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F o r m F. R. 131

BOARD

DF
• F

FEDERAL

THE

RESERVE

SYSTEM

Office Correspondence
To
F

Chaiman Eccles

21

GOVERNORS

Date
Subject:

April 19, 1957

The copper situation

i




Attached is a memorandum on the copper situation, prepared b y
Mr. Cohklin at my request. In general, it tends to confirm the
view that the present price of copper is considerably above the
marginal cost of a larger than current volume of production. I do
not feel, however, that this factor will lead to a sufficient
increase in production in the next two or three years to cause a
lowering of price. With steadily increasing consumption, producers
will, I think, be able to hold back sufficiently on production to
obtain an even higher price. It is highly desirable that the tariff
on copper by removed, both to forestall the possibility that our
price may rise above the world price and to lessen the squeeze on
the independent fabricators. The least that should be done is to
institute a sliding scale in the place of the flat four cents duty.
It might, for instance, be provided that the tariff be reduced one
cent for every cent the domestic price is above ten cents. Thus,
at fourteen cents there would be no protection, while at ten cents
there would be a four cents protection.

F o r m F. R. 131

BOARD

OF

FEDERAL

THE

RESERVE

SYSTEM

Office Correspondence
To
r

Mr. Currie
i

' 1
^ -

• F GOVERN•RS

Date
Subject:

April 17* 1957

The copper situation

Mr* Conklin

The price of refined copper advanced sharply in the last half of
1936 and the first quarter of 1937, following three years of little change
at a level around 8 or 9 cents per pound* At 17 cents per pound the
price at the end of March was higher than at any time since the spring
of 1930 and, except for 1929, above the average for any year since 1920.
There was some decline early in April to l&g cents per pound*
The recent rise in copper prices occurred at a time when prices
of most metals and of many other commodities were increasing rapidly*
Several special factors, however, have had an important bearing on the
unusually marked price rise for copper*

Copper consumption has expanded

considerably and there has been a large amount of forward buying. Output of copper, although increasing, has lagged behind consumption, and
inventories of refined copper, which had been in substantial volume for
several years, declined in the latter part of 1936 and continued to
decrease in the first three months of 1937 to a relatively low level*
The current price for copper appears to be above the cost of
production of mines with higher costs than those now operating and many
producers are expanding output or reopening closed mines* Domestic
smelter production in March was at the highest rate since 1930* Cartel




- 2 restrictions in effect in 1936 on foreign production have been lifted
for the time being at least. In view of the likelihood of sharp increases in output, it seems probable that by the end of the year prices
will be somewhat lower than the recent highs • The outlook for the next
few months depends in part upon how long it will take producers to
attain the higher probable rate of output expected. These observations
do not take into account the possible effects of broad national and
international price and monetary developments during the nexb year.
Copper consumption
Domestic consumption of copper in 1936 continued the expansion
of the three preceding years. The increase was particularly marked in
the latter part of the year and the rate of demand in the first part of
1937 was at about the level of the late 1920*8, although consumption by
the utilities was still small relative to the amounts used in pre-depression
years. In addition to the increased demand for immediate industrial needs,
large forward orders, amounting to 3 or 4 times the stocks of refined
copper owned by refineries, have been made during recent months.
In European markets the demand for copper has also increased
substantially since 1932 as a result of expanding industrial activity.
Total foreign consumption in 1936 is estimated to have been slightly
larger than in 1935 and at the highest level on record. Recently foreign
demand has been augmented by war

scares and the resultant race for

armaments, In addition to the actual construction of armaments, foreign
governments have been building up reserves in anticipation of future
shortages or higher prices.




