CH–21. Memorandum from the Assistant Secretary of State for Economic Affairs (Mann) to the Secretary of State1
SUBJECT
- Disposal of D.P.A. Inventories of Copper
Recommended Position
It is recommended that in the Cabinet discussion on this subject you take the following position, which is consistent with positions already taken at the working level:
- 1.
- The Department fully appreciates the desire of the OCDM to dispose of the copper held in D.P.A. inventories, and will be glad to [Typeset Page 262] cooperate in the development of a sound disposal plan for this purpose at an appropriate time.
- 2.
- The present time, however, does not seem to be an appropriate one, and the Department is definitely opposed to undertaking any sales of D.P.A. copper at present.
- 3.
- Since rumors have had an unsettling effect on markets, there is need for a public statement to the effect that the Government is not considering the sale of any copper at this time.
- 4.
- When the time does come to dispose of the D.P.A. inventories, the plan of disposal should be carefully designed to avoid unnecessary disturbance of the markets, and in particular it should specify a reasonable cutoff price below which sales world not be made.
- 5.
- As the time for disposal draws near, but before final decisions are made, it will be necessary for the State Department to hold meaningful consultations (at least a week to ten days in advance) with certain governments having a substantial interest in the matter.
Background
About 136,000 long tons of copper are held in D.P.A. inventories (not to be confused with the strategic stockpile, where the holdings of about 1.0 million tons are close to the maximum stockpile objective). Governor Hoegh2 and his Deputy, Mr. Price,3 have been under pressure to dispose of [Facsimile Page 2] excess Government holdings of various materials, and in the past few weeks they have been pressing hard for disposal of the D.P.A. copper.
Their aim has been to sell 10,000 tons in the course of the coming two months and the balance of 126,000 tons later in the year. Rumors have recently been circulating in the major copper markets to the effect that the OCDM is about to liquidate the entire D.P.A. inventories of copper. The price of copper, which had been strong for several months, has dropped rather sharply in the past two weeks, some quotations by 6–8 percent. The OCDM has made certain public statements which have not been definite enough to reassure the markets.
Some of the domestic copper fabricators and brass manufacturers are in favor of Government disposal of the D.P.A. holdings, but the major producing companies, led by Anaconda, are opposed. The Interior Department is also opposed to the action. A strong group of Senators from the mining states, led by Senators Murray4 and Mansfield,5 have [Typeset Page 263] pushed through a resolution saying that the release of any part of any Governmental inventories of copper at this time would cause “incalculable damage” to the security and well-being of the country. The OCDM, and particularly Mr. Price, have been under sharp criticism in the trade press and in the Senate. The Senators have asked for public assurances that the D.P.A. copper would not be sold.
The Labor Department probably has reason to oppose the action at this time, because the copper mining companies are in the early stages of wage negotiations which may lead to extensive strikes. A disposal of Government holdings of copper at any time prior to the final settlement of the wage negotiations and the conclusion of a new wage agreement would probably be regarded by labor as a strike-breaking measure. On the other hand if there should be strikes and if the OCDM should wait until after a new wage agreement had been concluded it might well be possible to dispose of the D.P.A. inventories of copper at favorable prices and without incurring serious objections.
Copper is the mainstay of the Chilean economy, accounting normally for 60 to 70 percent of the country’s hard currency earnings. Any move on the part of the United States Government which had the effect of pushing copper prices down seriously would be considered an unfriendly action by the Chilean Government and people. Chilean sensitivity in this regard was dramatically demonstrated last year when President Ibanez cancelled his impending state visit to the United States immediately after it was announced that our Administration favored action by the Congress to advance the date for lifting the suspension of the copper excise tax.
Copper is of importance also, in lesser degrees, to Peru, Mexico, and Canada. These countries, especially Peru, have protested our imposition of import quotas on lead and zinc, and they would undoubtedly protest disposals of copper at this time.