Reallocation and Productivity during Commodity Cycles

I study the firm-level dynamic response of a commodity-exporting economy to global cycles in commodity prices. To do so, I develop a heterogeneous-firms model that endogenizes declines in aggregate productivity through reallocation towards less productive firms. Within a given sector, commodity booms reallocate market share away from exporters because of currency appreciation and away from capital-intensive firms because of the increase in capital cost. I provide empirical evidence for these channels using microdata for Chile, the worlds largest copper producer. When fed with the commodity super-cycle of 2003-2012, the calibrated model generates about 50% of the observed productivity decline.

Colonialism and the environment: The pollution legacy of the Southern Hemisphere’s largest copper mine in the 20th century

Mining has been a major contributor to economic development in Australia since British arrival in the late 1700s, with little to no thought regarding the long-term environmental consequences. This study assesses the metal pollution legacy caused by different smelting methods and mining activities during the British colonialism in western Tasmania. This region was the largest copper producer in the Southern Hemisphere during the 20th century. Lake sediments from Basin Lake and Owen Tarn, 12 and 5 km from Queenstown’s mines, respectively, were used to reconstruct historical metal contamination. Temporal changes in metal concentrations (iron, copper, arsenic, selenium and lead) were assessed in relation to the scale of mining activities and the technologies used. Sedimentation rates and metal influxes increased from 1900, reflecting the beginning of copper mining in Mount Lyell. Observed metal concentrations peaked after 1930, coinciding with the introduction of large-scale open-cut operations and an expansion of the mining machinery used. All elements underwent at least minor enrichment (EF 1-3) during the lifespan of the mine, with lead and copper undergoing extremely severe enrichment (EF > 50). Although smelters contributed to metal increases in the lakes, large open-cut large operations in the 1930s contributed most to metal contamination. Local metal deposition from mining-related activities decreased significantly once operations decreased, with selenium and arsenic decreasing nearly to background levels within 50 years. Lead and copper, the elements which underwent major enrichment, have not yet reached background values. The ecological consequences include the current degraded local landscape, poor water quality and disrupted local biota. Knowledge about the environmental impacts of mining in western Tasmania is less known compared to other sites around the world with a similar history. Our results demonstrate the urgent need to develop better policies and remediation programs that can mitigate the consequences of metal pollution from abandoned mines in Australia.

Tech advances will bolster long-term copper demand

Subject The copper market. Significance The copper price has picked up by nearly 9% this year after weakening unexpectedly through 2018, losing 17.5%. Unusually, the slide was accompanied by metal inventories dropping steadily on the London Metal Exchange, Comex and Shanghai Metals Exchange. Stocks peaked at 900 kilotonnes (kt) in March 2018 before plummeting by 65% to start the year at the lowest since 2014. This rare combination of falling inventories and weakening prices has yet to find a viable explanation. Impacts Zambian import duties on concentrate has prompted 366 kt of capacity to be shutdown, reducing supply on the market. Boosting the outlook for US output, the US Environmental Protection Agency has approved Hudbay’s 112-kt-per-year Rosemont mine in Arizona. Chilean miner Codelco is spending 4.9 billion dollars to mine underground at Chuquicamata, aiming to extend operations by 40 years. Indonesia, the ninth largest copper producer, is to redirect output towards local smelters; it has cut annual export quotas by 25-75%.

Codelco crunch has no rapid solution in Chile

Subject The outlook for Codelco. Significance Like other mining companies in Chile, state copper producer Codelco is battling with low copper prices. In addition, capital expenditure on an investment plan to maintain its output has increased the company's leverage to a level that has already meant a downgrade in its credit ratings. Impacts The days when Codelco accounted for one-tenth of fiscal revenues are unlikely to return in the foreseeable future. Codelco's future credit ratings will depend crucially on government willingness to capitalise it. Without its investment plan, Codelco's output could drop to one-third of its present level by 2030.

Congo revenue shock stokes political uncertainty

Subject Congo's mining and economic outlook. Significance The Democratic Republic of Congo (DRC) is sub-Saharan Africa's largest copper producer. Over the past decade, the government has become accustomed to copper receipts funding around 15-20% of the budget. With copper prices at six-year lows, state revenues are set to contract sharply -- at a time when the country should be heading towards an election cycle. Impacts Miners operating in the DRC struggle to absorb low prices more than elsewhere given the extra operational costs for power and logistics. However, given the amount of investment capital sunk into the DRC over the past decade, miners are unlikely to divest completely. Temporary mine closures inflict significant damage on local economies given few employment alternatives.