- 3 With regard to the prospects for copper consumption in 1937, it
seems probable that the copper requirements of industry in this countrywill continue to increase and that foreign industrial use and consumption
for armaments will also increase further or at least remain at a high
level* Stocking and forward buying by domestic fabricators and the building up of copper reserves by foreign governments are temporary factors in
the situation* With the disappearance of these factors, the immediate
demand would probably be less than that which caused the recent sharp
advance in prices but more than the demand prevailing prior to the last
half of 1936*

Ghart II shows the consumption of refined copper in the

United States and in other countries during recent years* It is estimated
that in 1937 domestic consumption of copper refined from both primary and
secondary sources will be in the neighborhood of from 950,000 to 1,000,000
tons, about the same as in the late 1920* s and about 200,000 tons more
than in 1936•
Production and inventories of copper
There was a marked reduction in domestic refinery output of copper
from both mines and from scrap in 1930, 1931, and 1932, but exports continued the sharp decline which had begun in 1929, and the amount of copper
available for domestic use exceeded actual consumption, with the result
that stocks held by refineries rose rapidly, reaching record levels in 1932*
During 1933 and 1934 domestic copper production continued in small volume,
while consumption and exports increased, and stocks declined* During the
past two years output has increased substantially, accompanying a




- 4 continued expansion in consumption, and indications are that it will show
a further marked rise in 1937. The increase has not kept pace with consumption, however, and stocks held by refineries have been further reduced•
The current level of stocks is about the same as during most of the 1920*8
and such that future needs will have to be met almost entirely from production or from imports. The existing tariff of 4 cents per pound practically eliminates foreign copper as a source of supply, although this
condition might be changed if the tariff is not renewed when it expires
on June 30, 1937. However, the large productive capacity of this country
makes it seem unlikely that any substantial amount of foreign copper would
be imported with or without a tariff, except perhaps for short periods of
time.
With domestic inventories reduced to a level where little additional
copper may be obtained from this source for consumption, the expansion in
output will have to be large enough not only to meet further increases in
consumption but also to provide a supply of copper in an amount which in
other recent years has been withdrawn from stocks. Chart V shows by years
for the period from 1919 to date the average price of copper, annual production of refined copper available for domestic use, domestic consumption,
and yearend stocks •

As indicated in Chart V, which shows similar data

on a monthly basis since the beginning of 1935, there was a sharp increase
in both production and consumption in March 1937. The unusually high level
of apparent consumption in that month was probably due in part to large
deliveries of copper purchased some time ago.




- 5 Production of copper in foreign countries, which had increased
considerably during the 1920*s and declined by only a relatively small
amount from 1929 to 1932, expanded sharply after 1932 and in 1935 was
larger than in any previous years* Output in 1936 continued at about the
high 1935 level* For this reason it is unlikely that the export market
will be as important a source of demand for domestic copper in the future
as it has been in the past, despite the increased use of copper by foreign
countries*

Chart I shows the production of copper in foreign countries

as compared with domestic output*

In 1935 and 1936 foreign output of

copper was restricted by international agreement, while consumption increased slightly and stocks declined* This limitation was doubtless a
factor contributing to the rise in price in the latter part of the year
and the first part of 1937* The foreign curtailment program was terminated
in January 1937, however, and it is expected that foreign production will
show a sharp rise, although the increase thus far this year has not been
very large*
Costs of production
It is believed that domestic producers could supply the copper
needed by domestic industry at a price no higher and probably lower than
that prevailing at the present time* While there are no satisfactory
statistics on the costs of production during recent years, the Tariff
Commission made a study of the costs of production in this country and
in foreign countries during the years 1928, 1929, and 1930* A summary
of the Tariff .Commissions findings is shown for the domestic industry




- 6 in the table belovr. The figures are presented both with and without allowance for depletion and imputed interest because it is difficult to
determine just what effect these factors would have upon the actual amount
of copper which would be brought forth at a particular price*
TOTAL COST OF PRODUCTION IN THE UKITED STATES OF REFIMED COPPER
(In cents per pound)
Item

1928

1929

1930 j Average

8.42
2.08
1.74
1.05

8.27
2.01
1.78
1.01

9.05
2.29
1.69
1.04

8.53
2.11
1.74
1.03

13.29 13.07 14.07

13.41

4.65
1.92
1.66
.99

5.18
1.85
1.70
.97

5.34
2.07
1.59
.93

5.04
1.93
1.66
.96

9*22

9.70

9.93

9.59

Including depletion and interestt
Mining
Concentration
Smelting
Refining
Total
Without depletion or interest:
Mining
Concentration
Smelting
Refining
Total

Costs of individual copper producers show considerable variation;
consequently it is profitable to produce a much larger quantity of
copper when prices are high than when they are low. The following
table shows the unit cost of refined copper in 1928 for four groups of
producers for which cost data were obtained and also shows the approximate percent of total reported production accounted for by each group.




