Mines Reopen Throughout the West : Copper Industry Regains Its Shine

From the Washington Post

As recently as 1985, U.S. copper producers were being beaten to death in world competition by lower-cost production from the Third World. The price of copper was about 65 cents a pound, and experts were ready to pull the plug on an industry whose vital signs were rapidly fading.

The massive Bingham Canyon mine, 25 miles southwest of here, was shut down and its work force dispersed. The more fortunate workers found jobs--often in lower-paying, service industry occupations. The less fortunate coped with problems that afflict the unemployed, including divorce and depression.

Today, three years later, the producer price of copper is about $1.40 a pound. Mines--including the 2.5-mile-wide pit at Bingham Canyon--are being reopened, and the U.S. copper industry is again competitive worldwide, even at prices as low as 65 cents a pound.

In an era when concerns about the competitiveness of U.S. industry are high, U.S. copper producers have survived, staging a near-miraculous comeback. Copper may not be king, as it once was in the West, but neither is it a corpse.

Signs of Life

Once the subject of premature obituaries ("In a very real sense the industry is dying," wrote Business Week about the mining industry, including copper, in December, 1984), the U.S. copper industry not only is alive but has a future. Still, securing that future wasn't easy.

It took a work force that was willing or forced to take drastic pay cuts, and major changes in work rules that sharply reduced employment. And it took a management that was willing--once industry efforts to obtain trade protections failed--to re-examine the way it did business, to risk investment in modernization and new technology, and to shut down marginal operations. Together, those changes produced an industry that can make money at copper prices that once produced hemorrhages.

"We paid dearly to come back to work, but we had to do it. Changes had to be made," said Ralph Christensen, president of the United Steelworkers of America Local 392, the largest union at Kennecott-Utah Copper. "I think we did the right thing, but a lot of people think we sold out to Kennecott," he said.

Kennecott-Utah Copper, which operates the mine at Bingham, was a part of Kennecott when Kennecott was owned by Standard Oil. In 1987, British Petroleum acquired Standard Oil and Kennecott-Utah Copper became a division of BP Minerals America. Operations at Bingham Canyon shut down March 31, 1985, throwing about 2,200 employees out of work. Later that year, the company announced plans for a $400-million modernization of the facilities.

In June, 1986, the workers at Bingham Canyon ratified a contract radically different from the contracts that preceded it, both in the flexibility it granted management in staffing operations and in the concessions made by workers. On average, workers in the Kennecott-Utah Copper division lost about 25% of their compensa tion--giving up benefits including sick leave and cost-of-living increases and settling for lower wages and hefty worker contributions to health insurance.

Even at that, they fared better than some of the industry's workers. At Phelps Dodge Co. in Arizona, a long, bitter strike that predated negotiations at Bingham Canyon had ended with union members, who had fought concessions, being permanently replaced.

In return for the major concessions at Bingham Canyon, Kennecott-Utah Copper management agreed to reopen its facilities, even in advance of the modernization that will be completed this year. In retrospect that decision was fortunate, allowing the company to take advantage of today's copper prices.

At the same time the copper industry in the United States was re-inventing itself and producers were getting their costs under control, a major change was occurring in basic supply and demand that produced higher prices.

"The domestic industry has gone through a major shakeout. Their production costs have come down dramatically," said Daniel L. Edelstein, a commodities specialist with the U.S. Bureau of Mines. "Where their costs were over 90 cents a pound, they're now under 65 cents average cost," he said.

In fact, Kennecott-Utah Copper will be able to produce copper for well under 50 cents a pound, according to G. Frank Joklik, president of BP Minerals America.

The run-up resulted from a simple equation, according to mining industry officials and analysts. Healthy demand for copper coupled with reduced U.S. production resulted in a draw-down of inventories, and a real shortage. Although there have been published reports suggesting that manipulation in the copper futures market may have contributed to the increase in cost, industry analysts and others say the prices reflect reality.

During the early 1980s, copper and other metals suffered price declines as the nation suffered through a recession. During that period, foreign competitors such as state-owned facilities in Zambia, Zaire and Chile continued to produce, anxious to earn then-healthy dollars through copper exports.

The U.S. copper industry was older than some of its competitors worldwide and was also at a disadvantage competing with government-owned producers that were heavily subsidized, U.S. industry officials argued. Domestic mining officials sought, and failed, to get tariff protection--a failure that may have contributed to the industry's eventual resurgence.

Inventories built up, exerting continuing pressure on prices, and copper production began shutting down. "North America closed about 1 million tons of capacity and brought back about half of that," while demand was growing, said copper industry analyst Peter Ingersoll of Shearson Lehman Bros. "Combined inventories on commodities exchanges have fallen from nearly 900,000 tons at the beginning of 1984 to probably less than 60,000 tons," he said. "Everybody else is out of inventory."

"I think the copper industry perhaps had a wrong-sided benefit. The serious depression in copper industry prices in the early 1980s, as well as the changes in the world market both in terms of supply and demand, really forced the industry to its knees," said Michael Hora, senior vice president of A. T. Kerney, a manufacturing consulting firm. As a result, "the companies really had to confront the fundamental issue of how they run their business."

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