- Development & Aid
- Economy & Trade
- Human Rights
- Global Governance
- Civil Society
Sunday, February 16, 2020
SANTIAGO, Jan 11 2008 (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.
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.
IPS is an international communication institution with a global news agency at its core,
raising the voices of the South
and civil society on issues of development, globalisation, human rights and the environment
Copyright © 2020 IPS-Inter Press Service. All rights reserved. - Terms & Conditions
You have the Power to Make a Difference
Would you consider a $20.00 contribution today that will help to keep the IPS news wire active? Your contribution will make a huge difference.