In the Southwest, Copper Is A Conduit for East Asian Crisis

Talk about a typical Western boom-and-bust cycle. Last summer, the price of copper soared, giving new life to a faltering industry. Producers expanded operations here in the desert Southwest and made plans to open up new mines to slake global demand.

Then along came last fall's Asian financial crisis. As economies in the Pacific Rim faltered, demand for the raw material slackened, forcing a sharp drop in copper prices and company cutbacks. In one case, BHP Copper operations in southeastern Arizona have even been forced to lay off about 400 workers.

The contrast underscores the Southwest's growing interdependence with the economies of the rest of the world and offers graphic proof of how problems in one corner of the globe can have economic repercussions here.

As a key component in virtually everything from autos to electronic and high-tech goods, copper is an important Southwestern export. Indeed, copper has long been one of the "four Cs" of Arizona's economy - along with cattle, citrus, and cotton. Therefore, the downturn in the copper industry may have hurt the robust economy in Arizona and throughout Southwest, says Bob Eggert, publisher of the Blue Chip Economic Forecast.

While the other traditional staples of the Arizona economy have diminished in recent years, copper has taken on new importance as the state has actively sought to expand its economy through foreign trade.

In addition, copper workers generally are higher paid - an average of $45,000 a year - than the average Arizona worker, who makes just $27,000 annually. The copper falloff will only fuel a recent trend in which Arizona's per-capita disposable personal income has actually declined relative to the rest of the US, says Mr. Eggert. And there don't appear to be any prospects for renewed demand in another industry - such as automobiles - to pull the copper industry out of its doldrums.

If there is a silver lining to today's situation, it's that lower copper prices will moderate price increases in other industries - such as homebuilding - that rely on copper for construction.

In fact, Phelps Dodge Corp., a major copper producer based here, views the global market for copper as "quite healthy," according to spokesman Tom Foster. While acknowledging weakness in Asian markets, Mr. Foster adds that market concerns about future oversupply have driven the current drop in prices, which are 28 percent below last summer.

Meanwhile, not all economists agree with Eggert's assessment of a drag on the economy. Dan Anderson, research administrator with the Arizona Department of Economic Security, points out that copper workers account for just 11,000 out of the state's total work force of 2 million.

The economy here has also diversified in recent years, with tourism, construction, and high technology lessening the dominance of any single industry. And with high demand for skilled labor in metro Phoenix - unemployment is below 3 percent - those laid-off workers should have little difficulty transferring work skills into related fields, he says.

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