The Spiral Unwinds

Hope for an easing in the rise of food prices dried up under summer's rainless skies, but the climate in other commodities markets is beginning to look more clement. Since the end of April, an index of prices for industrial raw materials compiled by London's influential weekly, the Economist, has dropped 32%; metals plunged 43%. Because of numerous other inflationary pressures, such as interest rates and wages, the drop does not foreshadow a fall in the prices of cars or refrigerators --though Manhattan's Tiffany & Co.

is reducing its silver prices by 10% this week because "raw silver prices have come down." At the same time the new down trend does signal a long overdue end to a two-year boom in raw-material prices that has contributed heavily to the global price spiral.

The boom began in mid-1972, when rapid business expansion round the world created a hunger for materials that could not be satisfied. The prices of such key metals as copper, zinc and lead, along with such fibers as cotton and rubber, doubled and in some cases tripled by late 1973. Then the energy crisis caused stock and currency values to wobble. Speculators fled from stock and foreign-exchange markets into the seeming safety of the rising commodities markets, bidding raw-materials prices up another 20% or so.

By last spring, the prices had been pushed to levels that could not be sustained even in an inflationary world economy. As business slowed in many major countries, demand softened, material supplies caught up, and speculative prices cracked. On the London Metal Exchange, the price of copper had dropped 53% by last week, zinc prices had been halved, silver had slid 41% and lead 27%. Among nonmetals, cotton was down 34% from the spring peaks, and rubber was off 53%.

The world's consumers will get little immediate relief from these declines. Even at their present levels, many commodity-exchange prices for industrial raw materials are still about double those of November 1971. And the commodities markets are so notoriously volatile that no one can guarantee against a reversal of the reversal that would send prices up again. But most economists think that the recent drop is no fluke. Thus, the downturn should allay widespread fears that the roaring commodity-price spiral of the past two years was a symptom of a global inflationary fever that might never break.

Lack of Unity. To commodity-exporting nations, many of them underdeveloped, the price break has a far different significance. For Chile, a penny-a-pound decline in the price of copper means the loss of $11 million in potential export earnings; Zambia loses even more. The producer nations are now planning cartels, modeled after the Organization of the Petroleum Exporting Countries, to set and enforce minimum prices. Chile, Peru, Zaire and Zambia have tried to organize a copper cartel, and seven nations, including Australia, Guinea, Jamaica and Yugoslavia, recently formed the International Bauxite Association to prop up prices for that ore, which is used to make aluminum. Most commodity producers, however, lack the religious, ethnic and cultural unity of the Arab oil producers, and it remains to be seen whether their efforts can counteract the law of supply and demand, which is now pushing prices down.

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