A Crucial Deal in Copper

Last week, as it has been for nearly three months, the U. S. price of copper was stable at around 12-c- a pound. It was the lowest level at which U. S. copper producers have ever been sold out. Reason for their moderation at the banquet table is one of the major phenomena of U. S. national unity--a shotgun wedding between the Defense Commission and big-time coppermen. Cooperating with Commissioners Henderson (prices) and Stettinius (materials), coppermen had accepted the New Deal program on prices--i.e., kept them down. But the remarkable extent of their cooperation became evident only this week.

At 12-c-, the U. S. copper industry cannot produce enough copper for the U. S.'s present needs. This price gives the industry--especially the big low-cost producers, Anaconda, Kennecott, Phelps Dodge--a nice profit, but it gears its output to a maximum of 1,100,000 tons a year. For 1941, defense copper fabricators will need at least 1,200,000 tons. That means 100% of the 12-c- capacity and 100,000 tons besides. For over two months, fabricators have been increasingly worried about their copper supplies. Not only are they bringing new fabricating capacity into production all the time, but they need bigger inventories than usual because of their bigger backlogs. The copper market has been approaching a real squeeze.

To get the extra 100,000 tons of copper for next year, the Defense Commission had two choices. It could let the price go up--say, to 14-c-. That would bring another 100,000 tons of driblets into the market from higher-cost mines. The chief pressure in behalf of this cause came from the Mountain States, which have already used pressure to get silver, wool and sugar profits with Government aid, have done handsomely by themselves in Washington. The chief argument against it: a 2-c- price increase would add $48,000,000 (for 1,200,000 tons) to the U. S. economy's copper bill next year.

The other choice is to import the extra copper. Imports are now kept out by a 4-c- tariff; since Chilean copper is priced in U. S. ports at 10-c- a pound, it cannot compete with domestic when domestic is less than 14-c-. First to plump for tariff reduction in the present emergency was one of the trade's stanchest Willkiemen, blond, conservative Fabricator C. Donald Dallas of Revere Copper and Brass, Inc. On the very September day that Wendell Willkie spoke against low copper prices in Anaconda's Butte, Fabricator Dallas spoke for a 12-c- ceiling in order to head off an inflationary spiral. He advised dropping the tariff altogether when the price got above 12-c-. Below 9-c-, he would restore it in full. For each 1-c- drop below 12-c-, he would restore 1-c- of protection, so that the price would be stabilized between 9-c- and 12-c-.

By last month, the Defense Commission had made its choice. By this week it had translated its choice into action. Mr. Dallas' proposal--in principle--won. Next month some 12-15,000 tons of Chilean copper will arrive at Atlantic ports.

Who Saw Whom. Since the Defense Commission has nothing but advisory power, the steps by which it is getting this copper were not simple. They make an enlightening case history in the politico-economics of defense.

The first step was to get the cooperation of the big-league coppermen. For years they had played ball with their small-fry competitors, helped them slip the 4-c- tariff into Herbert Hoover's last revenue act in 1932. Yet their own costs are all 9-c- a pound or under; they all have financial hookups with the price-conscious fabricators; and two of them--Anaconda and Kennecott--own big mines in Chile. Since their own economic interests jibed with the political handwriting on the wall, the big-leaguers were ready to abandon their marginal friends, line up with the fabricators and the Commission. For example, biggest domestic tonnage producer (though smaller than Anaconda abroad) is Kennecott, which can mine 375,000 tons a year at a cost of 6 1/2-c-. Hence Kennecott is doing fine on 12-c- copper, but will be doing even better if it can unfreeze some of its assets in Chile.

The tariff presented difficulties all its own. Mr. Dallas' ingenious sliding scale was of little help. For when the Mountain States lobby got their tariff through, they trusted neither Hoover nor his successor, made sure that the 1932 rider gave the President no authority to change it. Not even Cordell Hull's Reciprocal Trade Agreements Act of 1934, which gave the President wider leeway on many tariffs, untied his hands on copper. Hence the wall had to be leaped. Method: the U. S. (Treasury, Army, Navy or RFC) to buy Chile's copper, pay itself a 4-c- tariff, resell it for 12-c- in the U. S.

Last week Leon Henderson's boys finished a furious month of copper analysis, helped in good part by tips and memos from Copper Sage Bernard Mannes Baruch. The study finished, Commissioners Henderson and Stettinius went to the White House to get an ideological green light from the boss. Next they memorialized the Army and Navy about the wisdom of keeping defense costs low and copper supplies ample by importing some. This week the ball was in the hands of the Army & Navy Munitions Board, whose co-chairmen are New York's conscripted U. S. Circuit Court judge, scholarly Assistant Secretary of War Robert Patterson, and Assistant Secretary of the Navy Lewis Compton. Chairmen Patterson and Compton must now get their board to vote copper on to the critical and strategic materials list. That done, the ball will be batted over to Federal Loan Administrator Jesse Jones, whose Rubber and Metals Reserve Companies act as Government purchasing agents at large. There the actual purchase will take place.

Main objection to this transaction, of course, comes from the high-cost domestic producers, who do not like to see their Government buying foreign copper (and selling it at a 2-c- profit) rather than theirs. The only philosophy for their wounds is New Deal Pan-Americanism: countries like Chile, in this emergency, in some respects deserve the status of a 49th State. Chile's copper economy depended on lost European markets; France took 121,000 tons in the first four months of 1940, had 100,000 tons more on order when Hitler put her out of business. Chile's annual capacity is nearly 500,000 tons, almost entirely for export. Recently she has been selling to Japan. But Chile wants to create a steel industry (providing a domestic copper outlet); for this and less ambitious purposes she badly needs U. S. manufacturers. She would gladly trade 100,000 tons of copper for them. Her mines--which can produce for 4-c- to 6-c- a pound--can make a profit (accruing mainly to Anaconda and Kennecott) at the present 10-c- delivered price. The deal would involve some assurance to the U. S. that it would not go higher.

Diplomacy had one other interest in the Henderson copper deal this week. Chile is afraid of great British Rhokara and Katanga mines in Africa, whose lower labor costs enable them to produce for as little as 2 1/2-c-a pound. To protect Chile against being crowded by Africa in the new tariff-circumventing U. S. market, the British may recognize the U. S.'s special hemispheric relationship with Chile, agree to forget about the U. S. market.

Even the U. S.'s high-cost producers may eventually have their day. The Henderson plan is to treat them as a last reserve against the day when U. S. copper consumption rises to something like 1,500,000 tons, or when war in this hemisphere makes Chile look too distant. In such an emergency, Henderson would negotiate individual contracts with the small fry at around 14-c- a pound. But the posted price for big-league copper would stay where it is now: 12-c-.

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