CABLE(Sanitized) FROM DIRECTOR

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01316A001000040006-0
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 5
• Document Creation Date: December 12, 2016
• Document Release Date: January 7, 2002
• Sequence Number: 6
• Publication Date: March 24, 1978
• Content Type: CABLE

ONE ARTICLE FROM OER'S ECONOM
ENDING 23 MARCH 1978, 25X1A
COPPER: LDCS DEVELOPMENTS THREATEN ESTABLISHED PRODUCERS,
1. THE EXPANSION OF SMELTING AND REFINING STAGES IN THE
COPPER MINING LDCS FORESHADOWS REDUCTIONS IN THE COPPER INDUSTRIES
OF THE MAJOR DEVELOPED COUNTRIES, PRODUCERS IN THESE COUNTRIES
ARE FACED WITH SKY-ROCKETING POLLUTION ABATEMENT COSTS, HIGH
WAGE BILLS, SLOW PRODUCT DEMAND GROWTH, AND RISING IMPORTS OF
CHEAPER LDC REFINED COPPER. PHASEOUT OF CAPACITY IN SOME
.OF THE MAJOR INDUSTRIAL COUNTRIES INCLUDING THE UNITED STATES
AND JAPAN, COULD BE MODERATED BY PROTECTIONIST MEASURES AND/OR
A RELEXATION OF ENVIROMENTAL CONSTRAINTS,
MARKET DEPRESSED,
2. REFINERS IN DEVELOPED COUNTRIES ARE WHIPSAWED BY
WEAK vvORLD RP r RECORD STOCKS, AND LOW PRICES,
FREE WORLD CONSUMPTION OF REFINED COPPER HAD NEVER RETURNED
TO THE RECORD HIGH OF 6,9 MILLION TONS OF 1973; MEANWHILE
CAPACITY HAS INCREASED BY 1.3 MILLION TONS. THE WORLD MARKET
PRICE IN THE LONDON METAL EXCHANGE (LME) HAS FALLEN BY MORE
THAN 50 PERCENT, FROM A RECORD $1.38 PER POUND IN APRIL 1974
TO LESS THAN 40 CENTS, WHILE STOCKS OF REFINED COPPER HAVE
RISEN TO A RECORD 2 MILLION TONS PLUS. THE EFFECTS OF THE
DEPRESSED MARKET SINCE 1973 ON THE US INDUSTRY HAVE
BEEN PARTICULARLY SEVERE: (A) PRODUCTION IS DOWN 18 PERCENT
SINCE 1974, (B) CONSUMPTION IS DOWN 20 PERCENT, (C) EXPORTS
ARE DOWN 41 PERCENT, AND (D) IMPORTS ARE UP 91 PERCENT,
MARKET STRUCTURE,
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3. FIFTEEN NATIONS ACCOUNT FOR 90 PERCENT OF FREE
WORLD COPPER MINING AND REFINING:
UNITED STALES IS BY FAR THE LARGEST PRODUCER,
..THE
MINING AND REFINING ABOUT ONE-QUARTER OF TOTAL OUTPUT.
ALTHOUGH SELF-SUFFICIENT IN TERMS OF CAPACITY, THE UNITED
STATES USUALLY IMPORTS ABOUT 10 PERCENT OF ITS ANNUAL
CONSUMPTION OF DEFINED COPPER.
.*SIX LDCS-CHILE, PERU, ZAMBIA, ZAIRE, THE
PHILIPPINES, AND PAPAU NEW GUINEA--ACCOUNT FOR NEARLY
ONE-HALF OF FREE WORLD MINE OUTPUT (COPPER CONTENT) AND
ONE-QUARTER OF REFINED OUTPUT, THE SIX EXPORT MOST OF THEIR
PRODUCTION TO DEVELOPED COUNTRIES, SHIPPING CONCENTRATES
AND BLISTER COPPER AS WELL AS REFINED COPPER.
AND SOUTH AFRICA TOGETHER MINE
AUSTRALIA
A
A
,
..CAN
D
,
MORE THAN ?0 PERCENT nF FREE WORLD COPPER AND REFINE ABOUT
12 PERCENT. APPROXIMATELY TwO-THIRDS OF THEIR OUTPUT IS
REFINED DOMESTICALLY"AND THE REST IS EXPORTED TO OTHER
OPED NATIONS FOR REFINING. THE THREE CONSUME ABOUT ONE-HALF
EVE
D
L
OF THEIR REFINED OUTPUT AND EXPORT THE REMAINDER,
.-FOUR DEVELOPED COUNTRIES--JAPAN, BELGIUM, WEST
AND THE UNITED KINGDOM--MINE ALMOST NO
GERMANY,
COPPER BUT REFINE 30 PERCENT OF FREE WORLD OUTPUT. THEIR
INPUTS ARE OBTAINED FROM THE SIX COPPER EXPORTING LDCS,
CANADA, AND SOUTH AFRICA. ALL EXCEPT BELGIUM CONSUME THEIR
ENTIRE REFINED OUTPUT.