7
TOTAL UHIT COST OF REFINED COPPER IE THE UNITED STATES, 1928

Groups of
producers

I
II
III
IV

Percent of reported production
accounted for by each group

35
25
30
10
100(Average for all production)

Average cost per pound
of copper recovered
Including
Without
depletion depletion
and
or
interest
interest
Cents
Cents
10,50
13.44
14.63
17.56

6.97
9.41
10.36
12.40

13.35

9.26

Data similar to these are not available for recent years, but
some information on the current level of costs is presented by the annual
income statements of a number of large producers. These statements uniformly show a substantial net profit for 1936 when the price of copper
averaged less than 10 cents per pound. Many of the companies are refiners and fabricators as well as primary producers and it is not possible,
therefore, to ascertain the amount of their income from mining operations
alone• In view of the importance of mining in their total activities,
however, there is a strong presumption that most large companies could
produce copper profitably at the prices prevailing in 1936. The Chairman
of the Board of the American Smelting and Refining Company, (a corporation
interested primarily in processing and fabricating and in mining in
foreign countries) recently stated that about 500*000 tons of domestic
copper could be produced at less than 5 cents a pound, another 400,000




- 8 tons at not more than 6 cents a pound and a further 100,000 tons at less
than 8 cents a pound* Mine production in 1936 was only slightly over
600,000 tons which on this basis would mean a marginal cost of around 6
cents a pound and even with 1929 production the highest cost would not
exceed 8 cents a pound* The difference between these figures and those
published by the Tariff Commission are too great to be accounted for by
changes in costs between 1929 and 1936 and illustrate the difficulty of
arriving at a conclusion as to how much copper would be produced at a
particular price*
Costs of production in foreign countries appear to be slightly
lower than in the United States but the difference is not sufficiently
large to make importing profitable, with or without a tariff* Y t i e
fil
labor costs are lower abroad, total costs in this country are reduced
somewhat by the relatively high precious metal content of domestic ores*
In the 19201 s, to which the Tariff Commission figures showing lower foreign
costs refer, the United States exported copper on a large scale*
Prospect for copper prices
It is reasonable to assume that with a substantially higher price
at the present time than in 1936 production of copper will show a considerable increase in 1937* Many important concerns have already begun
operations in plants which have been closed down for a number of years
or have announced plans for expansion of activity*

It is possible, however,

that many of the re-opened or recently developed mines will not get into
operation in large volume for some time to come*




- 9 It is reported in some quarters that during recent months there
has been a considerable amount of physical stocking as well as forward
buying of copper by consumers. Available records do not show any increase in consumers1 stocks held at refineries, but it is possible that
inventories have been accumulated in fabricators1 warehouses, in which
case the prospects for some further decline in prices in the near future
would be strengthened*

It seems probable that in the long run a copper

price lower than that prevailing now would bring out a volume of production sufficient for domestic needs unless costs and the general price
level increase considerably or unless the industry is able to agree upon
an arbitrary restriction on production. The industry has not been successful in curtailing production in the past in periods of prosperity
unless the curtailment last year with a 9= cent price could be considered
ir
such* rt £hart la shows that, despite the agreement, foreign output ink>
creased sharply in late 1936 when prices rose.
Reflecting a reduction in foreign speculative buying and the expectation that foreign production will increase substantially, the London
price has declined from a high of about 18 cents per pound in the latter
part of March to about 15 cents per pound in the second week of April.
As in the domestic situation, there is some question whether output can
be increased with sufficient rapidity to bring about a further reduction
in copper prices in the next few months but in the long run it appears
that productive facilities abroad are adequate to meet the demand for
copper at a price lower than 15 cents per pound• The experience of the
past two years, however, indicates that producers might be able to prevent
any large decline in,price. In fact, with stocks reduced, it is likely
that the industry will be able to keep the price well above that of other
recent years*




N O .

