Copper Cutbacks

From the world's largest copper company last week came a dollars-and-cents confirmation of the industry's slump. Kennecott reported 1957 earnings of $7.32 a share v. $13.23 in 1956. The drop surprised few Wall Streeters, who are figuring on similar drops for Kennecott's competitors. They estimate Anaconda earnings at slightly over $4 v. $12.85 m J956 and Phelps Dodge at around $4.40 v. $8.72. Principal reason for the drop: a price slide that Kennecott's President Charles R. Cox called a "debacle." Three weeks ago Kennecott set the pace for domestic producers by dropping its price from 27-c- to 25-c- per lb., lowest in five years and down 46% from the record 46.7-c-^ in March 1956. On the London Metal Exchange, where world prices are set and fluctuate with daily sales, copper closed the week at 20.4-c- per lb., 4.6-c- below the U.S. market.

The present price headaches are caused mainly by a hangover from a four-year spree. As demand began to soar in 1954 in the worldwide boom, Chilean, African and U.S. producers boosted production and opened new mines. Copper supplies were still so short in 1956 (after a 43-day U.S. strike in 1955) that free market prices in London were bid up to 54.6-c-. "Now," says Kennecott's Cox, "automotive production is down and so are housing starts. Utilities have slowed their expansion programs. Those are our three biggest customers. And there was that price; when it climbed past 40-c- some of our customers began to bail out. I don't mean to put the blame for that 46-c- price at everywhere else but this company's door. I went along with the rest. Now we're paying for it." Copper producers are paying for it with surplus stocks; domestic deliveries last year were 1,274,868 tons v. production of 1,613,907. In December alone, deliveries were but 84,611 tons v. production of 136,135. Only a steady European demand has saved the copper market from further drops.

Production Cuts. To bring production into line with current demand, nearly all the major producers have shut down some of their mines. Kennecott is cutting back its U.S. production by 12%. Anaconda has sliced its Chilean production 10%, after cutting its Nevada mine output 16%. Phelps Dodge recently announced a 9% cut at its Arizona properties, representing a cumulative decrease of 22% since October 1956. Two giant foreign producers, the Rhodesian Selection Trust and the Belgian Congo's Union Miniere du Haut Katanga have also trimmed operations 10%.

In the U.S., layoffs from cutbacks have idled more than 17,795 miners, 3.7% of the work force (v. .2% at the beginning of 1957). As a result, Western Congressmen are pressing for higher tariffs, calling for a 4-c--a-lb. duty whenever the U.S. price goes below the "peril point" of 30-c-. The current tariff, suspended until next July, is 1.8-c- at a 24-c- peril point. Tariff advocates argue that the U.S. imported an estimated 215,000 tons more than it exported in 1957. Without the imports, U.S. production would have been close to consumption. But the copper producers themselves have done no campaigning so far for a tariff increase. While Phelps Dodge and Magma, which now mine only in the U.S., stand to benefit from a tariff boost, international miners such as Kennecott and Anaconda are in a different position. Their domestic mines would profit, but it would be at the expense of their Chilean operations, which produce 66% of Anaconda's copper and 32% of Kennecott's.

Empty Pipeline. They are also aware that while a tariff might shelter some of the industry, it cannot dispel the gloom in the copper markets. Only the customers can do that, and so far they have shown no sign of stepping up their buying, even though their inventories are low. "We hope present cuts are enough to bring production into line," says Phelps Dodge's President Robert Page. "Fabricators have cut inventories to the bone."

Copper executives are watching eagerly for the first volume buying that would spell the turn. Current earnings are running below dividends, but the cash-rich copper producers would have no trouble paying them if they thought the turn was at hand. Says Charlie Cox: "We're watching the economy. The pipeline is about dried out. It won't take much to turn prices when the economy perks up."

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