THE APPEAL OF VERTICAL INTEGRATION.
4, LDCS VIEW THEIR MOVEMENT INTO THE SMELTING AND
REFINING STAGES AS"AN ATTRACTIVE MEANS OF INCREASING THEIR
EXPORT EARNINGS AND DEVELOPING THEIR INDUSTRIAL BASE. VERTICAL
INTEGRATION IS FACILITATED BY LOW INVESTMENT COSTS AND HIGH
VALUE ADDED. ORE PRODUCING LDCS FIND THAT A SMALL ADDITIONAL
INVESTMENT OF $2,500 PER TON IN SMELTING AND REFINING CAPACITY CAN
EXPAND THE VALUE OF PRODUCT BY ABOUT ONE-THIRD. THIS GAIN,
COUPLED WITH THE RICHER ORE BODIES, CHEAPER LABOR, AND FEWER
ENVIROMENTAL CONSTRAINTS, IS ATTRACTING FOREIGN CAPITAL TO THE
LDCS,
STATUS OF THE MAJOR LDC EXPORTERS.
5. THE DEGREE OF LDC VERTICAL INTEGRATION VARIES: THE
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PHILIPPINES AND PAPAU NEW GUINEA PROCESS SOME OF THEIR MINE OUTPUT
THROUGH THE CONCENTRATE STAGE AND EXPORT BOTH ORES AND CONCENTRATES.
AT THE OTHER EXTREME, ZAMBIA EXPORTS NEARLY ALL OF ITS OUTPUT
AS REFINED COPPER,
6. PERU POSSESSES ENORMOUS COPPER RESERVES AND HAS AN AMBITIOUS
EXPANSION PROGRAM, WHICH EVENTUALLY WILL MAKE IT ONE OF THE WORLD'S
LARGEST COPPER PRODUCERS, IN NOVEMBER 76 THE NEW CUAJONE MINE BEGAN
PRODUCING AN ANNUAL RATE OF 150,000 TONS. OUTPUT FROM THIS MINE
ADDED AN ESTIMATED $175 MILLION TO FOREIGN EXCHANGE EARNINGS IN 1977,
THE ILO REFINERY CAME ONSTREAM IN MID-1976 WITH A CAPACITY OF
150,000 TONS. ILO'S CAPACITY WILL BE DOUBLED BY EARLY 1979. AP-
PROXIMATELY TONS NILL BE ADDED
RAISING TO THE
CAPACITY THE
TO
LA
366,000
TONS, WHEN A NEW 170,000-TON-SMELTER NOW UNDER
CONSTRUCTION
AT
CUAJONE IS COMPLETED, PERU WILL SMELT AND REFINE
ALL ITS MINE OUTPUT,
PRACTICALLY
7. CHILE, POSSESSOR OF THE WORLD'S LARGEST COPPER RESOURCES,
CAN PRODUCE AT THE PRESENT ANNUAL RATE OF 1 MILLION TONS FOR 150
YEARS, AT THE PRESENT, CHILE SMELTS ABOUT 85 PERCENT OF MINE
OUTPUT AND REFINES ABOUT 65 PERCENT. A SMALL EXPANSION OF EXISTING
MINES IS PLANNED, AND A NEW 100,000-TON SMELTER IS UNDER CON-
SIDERATION.
8, ZAIRE MINES ABOUT 500000 TONS OF COPPER ANNUALLY,
SMELTS 450,000 TONS, AND REFINES 250,000 TONS. MOST OF ITS
SMELTED COPPER AND LEACH CATHODES ARE EXPORTED TO BELGIUM
FOR FURTHER REFINING.
9. ZAIRE PLANS TO CONSTRUCT A 100,000-TON REFINERY IN
MALUKU AT A COST OF $460 MILLION AND A SMELTER OF EQUAL SIZE.
THE REFINERY COULD BE COMPLETED BY 1980 AND THE SMELTER
SEVERAL YEARS LATER. EVENTUALLY THE SIZE OF THE REFINERY IS
TO BE DOUBLED. EVEN SO, ZAIRE WILL REFINE ONLY 70 PERCENT OF
THE PRESENT LEVEL OF MINE OUTPUT AND CONSIDERABLY LESS IF
PLANS TO EXPAND MINE OUTPUT TO 800r000 TONS ARE CARRIED OUT.