3214.

12 BY 2 0 D I V I S I O N S

PER

INCH.

120 BY 140

DIVISIONS.

CHART I
o

CODEX

BOOK

COMPANY,

INC.

NORWOOD.

MASSACHUSETTS

WORLD SMELTER PRODUCTION OF COPPER
(Referred to country in which ore originated - American Bureau of Metal Statistics)

In thousands
of shortjbons

In thousands
of short tons

2200

2200

2000

2000

1800

1800

1600

1600

1400

1400

1200

1200

1000

1000

800

800

600

600

400

400

200

200

1919 1920 1921 1922 1923
preliminary.


Note: 1936 figures


1924 1925

1928 1929 1930

1931 1932

1933 1934 1935 1936

0

NO.

In thousands 0
of short tons




328.

20

DIVISIONS PER

INCH BOTH WAYS.

tSO BY ZOO

DIVISIONS.

CODEX

BOOK

COMPANY.

INC.

CHARTb la
SMELTER PRODUCTION OF COPPER — UNITED STA^Sf AND OTHER COUNTRIES

o

NORWOOD.

MASSACHUSETTS

ft

111
111

444-

120

illO
100

90
180

70
60

50
40
30
20

90
10

A M

J J
1936

A

S 0 N D J F M A M

J J A
1937

S 0 N D

N O .

3214.

1 2 BY 2 0

D I V I S I O N S PER

INCH.

120 BY 140

DIVISIONS,

CODEX

BOOK

COMPANY.

In thousands
r short tons

I

2000

World

1400


Note


1925 1926

1927 1928 1929

1930 1931

1932 1933 1934

INC,

NORWOOD.

MASSACHUSETTS




. 3214.

12 BY 2 0 D I V I S I O N S

PER

INCH.

120 BY 140

DIVISIONS.

N O .

3214.

12 BY 2 0 D I V I S I O N S

PER

INCH.

120 BY 140

DIVISIONS.

CODEX

BOOK

COMPANY,

In thousands
of short tons
1400

 1919 1920 1921 1922 1923
http://fraser.stlouisfed.org/
Note: 1936 figures preliminary.
Federal Reserve Bank of St. Louis

INC.

NORWOOD.

MASSACHUSETTS

In thousands
of short tons
1400
1300
1200

1100
1000

1924 1925

1926

1927 1928 1929

1930 1931

1932 1933 1934 1935 1936

N O .

3214.

12 BY 2 0 D I V I S I O N S

PER

INCH.

120 BY 140

DIVISIONS.

CODEX

BOOK

COMPANY.

INC.

NORWOOD.

MASSACHUSETTS

CHAR!£> V
In thousands
of short tons

SUPPLY, CONSUMPTION, STOCKS, AMD PRICE OF REFINED COPPER - UNITED S
(United States Bureau of Mines)

 1919 1920 1921 1922 1923
http://fraser.stlouisfed.org/
Note: 1936 figures preliminary,
Federal Reserve Bank of St. Louis

1924 1925 1926 1927 1928 1929

1930 1931 1932 1933

1934 1935 1936

In cent^
per pounc

NO.

In thousands
of short tons

328.

20

DIVISIONS PER

INCH BOTH WAYS.

1 5 0 BY 2 0 0

DIVISIONS

CODEX

BOOK

COMPANY.

INC.

NORWOOD.

0




SUPPLY, CONSUMPTION, STOCKS AND PRICE OF REFUND COPPER — UNITED STATES

1935

MASSACHUSETTS

In cents
per pound