IPS-English CHILE: Copper Boom - Cui Bono?
 
Date: Fri, 11 Jan 2008 15:16:59 -0800

 
Daniela Estrada

SANTIAGO, Jan 11   (IPS)  - According to global forecasts, the price
of copper, Chile's main export, will remain high in 2008 thanks to
strong demand from China. But just who will benefit from this bonanza
is up for debate.

Chile is the world's largest producer and exporter of copper, with
a 35 percent market share, and the biggest global reserves. 

According to the state Chilean Copper Commission (COCHILCO), the
country produced 5,361 tons of copper concentrate in 2006, nearly
five times as much as its closest competitor, the United States, which
produced 1,226 tons. Peru followed, with 1,049 tons. 

The Chilean state controls just 30 percent of the total output, through
the National Copper Corporation (CODELCO). The remaining 70 percent
is in private hands.

In 1966, the government of Christian Democrat President Eduardo Frei
Montalva (1964-1970) ”Chileanised” copper by purchasing 51 percent
of the shares in mines worked by foreign companies.     

Then in 1971, Socialist President Salvador Allende (1970-1973) expropriated
the private mining companies and nationalised the copper industry
before he was overthrown by a military coup.

But under the dictatorship of the late General Augusto Pinochet (1973-1990),
laws were passed to promote the reopening of the industry to private
companies, even though the Chilean constitution says that ”the state
has absolute, exclusive, inalienable and imprescriptible domain over
all mines.”

This was done by granting concessions, which in practice allow private
firms to treat mines as their private property. The system has attracted
a large number of foreign investors, mainly since the return to democracy
in 1990. But for critics, the new legislation is unconstitutional
and signifies the denationalisation of copper.

Debate on these issues has heated up because of the high international
prices for copper seen since 2003.

According to a COCHILCO report, the average price of copper for 2007
was 323 cents of a dollar per pound on the London Metal Exchange.

That is 5.9 percent higher than the average for 2006, and is the
highest nominal value in history and the third highest in real terms,
after 1966 and 1969 (361 and 325 cents per pound, respectively), the
December report says.

”Some of the world's most respected companies and institutions in
copper futures are saying that copper prices will fluctuate between
280 and 360 cents per pound in 2008, with an average of approximately
325 cents, similar to that of 2007,” Gustavo Lagos, head of the Catholic
University's Mining Centre, told IPS.

”In 2009, the average price is predicted to be under 300 cents per
pound, and in 2010 it is expected to be around 270,” said Lagos. Despite
the falling trend, these prospects are excellent, given that in 2003
the price per pound was 70 cents of a dollar.

”There was no such extended copper boom in the 20th century. These
very high prices, of over three dollars a pound, are likely to last
for at least three years, 2006, 2007 and 2008, which is unprecedented,”
said the engineer.   

In Lagos' view, the run of high copper prices can be explained by
two simultaneous global phenomena.

These are, on one hand, ”the unexpected rise in Chinese demand for
commodities,” including copper which is used in building infrastructure,
and on the other hand, ”the inability of the mining industry, in the
short term, to supply the quantities it had promised, because of underinvestment”
since 1998, he said.

”The long-term price of copper will remain high, above 130 cents,
unless there is world over-production, such as the transnational mining
companies in Chile created between 1995 and 2000,” economist Orlando
Caputo, head of the Centre for Studies on Transnationalisation, Economics
and Society (CETES), told IPS.

Caputo's career has been in academia, except for the period when
he was named general manager of CODELCO by Allende, from 1970 to 1973.

Along with some lawmakers belonging to the centre-left coalition
that has governed Chile since 1990, and subcontracted CODELCO workers
who organised a major strike in mid-2007, Caputo holds the view that
copper should be renationalised in order to finance wage increases,
greater social spending and economic diversification. 

But in September, the lower chamber of congress rejected a draft
statement calling on President Michelle Bachelet to move towards renationalisation.

