SUNS 4348 Friday 18 December 1998
CHILE: COPPER OVERPRODUCTION FUELLED RECORD PRICER SLUMP
Santiago, Dec 16 (IPS/Gustavo Gonzalez) -- Chile today is suffering the impact of the biggest slump in copper prices seen in 63 years, largely the result of the international financial crisis and overproduction fuelled by Chile itself.
Copper prices rallied slightly on the London Metals Exchange (LME) late Tuesday, to 65.408 US cents a pound, after a catastrophic Monday when the price closed at 65.317 cents.
The closest precedent for today's prices - in real terms - was seen in 1935, when copper cost an average of 62.5 cents a pound.
After Tuesday's trading on the LME, the international price of copper stood at an average of 67.736 cents a pound for the month and 75.35 cents for 1998.
Analysts project that prices will continue to slide during the last few weeks of the year, bringing prices into line with the most pessimistic forecasts by the Chilean Copper Commission (Cochilco), which predicted an average price of 75 to 80 cents a pound for 1998.
Minister of Mining Sergio Jimenez said that when the price drops below 65 cents, the country will receive practically no revenues from copper, because prices will equal costs.
He pointed out that for every cent that the price drops, Chile loses $80 million a year.
The difference between the current average price of 75 cents a pound and last year's average of 103 cents represents losses of $2.24 billion this year, Jimenez added.
Senator Jorge Lavandero of the co-governing Christian Democratic Party described the situation as a crisis, and demanded the resignation of the vice-president of Cochilco, Jorge Berghammer, and the president of the Copper Corporation (Codelco), Marcos Lima.
According to Lavandero, the heads of the two government entities, and the National Mining Society (Sonami) business association, were responsible for concealing the real magnitude of the slump in prices of the country's chief export product.
Codelco, one of the largest companies in Latin America, administers the huge copper mines that were nationalised by the government of socialist president Salvador Allende in 1971.
Its annual production of 3.8 million tonnes makes Chile the world's largest producer of copper, a commodity that generated around 45 percent of the country's export revenues last year.
Lavandero said Chile would raise production to five million tonnes within less than a year's time, which meant it would soon account for 60 percent of all global shipments.
He criticised the policy of overproduction fuelled since 1994 by a broad opening of the sector to private foreign capital, which he said had meant some $19 billion in losses for Chile.
Lavandero accused those responsible for devising Chile's copper policy of failing to use the country's productive capacity as an element for shoring up prices, and of encouraging, instead, a damaging overproduction trend.
Mining investment projects became extremely attractive, not only in Chile but worldwide, when prices began to rise in 1994. That year, copper price averaged 104.9 cents a pound on the LME. The price climbed to 133.2 cents in 1995, before dropping to around 103 cents in 1996 and 1997 - a level at which production remained highly profitable.
According to Lavandero and Orlando Caputo, president of Codelco under the Allende government (1970-73), the transnational corporations that invested in copper mega-projects in Chile and other countries are now profiting from the fall in prices.
They explained that the transnational mining companies were also linked to large industrial complexes, which benefitted from obtaining basic inputs like copper at the lowest possible cost.
Minister Jimenez said Chilean copper production had increased by 10 percent this year, which counteracted the drop in revenues caused by the slump in prices triggered by the Asian crisis.
Jimenez defended Chile's increased production, arguing that if the country's exports had diminished, its clients would have turned to other producers.
But the situation today is out of Chile's hands, and those of producers in general, because the crash in prices is occurring in a commodities market depressed by the effects of the international crisis.
The first major symptoms in the form of falling prices began to be seen in the last quarter of 1997, when financial turmoil swept through the recently industrialised countries of southeast Asia, major consumers of copper.
The situation has only worsened this year, with the spread of the crisis to Japan and Russia and threats of recession in Brazil and other countries of Latin America.