Asarco, Cyprus, Phelps Dodge union could tighten supply
By Staff -- Purchasing, 10/7/1999
Phelps Dodge Corp. has launched a $2.5-billion hostile bid to acquire Asarco Inc. and Cyprus Amax Minerals Co., soliciting shareholders form the world's largest copper company after being rebuffed by the companies' boards. "We are committed to this compelling three-way combination and are taking all necessary steps to complete it," says Douglas C. Yearley, CEO of Phoenix-based Phelps Dodge. New York-based Asarco and Englewood, Colo.-based Cyprus earlier had agreed to merge in a $1.5-billion transaction."Whatever the final shape of the U.S. copper industry, the new combination could bring further small U.S. production cuts later this year," says analyst Paul Dewison at Metalica Ltd. He believes these and other consolidations will bring much of the world's swing capacity into the hands of just one or two companies that will be prepared to adjust output to match market conditions much more readily than in the past. Longer term, he adds, "the trend toward industry consolidation could mean higher average prices resulting from stronger supplier discipline."
In a nutshell, London and New York metals analysts agree that consolidation is positive for an industry grappling with overcapacity and low commodity prices. A combination of the three firms would dethrone top-ranked Chilean government-owned Codelco. A Phelps Dodge-Asarco-Cyprus combination would control 3.7 billion lb/yr, or 17%, of world production. Combined annual production by Asarco and Cyprus would be 2 billion lb, or 8% of global output.
Meanwhile, commodity markets have ignored the corporate merger infighting in North America. "Anyone who expected that the Phelps Dodge announcement would set the market on fire has been sorely disappointed," says industry consultant Rob Nachum of Minalysis. "Whether it's a two-way or three-way merger, don't look for a massive rapid sea change in copper production trends." Although massive output reductions are needed to tighten supply and raise prices, Nachum believes that "the merged firm at first probably will focus on further corporate reductions in the cost of copper mining and smelting."
Stiff competition from lower-cost South American and Indonesian copper producers also means that a successful Phelps Dodge acquisition of Cyprus and Asarco wouldn't quickly overcome the North American industry's noncompetitiveness woes, according to Nachum. Besides, the market has been bracing for the end of lengthy copper strikes in Chile and Canada and a probable backlog of excess supplies about to head for London Metal Exchange and trading house stockpiles.
Talkback
Related Content
Related Content
Sponsored Links
View All Blogs
Now Playing:
