THE WORLD COPPER MARKET: RECENT TRENDS AND PROSPECTS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001900020016-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 14
• Document Creation Date: December 19, 2016
• Document Release Date: July 29, 2005
• Sequence Number: 16
• Publication Date: March 15, 1974
• Content Type: REPORT

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Some Market Characteristics
1. The world copper market has three fairly
distinct components. One is the United States, which
possesses about 30% of mine capacity of non-Communist
countries and normally imports only 10% of its copper
requirements. The other non-Communist countries
constitute a second component, in which supplies move
mainly to Western Europe and Japan from Chile, Peru,
Zaire, and Zambia -- the members of CIPEC -- and from
Canada. The CIPEC countries account for about 38% of
mine capacity and 70% of exports in the non-Communist
countries. Communist countries make up a relatively self-
sufficient third component, with output approximating
one-fourth of the non-Communist total. Traditionally,
East-West copper trade has been limited to a small net
outflow from non-Communist sources. This trend was
reversed in 1973, however, when Communist countries
exported some 210,000 metric tons to the West and China
imported an estimated 160,000 metric tons from non-
Communist sources.
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2. Because US copper producers maintain more
stable prices than do other suppliers, the non-Communist
countries have a two-tiered price system. Owing to
price controls and other factors, the US posted price
sometimes is slow to reflect changing supply-demand
conditions. Most other transactions, although covered
by long-term contracts, are priced at the LME cash
quotation on the day of delivery. Because the LME
actually handles only a small part of the world copper
trade and is used for hedging, day-to-day price
fluctuations are often sharp. Both US and LME prices
have changed considerably over the long-term, mainly
because the industry has had great difficulty adjusting
supply to demand. The long leadtime required for new
mines, typically large individual additions to capacity,
and the tendency of producers to start expansion programs
belatedly and at about the same time have all contributed
to irregular growth of capacity and wide price swings.
Demand and Supply Trends in the Early 1970s
3. 1970-72 -- Non-Communist copper demand and
supply generally were in better balance during 1970-72
than in the late 1960s. Consumption of refined copper
continued to mova erratically owing to the slowdown
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increase overcompensated for recovery in demand, however,
and LME inventories of refined copper reached an all-time
scrap as well as ore supplies and boosted production
by a strapping 9%, to 6.4 million metric tons. The
reviving demand in 1972, the industry drew heavily on
a 90-day strike in US mines and refineries. To meet
1971, production declined even more, mainly because of
rose only slightly. Although consumption dropped in
and subsequent pickup in economic activity in most
industrialized countries. The US and LNE prices
nevertheless progressively converged and became more
stable. Much of the earlier pressure on prices vanished
because copper production ran ahead of demand each year,
although not by a wide margin.*
4. The 5% increase in refined copper output in
1970 brought substantial price relief because consumption
US producer price, which reached $0.60 per pound during
price in December 1972 still averaged only $0.46. The
high of some 190,000 tons in November.
5. Reflecting these developments.L:VLE,copper
prices dropped from an average of $0.80 per pound
in March 1970 -- not far below the 1966 record
monthly high of $0.86 -- to $0.46 in late 1971. Despite
two brief subsequent periods of rising prices, the LME
*See statistical appendix.
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mid-1970, generally re::ained a:-)ev,re the L:IE price during
1971-72, amounting to $0.51 in December 1972.
6. 1973-:March 1974 -- These trends were sharply
reversed in 1973 when consumption jumped by 10% to 6.9
million metric tons and refined copper production rose
by 4% to 6.6 million tons. Japan led the consumption
surge with a 26% increase; consumption in Europe rose
by 7% and in the US by 6%. World mine output increased
by 6% to nearly 6 million tons, but refineries were
held to more moderate increases in part because of
smelting capacity limitations. The 300,000 ton product on
deficit was mitigated scmewhat by net imports of 50,000
tons from Communist countries. The remainder of the
shortfall was cover
d b
e
y drawdowns on stocks, reducing
them to their lowest level in rears.
7. Monetary uncertainties, which prompted
speculators to load up on commodities as a hedge,
exacerbated price pressures deriving from spiraling
demand and lagging production. By ? mid_year, r?
?.. ?? _ E prices
were pushed up to $0. 80 -- approximating earlier
monthly records. Even though consumption growth there-
after declined, prices continued to climb as depleted
stocks added to the buying fever. By November, Li?IE
spot quotations averaged $1.03; after a brief decline,
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they rebounded to a new record high of $1.16 during the
first two weeks of March 1974. The US producer price also
rose early in 1973 but then was frozen at $0.60 during
March-November. It currently stands at $0.68.
Prospects for 1975-75
8. An increase in refined production of about 6%
to 7% is forecast for 1974, boosting output to about
7.1 million tons. More than half of this growth is
expected to take place in the United States and Chile,
where smelting/refining bottlenecks are being lessened
through pollution-control investments and an ambitious
renovation program respectively. Chile and Zambia are
largely responsible for the expected 6% hike in mining
output.
9. Production estimates this year, however, are
even shakier than usual because of the possibility of
a US copper industry strike when labr..r contracts expire
at the end of June. The last two times contract negotiations
took place, there were prolonged strikes -- about 8 months
in 1967-68 and 3 months in 1971. For each month the
industry is partly shut down, the United States will
incur a production loss of 120,000 tons or so. Thus,
a strike lasting three or four months could wipe out
the total anticipated increase in non-Communist output
in 1974.