10. ZAMBIA REFINES ITS ENTIRE MINE OUTPUT OF 700,000
TONS. PLANS TO' EXPAND ARE LIMITED TO A SMALL
ELECTROwINNING REFINERY OF ABOUT 20,000 TONS, WHICH COULD BE
ONSTREAM BY MID-1980, THE PLANT WILL COST $134 MILLION,
11. THE PHILIPPINES MINE 230,000 TONS OF COPPER ANNUALLY,
EXPORTING ORES AND CONCENTRATES. VERTICAL INTEGRATION PLANS
HAVE BEEN CUT BACK TO ONE 84,000-TON SMELTER, SCHEDULED FOR
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COMPLETION IN 1980 AT AN ESTIMATED COST OF $220 MILLION, THIS
SMELTER WILL BE ABLE TO PROCESS ONLY ABOUT 40 PERCENT OF
CONCENTRATE OUTPUT. CONSTRUCTION OF A REFINERY IS STILL UNDER
CONSIDERATION..
12. PAPAU NEW GUINEA MINES 1A0r000 TONS OF COPPER
ANNUALLY WHICH IT PROCESSES THROUGH THE CONCENTRATE STAGE,
CONCENTRATES ARE EXPORTED TO JAPAN AND WEST GERMANY FOR SMELTING
AND REFINING, NO SMELTERS OR REFINERIES ARE PLANNED AT THE
PRESENT TIME.
COMPETITIVE ADVANTAGE,
.13, POLLUTION, ABATEMENT REQUIREMENTS AND RISING OPERATING
COSTS IN THE MAJOR INDUSTRIAL COUNTRIES HAVE WIDENED THE LDC EDGE
IN THE SME'LTING'AND REFINING STAGES, POLLUTION CONTROL PROGRAMS
HAVE RAISED THE COSTS OF SMELTING AND REFINING BY AS MUCH AS
16 CENTS A POUND--ABOUT 30 PERCENT OF THE PRESENT PRICE OF REFINED
COPPER,
14. THE LDCSARE EXPLOITING THEIR COST ADVANTAGE BY
MAINTAINING OUTPUT AT CAPACITY LEVELS AND UNDERPRICING OLD LINE
PRODUCERS IN CERTAIN MARKETS, US PRODUCERS HAVE BEEN ESPECIALLY
HARD HIT; US IMPORTS ROSE TO RECORD LEVELS IN 1976 AND ROSE
AGAIN IN 1977, KEEPING CAPACITY UTILIZATION BELOW 70 PERCENT,
.O.UTLOOK,
EDGE OVER INTOC THE 1980S, HOWEVER, THEIRA PROFITS THEIR WILL BE.
CHECKED BY CONTINUED LOW PRICES AND SLOW GROWTH IN PRODUCT DEMAND,
16, DURING 1978-80, COMPLETION OF REFINERIES NOW UNDER
CONSTRUCTION WILL RAISE WORLD CAPACITY BY MORE THAN HALF A MILLION
TONS, OR BY ABOUT 10 PERCENT. MOST OF THE NEW CAPACITY WILL BE
IN THE LDCS, WITH PERU ADDING 200,000 TONS AND MEXICO AND IRAN
EACH ADDING 150,000 TONS. BY 1980, MEXICO AND IRAN WILL JOIN THE
RANKS OF COPPER EXPORTING NATIONS.
17. AS FOR 1981-85, ANNOUNCED PLANS CALL FOR ABOUT 650,000
TONS OF ADDITIONAL REFINING CAPACITY, ALL TO BE ADDED TO LDCS.
ALTHOUGH THESE PLANS ARE TENTATIVE AND MAY BE RAISED OR LOWERED
AS MARKET TRENDS BECOME CLEARER, THEY SUGGEST THAT NO SUDDEN
TIGHTENING IN THE COPPER MARKET IS LIKELY,
18, WE EXPECT EXPORTS OF REFINED COPPER TO THE INDUSTRIAL
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25X1A
COUNTRIES.TO INCREASE AS VERTICAL INTEGRATION CONTINUES. THE
DEVELOPED COUNTRIES THUS FACE SOME HARD CHOICES:
?.TO ALLOW MARKET FORCES TO PHASE OUT A SUBSTANTIAL PORTION
OF THE DOMESTIC COPPER INDUSTRY,
. TO ESTABLISH PROTECTIONIST MEASURES,
25X1A INDUSTRY BY, RELAXING ENVIROMENTAL CONSTRAINTS, (UNCLASSIFIED),
E1,2,3 IMPDET,WNINTEL.>
25X1A ORIG & RUTH; ASA/D/OER(T, RE.L: CH,NFAC/CS(-
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25X1A
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