Economic recovery restores some shine to Arizona copper
After a year of severe cutbacks, Arizona's recession-ravaged copper industry is showing the first tentative signs of recovery. Phelps Dodge Corporation, one of the country's largest copper producers, recently reopened an ore-reduction plant in Douglas, Ariz., signaling both improved business conditions and a renewed faith in the future of the economy.
Extensive operational reorganization and job reductions have enabled Phelps Dodge to increase its productivity, according to company spokesman Ken Bennett.
Despite the losses caused by the recession, Bennett says the economic hard times have made Phelps Dodge a better company.
''We prepared ourselves to meet the recession and have made ourselves lean to meet the future,'' he said. ''When copper prices turn around we will be in a good position.''
A sharp decline in the demand for copper is the root of copper-industry problems. When the recession slowed housing construction and automobile production - both major consumers of copper - the price of copper plummeted by more than 50 percent.
Copper prices were at a peak in January 1980, when a pound of the metal sold for $1.44. The price started slipping by July of that year and continued to decline until the price reached its low of 66 cents a pound in September 1982.
As profits fell, copper producers began laying off employees and shutting down mines. By April 17, 1982, 15 of Arizona's 28 mines were closed, putting 3, 200 people in the state out of work.
Greenlee County, the center of Arizona's mining industry, was hardest hit by the recession. Phelps Dodge is responsible for 80 percent of the jobs in Greenlee County, and after the mines closed, unemployment skyrocketed to 66.9 percent in July 1982, the highest unemployment rate for any county in the nation.
Copper prices have been increasing slowly since their July low, although the price is still not high enough to bring production to its previous levels.
Copper is currently selling for about 80 cents a pound, Bennett says, but he adds that producers need to receive around $1 a pound in order to break even.
However, he explains, some corners can be cut to save expenses. For instance, he points to the mine at Morenci, the largest open-pit mine in Arizona, which was reopened in October 1982. To reduce expenses, waste-removal operations were suspended, leaving waste rock to pile up in the pit itself.
The Morenci mine is large enough to permit that kind of saving temporarily, Mr. Bennett said. But, he adds, eventually the waste rock will have to be cleared out, or it will choke the mine.
For the most part, expenses are reduced by cutting the work force, since labor costs account for 30 percent of the price of copper.
According to Bennett, many job categories were combined or eliminated altogether. ''We have reviewed every job to increase efficiency,'' he said.
The Douglas reduction plant that just reopened with 330 employees previously operated with 470 workers, Bennett said.
''We are running as lean as we possibly can to operate at a profit,'' he added.
Even though copper prices are increasing now, Bennett said he does not expect Phelps Dodge to rehire all the people laid off during the course of the recession. In view of the large production costs, a labor force at pre-1982 levels would prohibit the company from competing internationally, he said.
Bennett credits much of Phelps Dodge's recovery to the success of President Reagan's economic policies. Those policies were hard to swallow, he said, but they are showing benefits, particularly in lower interest rates.
''When interest rates are down, then people buy cars and homes again,'' Bennett said. ''There is a six-month lag before we feel it, but I think we've turned the corner (on the recession).''
The government has to maintain fiscal responsibility, he said, and work to lower budget deficits, or the whole cycle could start again.
''I think we're back on the track,'' Bennett said. ''I am guardedly optimistic that in time we'll be back to work.''
Arizona produces two-thirds of the copper used in the United States and a quarter of the world's supply.
As a byproduct of its copper mining activities, Phelps Dodge is also the fourth-largest gold producer in the nation, and the sixth-largest silver producer.