More layoffs could be coming in the copper industry that’s entangled in a prolonged price slump, a leading mining economist says.
If China’s economy keeps slipping and prices keep falling, more copper miners could face layoffs, said John Tilton of the Colorado School of Mines.
Early this month, Asarco laid off 130 employees from three of its four Arizona copper faciliites, including 35 at the Mission Mine south of Tucson near Sahuarita. The rest were from the company’s Ray Mine and its mill in nearby Hayden in Central Arizona.
That came on top of a shutdown of a small Montana copper-silver mine last month that triggered the layoff of 70 employees by owner Revett Mining Co. of Washington state.
These layoffs, some of the first cutbacks at copper mines in the West in years, were caused by copper prices that have tumbled more than 80 cents a pound from a year ago, company officials said. They were at $2.60 at the time Asarco announced its layoffs late last month. In the last week, copper prices sank to the mid-$2.50s a pound on Wednesday before rebounding to $2.67 Thursday and hitting $2.77 Friday on the Comex metal exchange in New York City.
“The current low copper price has caused producers to refocus their efforts on ways to reduce costs,” said Tilton, a research professor at the Colorado School of Mines’ division of economics and business. “Even if the price stays the same, I suspect there could be more layoffs as companies try to reduce costs even further,” he said.
Over the next year or so, the copper price will depend largely on the world economy, he noted.
“If China’s economy continues to slow, if Europe slips into a recession, and if the recovery in the U.S. stalls, the price of copper will continue to decline and could fall much further. On the other hand, if the global economy regains some momentum, the price could recover quite quickly,” Tilton said.
If an individual company has a lot of debt to pay off and isn’t getting as much revenue as it used to, it could be forced to have layoffs, said Grant Malensik, of the mining consulting firm SRK in Denver. Companies with a good balance sheet may be able to avoid job cuts, he said.
In announcing layoffs, Asarco said it anticipates continuing to run its milling operations at full capacity at its Mission and Ray mines and will keep processing copper concentrate at its Hayden smelter.
But the company has temporarily suspended operations at its Mission-based molybdenum plant and reduced operations at its Ray and Mission mines and its Hayden mill, it said recently.
“We’re just tightening our belt, trying to be as efficient as possible,” said Tom Aldrich, a vice president for the Tucson-based Asarco, a subsidiary of the Grupo Mexico conglomerate. “We’re still maintaining the same output from our concentrators and ultimately the same production from our smelter and refinery.”
“I can’t say” how high the copper price must rise for the company to consider refilling the eliminated positions, Aldrich said. “We’re just going to continue to monitor the conditions, price and demand and see where it goes.”
Arizona’s other leading copper mining company, Phoenix-based Freeport McMoRan Copper and Gold, didn’t respond to a question from the Star about any potential for layoffs from its five Arizona mines.
Copper prices have been continuously dropping — slowly in some periods, rapidly in others — since peaking at the $4-a-pound-and-up range in late 2010 and early 2011. Until now, however, companies such as Asarco have said that their operations were still profitable even as the price dropped below $3.50 a pound as it was doing one to two years ago.
Part of the problem is that 2014’s global growth in gross domestic product was less than originally expected, continuing a years-long trend of disappointing results compared to expectations, reported the consulting firm SNL Metals & Mining.
The bearish mood about the mineral isn’t surprising, since mining projects are now coming online that had been conceived and approved back in the headier days of high copper prices and stronger corporate profits, SNL’s report said.
“This extra supply comes at a time when prospects for copper consumption do not look good at all,” SNL said.
Prices remain at levels well above those from the 1980s into the early 2000s, when they fluctuated from as little as 50 or 60 cents per pound to the low $2 level.
Copper prices are known for being volatile, Colorado’s Tilton said. That’s because demand for copper is concentrated in four sectors: construction, autos, capital equipment, and consumer durables, he said.
The output for all of these sectors fluctuates with the business cycle but with a much greater variation than gross domestic product for the entire economy, Tilton said.
When prices and demand are down, copper producers work hard to reduce costs and this often means laying off geologists and others whose services are not essential for immediate production, Tilton said.
While the current price is well above the levels at which layoffs occurred a decade or more ago, costs to build and operate mines have risen significantly since 2002, Tilton said. In 2002, most producers were quite profitable at a $2.50-per-pound price, but not today, he said.
State geologist Lee Allison, of the Arizona Geological Survey, said he was a bit surprised by Asarco’s layoffs.
“We’ve been hearing a little bit that most big copper companies had a much lower pinch point where the price would have to get down to and much lower to say, ‘We’re losing money. We can’t sustain this,’” Allison said. “I’m surprised they took this big an action at this point.”
He said he’d be surprised if other mining companies make comparable layoffs, because from what he reads globally they should be able to keep going without losing significant amounts of money.
“But again, I don’t have an understanding of each company’s strategy and economics.”
If there’s a bright spot for copper prices on the distant horizon, it’s that mining exploration activity is continuing to decline, the SNL firm said in its report.
That could mean higher prices in a few years if there isn’t enough copper being produced to satisfy demand.
Worldwide, the mining industry’s total exploration budget for nonferrous metals such as copper was $11.4 billion in U.S. dollars in 2014, down from $15.4 billion in 2013 and a record-setting $21.2 million budgeted in 2012, SNL said.
Experts can’t predict when things could turn around. One problem in figuring this out is that so much of global copper demand is from China, and its officials aren’t transparent about copper demand, their future demand projections or how much copper they have stockpiled, Allison said.