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10. The demand side of the equation is even more
uncertain because energy problems have made economic
forecasting a riskier business than usual and monetary
fluctuations have pushed speculators heavily into the
commoditi.es market. Forecasters generally agree, however,
that there will be a pronounced slowdown in world industrial
growth in 1974 with widespread stagnation -- or even a
decline -- occurring in the first half of the year and
some recovery in the second half. For the year as a whole,
estimates of economic growth in Europe and the US generally
fall in the 1% to 4% range, far below growth in 1973.
Japan's economic growth rate is expected to be some 3% to 5%,
down from about 11% in 1973.
11. Because copper consumption is closely related to
industrial production, it also should level off in the
first half of the year and then rise slowly in later
months. Copper demand will nevertheless remain high,
despite the industrial slowdown. Producers and consumers
will want to rebuild their stocks to more normal levels.
.1?ioreover, they will be joined by market speculators in
hedging against a possible strike in the US copper industry
this summer.
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12. On balance, it appears li::e1y that co: per will
remain fairly tight in 1974, particularly during the
first half of the year. Under the best conditions, output
will grow by only some 6% to 7%. Since consumption
exceeded production by 4% in 1973, the margin of supply
over demand will be small, even if consumption stagnated
in the first half as expected. In this event, consumers
can be expected to take advantage of the slack to rebuild
their stocks. Consumer stocks are at extremely low levels,
and the prospect of labor strife in the United States and
production difficulties elsewhere will stimulate hedge
buying.
13. Assuming that there is no strike in the United
States, the market situation in late 1974 and into 1975
will depend upon the ti :: i-ng and magnit--.:de of the anticipated
economic recovery. Copt per out-put is expected to grew by
a further 6% in 1975. If the pace of industrial expansion
falls below that level, the cop: er .-ar:tiet can be expected
to weaken and prices ,could decli :ia.
14. Consuming nations, partic;:la_ly the European
countries and Japan, :?:ill continue to be vulnerable to price-
fi?{ins by CIPEC producers. Effective concerted action
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to raise copper prices appears even less likely nc,-,
however, than in previous years. Chile reportedly has
been resisting pressures from its partners to force
prices up by withholding supplies. Santiago apparently
is loathe to risk the good will of the US and European
nations, on which it depends for financial and technical
assistance, investment, and capital goods. Moreover,
if copper prices remain high because of supply and demand
factors, there will be less incentive for CIPEC action.
And, if the market weakens, price-raising measures will
be considerably more costly to enact.
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Refin d Production*
efir.ed cons
:Sine P cduction
COPPER STOCKS
(End of Period)
3
1970 1971
*Includes net imports from Co:- nest cc:: tries in 1 973.
**Includes net exports to mat co:mtries 1970-72.
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A.Lon
on Metal E
hange
*
Producers
*Through 15 :March
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Monthly averages
January
73.72
45.8
48.81
50.7
February
75.12
46.25
50.43
57.8
March
79.51
51.87
52.57
68.4
April
78.95
56.74
51.32
71,9
May
72.48
50.52
50.16
70.2
June
66.09
48.69
48.22
80.0
July
61,81
50.56
46.90
91.7
August
57.42
49.71
47.45
94.8
September
56.53
47.9
48.08
87.8
October
51.79
47.20
46.59
93.6
November
49.19
45.96
45.74
103.0
December
47.39
47.05
46.35
100.97
Annual averages
64.17
49.02
48.56
73.30
(US cents per pound)
US Producer Price
1970 1971
1972
1973
55.92 51.48
50.35
53.25
56.12 50.37
50.25
54.00
56.12 50.58
52.63
60.25
59.74 52.87
52.63
60.25
60.12 52.87
52.63
60.25
60.12 52.87
52.63
60.25
60.12 52.87
50.63
60.25
60.12 52.87
50.63
60.25
60.12 52.87
50.63
60.25
59.133 52.87
50.63
60.25
56.12 52.19
50.63
60.25
53.12 50.37
50.63
66.6
58.07 52.09
51.24
59.68
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COI11
SFID1,11 IA1
(Thousand Metric Tons)
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1970
1971
1972
1973
Estimated
1974
Estimated
1975
TOTAL
5,166
5,148
5,633
5,987
6,350
6,750
CIPEC Countries
Chile
192
708
717
736
850
950
Peru
212
213
217
225
225
225
Zaire
387
406
437
490
525
575
Zambia
684
651
718
709
775
780
Total
1,975
1,978
2,089
2,160
2,375
2,530
Other Countries
Australia
158
177
180
203
205
235
Canada
610
654
709
783
790
800
Bouganville (Papua New Guinea)
--
--
124
178
180
185
United State:,
1,560
1,381
1,510
1,560
1,600
1,700
Other
863
957
1,021
1,103
1,200
1,300
Total
3,191
3,170
3,344
3,827
3,975
4,220
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NON-COMMUNIST REFINED COPPER PRODUCTION
(Thousand Metric Tons)
Estimated
Estimated
1974
1975
6,152
5,823
CIPEC
6,600
'
7,100
1
7,500
:bun tries
Chile
465
468
462
Peru
411
510
Zaire
36
33
39
4C
560
Zambia
189
208
216
224
40
40
581
534
615
240
260
640
650
675
Other Countries
Austral
ia
146
162
174
Canada
B
493
477
496
164
170
185
ouganv
ille (Papua New Guinea)
489
510
United
States
2,034
1,780
2
047
530
Other
2,208
2,161
,
2,321
2,082
2,250
2,300
2,550
2,730
2,950
5,285
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