Gustavo Lagos, by contrast, says that ”the future of copper in Chile
can be splendid, significant, or plain irrelevant or negative, depending
on how we handle it as a nation. Our development does not depend on
foreign companies, nor imperialism, nor ghosts from our past; it depends
on whether we do things properly.”   

This, he says, means maintaining the present tax rates to ensure
private investment over the coming years, drawing greater talent into
the industry, removing barriers so that transnational mining companies
can bring in technological innovation, and improving the management
of CODELCO to increase its competitiveness, ”because there are signs
that it may not be competitive in the future.”

Due to the high prices, the industry's contribution to gross domestic
product (GDP), measured at current prices, rose from 8.3 percent in
2003 to 23 percent in 2006.

In 2006, CODELCO contributed 9.2 billion dollars to the state coffers
-- over 20 percent of total revenue. And in 2007, the state received
some 16 billion dollars from CODELCO profits and taxes on private
mining companies.

But the state mining company faced a series of labour conflicts in
2007, led by subcontracted workers who want equal wages and benefits
to those of company employees doing the same jobs.

The latest tension broke out late last year, when the Labour Ministry,
which had completed a review of subcontracting practices in the mining
industry, ordered CODELCO to directly hire 5,000 workers who are subcontracted
in contravention of the recent Subcontracting Law. 

CODELCO refused, and has appealed in court.

On Jan. 3, subcontracted mineworkers held protests demanding that
the Labour Ministry's ruling be implemented. Two hundred protestors
were arrested.

Lagos says that subcontracting workers is one of the reasons for
CODELCO's loss of productivity. Caputo, in turn, says that the subcontracted
workers' demands are fair, because of their low pay and the physically
demanding nature of work in the mining industry.

Caputo also says that ”there is a scramble for plunder going on within
CODELCO. Former CODELCO employees are now owners of contracting firms,
and some politicians are also involved in outsourcing.” 

The Mining Ministry's public report for 2007 says that mining development
has brought about considerable poverty reduction. ”The mining regions
of Tarapacá, Antofagasta and Atacama have poverty levels that are
below the national poverty rate” of 13.7 percent, it says.

Mining has generated more and better jobs, development of physical
infrastructure, opportunities for companies to supply goods and services
and the incorporation of new technology, among other benefits, it
says.

Among the proposals made by political and social sectors on how to
make the most of the boom are improvements in education, investing
in public capital goods (mainly in the health sector), supporting
small and medium-sized businesses and spending more on the regions.

In May, Bachelet announced that an additional 600 million dollars
from copper earnings would be spent on education in 2008, but the
government's economic policy is mainly based on investing savings
abroad.

Caputo complained that private mining companies made profits of nearly
20 billion dollars in 2006, which according to his calculations were
equivalent to 17 percent of the country's GDP, 75 percent of the national
budget, and twice the combined budgets of the Health and Education
Ministries.

In his view, the specific tax on mining approved in 2005 is too low.
For 2007, it brought in revenues of approximately 670 million dollars,
which are to be spent on technological innovation and development.

”The Chilean state has no national development plan. That word (plan)
is prohibited. Everything is left up to the market. Everyone talks
about improving productivity factors, such as human capital, and generating
conditions for higher productivity. But that isn't enough,” said Caputo.

According to Lagos, labour strife as well as international turbulence
caused by the U.S. mortgage crisis may affect copper prices in 2008.


*****
+ CHILE: Copper Miners' Strike May Set a Precedent for Labour Rights
(http://ipsnews.net/news.asp?idnews=38724)
+ LATIN AMERICA: Mining an Open Pit of Disputes û 2006 (http://ipsnews.net/news.asp?idnews=34668)
+ Chilean Copper Commission, COCHILCO (http://www.cochilco.cl/english/index.asp
)
+ Centro de Estudios de Transnacionalización, Economía y Sociedad,
CETES - in Spanish (http://www.trabajoyequidad.cl/view/centro-estudios-ficha.asp?idCentroEstudio=13&varInstitucion=22)


(END/IPS/LA HD DV IF IP CS/TRASP-VD-SW/DE/08) 


 
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