198. Memorandum From the Assistant Secretary of State for Economic Affairs
(Waugh) to the
Chairman of the Council on Foreign Economic Policy (Dodge)1
Washington, March 16,
1955.
Current shortages in certain basic defense materials, specifically copper,
nickel, and aluminum have drawn the attention of the Congress. The Joint
Committee on Defense Production held hearings on March 10, at which Dr.
Flemming was the principal
witness. Other representatives of the Executive branch, including State,
Commerce,
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General Services
Administration, Defense, and Interior, participated in the hearings.
Recent export control actions taken by the Administration to relieve domestic
shortages have had international repercussions and a number of governments
have expressed their concern.
I am enclosing brief statements on the situation in each of the commodities
subject to shortages and the principal features developed by the Joint
Committee on Defense Production during the hearings.
[Enclosure]
COPPER
Copper was in easy supply a year ago. Huge unsold stocks, particularly of
Chilean origin, overhung the market and there were marked price
weaknesses in the commodity markets and curtailment of output throughout
the industry. In March 1954, the U.S., at Chile’s request, bought
100,000 tons of excess stocks for our stockpile. In the spring and
summer demand in the U.S. and Europe improved considerably. Production
could not be geared quickly enough to meet the rising demand, and
crippling strikes in the U.S. and Chile caused widespread shortages. A
strike in Rhodesia, in early 1955, contributed further to the tight
situation. Prices on the London Metal Exchange rose from 30 cents per
pound in July, 1954, to 45-1/8 cents on February 10, 1955. However, U.S.
producers held the line at 30 cents until the end of January, 1955, when
the U.S. price was increased to 33 cents. Because of the price
differential between the U.S. and Europe, copper that would normally
come to the U.S. has been attracted to Europe. Therefore, the shortages
in the U.S. are more severe than outside.
In the fourth quarter 1954 the U.S. acted to divert certain tonnages due
on stockpile contracts to consumers. The Government also sold copper
stocks accumulated under Defense Production Act contracts and from
current deliveries under those contracts. The total amount under
Government control delivered amounted to over 40,000 tons. At the same
time, restrictions were put on the export of copper from the U.S. In the
first quarter 1955 and applicable to February and March, export
restrictions were drastically tightened to cover all forms of copper and
copper scrap except that of foreign
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origin. Recently further action was taken to
release an additional 8,000 tons of DPA
copper for March and export controls were further tightened for the
second quarter. The restrictions on exports now represent about a 67
percent cut from the rate prevailing in 1954. The severity of this cut
has caused hardship in countries normally dependent on the U.S. as a
source of supplies.
The Committee took up the movement of copper to the bloc countries as a
contributing factor to the general shortage. We explained that this was
not a major factor in the total situation and that we were discussing
with other countries a tightening of controls with a reasonable prospect
of success.
[Enclosure]
ALUMINUM
A severe shortage in aluminum has only recently come to light. This
shortage is occasioned by the high rate of industrial activity and
somewhat lower than expected rate of Canadian output. The shortage
situation is dramatized by the price of aluminum scrap which is
currently several cents over the price of virgin ingot.
In general, the Committee seemed to feel that the shortage situation
would be temporary. Dr. Flemming
explained that any indications that the present levels of demand would
be maintained or increased could, however, point to the need for
reopening consideration for further expansion in productive capacity.
Capacity has already been increased by 100 percent in the last five
years.
The aluminum industry has recently recommended the virtual elimination of
stockpile deliveries during 1955. During the first quarter ODM deferred delivery of 50,000,000 pounds
to later in the year. The industry also recommended an embargo on scrap
exports. So far no action has been taken on these requests, although
action is pending. Dr. Flemming
told the Committee that any deferrals of delivery to the stockpile would
be limited to short periods of, say, two to three months.
Action on exports of scrap, coming closely after our controls over
copper, would seriously impair our relations with West Germany, the
principal buyer of aluminum scrap. Demand in that country has been
growing steadily and higher levels of production are depending in part
upon receiving materials from the U.S. We made the point that the U.S.
has an important interest in the development of the German economy and
that its raw materials requirements would grow further as that country
takes its place in the defense production program of the West.
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[Enclosure]
NICKEL
There is a stubborn shortage in nickel which has persisted since before
Korea. Most countries retained controls over distribution and
consumption until the end of 1953. Since then general prosperity,
together with continuing defense production and stepped-up stockpiling
in the U.S., has continued heavy demands and accelerated the
shortage.
Approximately 85 percent of world production of nickel comes from the
Sudbury district of Canada and is principally produced by the
International Nickel Company. Cuba at present supplies about 7 percent,
New Caledonia 5 percent, and the remaining production is scattered.
Exclusive of stockpiling, the U.S. consumes 61 percent of the total
world production. Deliveries to the U.S. stockpile account for an
additional 25 percent of production. The stockpile program, therefore,
is a major contributing factor to the shortage as well as the largest
single impact on production. Moreover, knowledge that U.S. stockpiling
may be completed by 1958 or 1959 has caused a certain reluctance on the
part of private capital to aggressively search for new sources. In
recent years, much of the new production has come about through U.S.
Government assistance and is to a large extent noncompetitive under
ordinary commercial conditions.
Recently the U.S. released 1,000,000 pounds of nickel on stockpile
contracts to alleviate the current industrial shortage. Exports from the
U.S. are virtually nonexistent, but this fact constitutes no special
foreign relations problem. However, a number of governments, including
the United Kingdom, Germany, Austria, and Spain have asked the U.S. for
help in obtaining nickel. In essence, their request, if complied with,
would mean a lower rate of accumulation for the stockpile.
The Committee, especially Senator Capehart,3 expressed concern at the
rate of progress toward the completion of the stockpile objective and at
the degree of concentration in the producing industry reflected by the
dominant position of the International Nickel Company. It was generally
felt that the Government should be more aggressive in fostering
exploration and development both here and abroad. Dr. Flemming was not unsympathetic with
this attitude but felt in general that all that is practical and
promising on any sound basis is being done.
