How Copper Dodged The Bullet

Copper has held up extremely well as we have moved through the trough of the economic cycle. In the aluminum, lead and zinc industries at least half of the Western World production was unable to cover its operating costs at the prices prevailing throughout most of 1991. In copper, less than 10 percent of production ran in the red last year. Most of that was in Peru where the government has not allowed its currency to devalue at the same pace as inflation. Thus, mining company revenues in local currency terms have risen very modestly while costs have escalated tremendously. Excluding such governmentally imposed distortions, virtually every mine in the Western World ran at a profit last year. While copper producers have to be extremely happy about staying in the black through the trough of the consumption cycle, consumers have to be worried. They must be asking themselves, "If copper held at over $1.00 in a year when consumption declined, how high will prices go when demand picks up?" Consumers are accustomed to paying high prices at the peak of the cycle, but they are also accustomed to paying low prices at the trough of the cycle. What went wrong this time?