Two weeks ago reports from Lusaka warned of a “copper crisis” in Zambia, one of the world’s largest copper producers.  Since the beginning of the global credit crunch, prices for the metal, which is vital to both the electronics and buildings industries, have tumbled from record highs of nearly $9000/metric ton between 2005 and 2007, to roughly $3000/ton given both perceived and actual demand destruction.  The Mail & Guardian, a South African newspaper, reported that copper accounts for 80% of Zambia’s foreign earnings.  Earlier this year, in fact, the Zambian government projected more than $415-million in revenue from copper exports after revising mineral royalty taxes from a paltry 0.6% to the global standard of 3% and introducing a windfall tax triggered by the higher prices of copper.  That tax, however, now looks suspect, as a number of mines are cutting their workforces as revenues from foreign demand dip.  Luanshya Copper Mine (LCM) shut down its Chambishi Metals Plc unit, the country’s largest cobalt producer, and its Baluba copper mine soon after suspending a $354 million Mulyashi copper project, which had been due to start producing 60,000 tonnes of copper in 2010.  According to Reuters, the firm cited “operational difficulties arising from the global credit crunch” as reasons for the decision.

In spite of the dour headlines, some officials remains cautiously optimistic. Following the LCM shutdown, the government asked foreign mining firms to use profits that they made when copper prices were high to keep working in the downturn.  And according to Reuters, Bank of Zambia (BoZ) governor Caleb Fundanga “expressed optimism that copper prices would soon rebound,” though he admitted that” developments at LCM were a threat to the country’s copper industry.”  Moreover, in October Australia’s Equinox Minerals Ltd. announced that it signed a $80 million loan facility with Standard Chartered Bank Plc and Standard Bank to complete its Lumwana copper mine in Zambia, which recently started production.  The Lumwana mine is Africa’s largest open-pit copper mine.

Industry analysts posit that most copper mines have also slowed down expansions and upgrades following the global financial crisis.  This “supply destruction” will also lead to stagnant surpluses around the world that, once they wind down, will ultimately help right the price shift.  However, renewed growth in the industry will be dependent on a turnaround in demand (i.e., in China, the world’s largest user, where, according to Paul Harper’s excellent piece on this issue, demand for copper slowed to an estimated 9.8 percent in 2008 from 26 percent in 2007), and to that extent Fundanga said that Zambia remains optimistic that the global economy will stabilize soon and that demand for copper will begin to increase.  However, he also stressed that the government would seek to mitigate the effects of falling copper demand and prices by diversifying the economy to other sectors, such as agriculture and manufacturing of copper products.  Botswana, long dependent on diamonds, has been embracing this approach as well.