper over a
fairly long period, however, would severely strain
CIPEC's abilities and could bring about its collapse.
32. Prospects for long-term relief from high
copper prices are not particularly favorable. The
recent strength of copper demand in the face of
high prices probably indicates that further substi-
tution is hindered by technical factors, including
production techniques and quality requirements.
Private copper producers appear to be less fearful
than previously of losing markets to other materials.
Furthermore, CIPEC governments can be expected to
show far less concern for long-term market expansion
than immediate budget and balance-of-payments needs.
33. Increasingly nationalistic and unstable
government policies in the CIPEC countries have
prompted a shift to development in more stable but
often higher cost areas, which also will tend to
keep prices high, Barring major finds in countries
like Australia and Canada, copper may again be in
short supply by the mid-1970s unless more adequate
safeguards are found for foreign investments in
CIPEC countries and other less developed areas.
Because capital requirements are large and lead-
times often exceed the life of government policies
in the developing countries, a workable solution
may depend on the willingness of importing nations
to underwrite some of the investment risks.
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