Copper Exec Foresees Market Strength

Copper Exec Foresees Market Strength

The copper industry is “ready to cope with the challenges and opportunities of the 1990s,” says Phelps Dodge Chairman Douglas C. Yearley in this exclusive interview.

Yearley foresees some softening in copper demand this year, but says he was pleasantly surprised by the copper market's strength in the first half of 1990, which came not only from the United States but also from other consuming world areas. According to Yearley, the United States represents only about a quarter of the total world market.

In explaining the predicted eased demand this year, Yearley points to declining U.S. construction activity and the drop in housing starts, which he says are at an eight-year low. The automotive business, too, he adds, has shown some weakness.

But, looking ahead, the Phelps Dodge executive foresees growth for copper, both in the telecommunication and electrification sectors. Electrification, in particular, promises industry growth through greater usage of copper wire, explains Yearley, specifically noting the concept of the "smart house," which uses a single multistrand copper wire for specific plug-ins in each room. This, he says, should assure an expanding use of copper. In addition, wider use of copper in telecommunications and in electric motors "should offset any losses to fiber optics and assure greater copper use in the 1990s.

Examining the copper situation overseas, Yearley notes that "it has been estimated that if the population of Eastern Europe consumed copper at the same rate as West Germany, more than a million tons of additional copper per annum would be needed in the next few years." If there were such demand, would the Eastern Bloc have the capital to pay for this copper? Right now, these countries do not have the money to pay for such needed raw material, Yearley believes, suggesting that richer nations, such as the United States and Japan, may have to offer them some help. "One of the first things that Eastern Europe win need," he says, "are products like power cables used for construction-and those require copper."

Yearley says he does not think that a unified Europe in 1992 would make much difference to copper producers in the United States, but it might affect producers of copper products, he notes, "who will have to watch developments very carefully." European demand for copper in the first half of 1990 has held up well, with Germany the star of the show, according to Yearley.

When asked whether Phelps Dodge's unit average cost in producing copper will continue to go down, as it has in the past few years, Yearley replies that "in 1983 our unit cost was 80 cents per pound. Today, it is somewhere in the mid-50-cents-per-pound range. But," he adds, "because the cost of doing business has been generally on the rise, our objective now is to contain, rather than reduce, the unit cost."

The copper industry--including Phelps Dodge and other companies--he asserts, has spent a tremendous amount of money to eliminate pollution and has done a successful job. He declares that the reauthorization of the Clean Air Act, which may be the most important new law ahead for the industry, should not cause any apprehension, since copper producers generally are already in compliance with the requirements of the act.

Discussing the demand-supply-inventory position of copper in mid-1990, Yearley explains that Phelps Dodge's inventory position was still "tight" and estimates that it was at the three-week level held at the close of 1989. Despite some ups and downs in inventory reports, he ventures to guess that most copper producers were encountering the same inventory problems.

Will there be more copper coming out from new or increased production? Yearley says he sees "no new sizable production coming on stream in the United States this year." Next year, however, may be different, he points out. The Escondida mine in Chile will be coming on stream and is expected to have a preliminary annual capacity of 280,000 tons when it begins operating in early 1991; eventually annual output is expected to be around 335,000 tons.

Asked whether he sees the Kennecott labor settlement as representing an industrywide pattern, Yearley replies, "We do not consider it an industry pattern. Phelps Dodge has negotiated a settlement on the basis of its own needs and requirements--and that did not follow the Kennecott precedent--that was ratified on June 12."

Phelps Dodge relies on scrap, Yearley emphasizes, adding that the company has always looked upon scrap as an important raw material source. Use of scrap in the company's operations, particularly in the production of anodes at its El Paso refinery, he says, has increased m the past five years.

"We anticipate a profitable 1990, Yearley says, noting that the first quarter was a good one and that the company expects to have done well in the second quarter. "As for 1991, that will depend on a number of things, including labor settlement, continued active demand for copper, and a good economy." But, in general, he predicts promising years ahead for the copper industry. "It's a leaner, more disciplined, more competitive industry today," he points out, "ready to cope with the challenges and opportunities of the 1990s. It should offer greater profitability, for both copper and scrap producers.”

