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CARTELS: Imitating OPEC

3 minute read
TIME

Inspired by the heady success of the Organization of the Petroleum Exporting Countries in pumping up the price of oil, four countries that account for 70% of the world’s copper exports last week adopted some of OPEC’s tactics. Zambia, Zaire, Chile and Peru, members of a cartel called the Intergovernmental Council of Copper Exporting Countries (CIPEC) announced plans to reduce shipments of the metal by 10%. Said Fernandez Maldonado, Peru’s Minister of Energy and Mines: “The Arabs have shown us the way.”

The move was prompted by sagging copper prices, down from $3,200 a ton earlier this year to less than $1,400. Demand has decreased with the worldwide recession and cutbacks in manufacturing. If CIPEC succeeds in raising prices, many industries will be affected. Copper is an important ingredient in cars, planes and trains as well as in plumbing materials, pots and pans, and even intrauterine devices. The U.S. and the Soviet Union, the two largest copper producers, both mine nearly enough for their own needs. Europe and Japan, however, rely heavily on CIPEC copper.

Metal traders were skeptical that CIPEC could drive up prices. They questioned the effectiveness of a cutback in shipments without a reduction in production. Almost in response, the Chilean government announced that it would close down the Exotica Mine for six months; the mine, one of Chile’s largest, last year produced about 32,000 tons, or only 4% of Chile’s copper exports. That should certainly not be enough to kick up prices—unless more member countries also close their mines.

Producers of other materials, too, are now banding together to try to lift prices. Countries that possess iron ore (including Venezuela and Brazil) and seven bauxite producers (Guinea, Guyana, Jamaica, Sierra Leone, Surinam, Australia and Yugoslavia) are talking about forming cartels. Coffee-producing nations hope to control prices by reducing exports from the Central American republics. Oil-rich Venezuela promises to make up their short-term losses in revenues with subsidies from a special investment fund.

For now, it is highly doubtful that the incipient cartels will inflate world prices. The likely members have few close religious, ethnic, cultural or geographical ties, compared with the Middle East nations that make up the core of OPEC. And even OPEC had to wait and struggle for a dozen years after its founding in 1960 before conditions were right for raising prices. Still, the development of the other cartels gives the rest of the world another potentially inflationary force to worry about.

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