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Outlook for Copper Uncertain, Even With Lower Labor Costs

August 23, 1986

PHOENIX, Ariz. (AP) _ U.S. copper producers got unions to agree to wage cuts without a strike this summer, but the price of copper continues to fall and analysts say the future of the ailing industry remains uncertain.

″We’re moving down to the lower end of where prices have been in the last several years,″ said Ronald Shorr, an analyst at the investment firm of Bear Stearns in New York.

The price of copper on the spot markets fell about 3 to 4 cents a pound to the 64-66 cent range between June 30, when copper contracts began running out, and July 17, when workers at Inspiration Consolidated Copper Co. became the last in the industry to ratify new contracts.

The rapid tumble might have been caused by the market slowing down from a temporary boom caused by copper buyers who bought heavily in the spring in anticipation of a copper strike that never occurred, analysts and industry sources said.

But analysts and those in the industry are not predicting any big rises in the price of copper in the near future.

They say a big factor in the future of U.S. copper will be whether Kennecott completes a $400 million modernization of its Utah mines, which Kennecott said could add up to 185,000 tons of refined copper to the market each year.

If the price of copper falls too low and stays down, Kennecott might have second thoughts about the Utah operations.

″We’ve said that if the price fell to 55 cents (a pound) for any extended length of time, we’d have to rethink,″ Kennecott spokesman Ken Hochstetler said.

If Kennecott’s Utah operation resumes, Shorr said, that might serve only to add more copper to a market already plagued by sluggish demand and plenty of supply.

Another factor is the re-opening of the sprawling copper mine in Butte, Mont., that had been shut the past three years. Once one of the nation’s major copper sources, itself the subject of what once was an industry record-setting strike, the mine was sold last year to Washington Corps., a Missoula, Mont., construction company.

The operating company, Montana Resources Inc., a subsidiary of the Missoula firm, has hired 200 workers for the mine and expects to have added 100 more by the end of the summer. They work without union representation or contract.

Full production will be about 40,000 tons of ore per day. That translates into about 30,000 tons of refined copper a year, spokesman Ray Tilman said.

″This is just domestic stuff,″ Shorr said. ″Of course, the foreigners operate at 105 percent anyway.″

U.S. copper producers have blamed their heavy financial losses of recent years on cheap foreign imports.

They said during contract negotiations in the spring that to return to profitablity, they needed to cut wages. They succeeded in doing so in the lastest three-year contracts ratified by workers at Kennecott, Inspiration Consolidated, Asarco and Newmont Mining’s Magma and Pinto Valley Copper operations.

Under the new contracts, the wages of unionized copper workers fell about 20 percent to around $11 an hour, labor and management officials have said. The companies had proposed even greater cuts, ranging from 25 percent to 33 percent.

Union officials called the new contracts tough for workers to accept, but they said the contracts were the best they could negotiate in an industry where employment has plummeted from about 32,000 to 6,800 over the past five years.

Perhaps more important to producers than the declining wages are contract provisions intended to increase worker productivity, said analyst Robert Decker of Duff & Phelps in Chicago.

″Phelps Dodge three years ago almost set the pattern for this sort of negotiations,″ in which contracts allow for jobs previously performed by several classifications of workers to be performed by one type of worker, Decker said.

During an often-violent strike that lasted nearly three years, Phelps Dodge continued operations with non-strikers and replacement employees. In 1985, it began turning a profit. It also has become the nation’s leading copper producer, supplanting Kennecott.

The unions at Phelps Dodge were decertified this year.

″There’s certainly greater flexibility in assignment of work and crew sizes,″ Hochstetler said of the new contracts.

Other copper producers have said that the wage cuts will solve only part of their problems, but they think that coupled with other improvements, cheaper labor could help them start making money again.

In 1983, production costs hovered near $1 a pound when prices were around 70 cents. Economies in wages, benefits, debt reduction and other areas are said to have reduced production costs sharply, but a current average is unavailable.

In any case, analysts seem mixed on their predictions for copper’s future.

Shorr said the studies he has done do not paint a bright picture for domestic copper.

Decker said he views the future of domestic copper with guarded optimism, although he said any industry selling a product that is available in huge quantities from abroad faces a potentially turbulent market.

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