Copper Exec Foresees Market Strength

The copper industry is “ready to cope with the challenges and opportunities of the 1990s,” says Phelps Dodge Chairman Douglas C. Yearley in this exclusive interview.

Yearley foresees some softening in copper demand this year, but says he was pleasantly surprised by the copper market's strength in the first half of 1990, which came not only from the United States but also from other consuming world areas. According to Yearley, the United States represents only about a quarter of the total world market.

In explaining the predicted eased demand this year, Yearley points to declining U.S. construction activity and the drop in housing starts, which he says are at an eight-year low. The automotive business, too, he adds, has shown some weakness.

But, looking ahead, the Phelps Dodge executive foresees growth for copper, both in the telecommunication and electrification sectors. Electrification, in particular, promises industry growth through greater usage of copper wire, explains Yearley, specifically noting the concept of the "smart house," which uses a single multistrand copper wire for specific plug-ins in each room. This, he says, should assure an expanding use of copper. In addition, wider use of copper in telecommunications and in electric motors "should offset any losses to fiber optics and assure greater copper use in the 1990s.

Examining the copper situation overseas, Yearley notes that "it has been estimated that if the population of Eastern Europe consumed copper at the same rate as West Germany, more than a million tons of additional copper per annum would be needed in the next few years." If there were such demand, would the Eastern Bloc have the capital to pay for this copper? Right now, these countries do not have the money to pay for such needed raw material, Yearley believes, suggesting that richer nations, such as the United States and Japan, may have to offer them some help. "One of the first things that Eastern Europe win need," he says, "are products like power cables used for construction-and those require copper."

Yearley says he does not think that a unified Europe in 1992 would make much difference to copper producers in the United States, but it might affect producers of copper products, he notes, "who will have to watch developments very carefully." European demand for copper in the first half of 1990 has held up well, with Germany the star of the show, according to Yearley.

When asked whether Phelps Dodge's unit average cost in producing copper will continue to go down, as it has in the past few years, Yearley replies that "in 1983 our unit cost was 80 cents per pound. Today, it is somewhere in the mid-50-cents-per-pound range. But," he adds, "because the cost of doing business has been generally on the rise, our objective now is to contain, rather than reduce, the unit cost."

The copper industry--including Phelps Dodge and other companies--he asserts, has spent a tremendous amount of money to eliminate pollution and has done a successful job. He declares that the reauthorization of the Clean Air Act, which may be the most important new law ahead for the industry, should not cause any apprehension, since copper producers generally are already in compliance with the requirements of the act.

Discussing the demand-supply-inventory position of copper in mid-1990, Yearley explains that Phelps Dodge's inventory position was still "tight" and estimates that it was at the three-week level held at the close of 1989. Despite some ups and downs in inventory reports, he ventures to guess that most copper producers were encountering the same inventory problems.

Will there be more copper coming out from new or increased production? Yearley says he sees "no new sizable production coming on stream in the United States this year." Next year, however, may be different, he points out. The Escondida mine in Chile will be coming on stream and is expected to have a preliminary annual capacity of 280,000 tons when it begins operating in early 1991; eventually annual output is expected to be around 335,000 tons.

Asked whether he sees the Kennecott labor settlement as representing an industrywide pattern, Yearley replies, "We do not consider it an industry pattern. Phelps Dodge has negotiated a settlement on the basis of its own needs and requirements--and that did not follow the Kennecott precedent--that was ratified on June 12."

Phelps Dodge relies on scrap, Yearley emphasizes, adding that the company has always looked upon scrap as an important raw material source. Use of scrap in the company's operations, particularly in the production of anodes at its El Paso refinery, he says, has increased m the past five years.

"We anticipate a profitable 1990, Yearley says, noting that the first quarter was a good one and that the company expects to have done well in the second quarter. "As for 1991, that will depend on a number of things, including labor settlement, continued active demand for copper, and a good economy." But, in general, he predicts promising years ahead for the copper industry. "It's a leaner, more disciplined, more competitive industry today," he points out, "ready to cope with the challenges and opportunities of the 1990s. It should offer greater profitability, for both copper and scrap producers.”